How Does Compensation Affect Employee Retention?

Employees want to be paid well for the job they do, both for their self-esteem and as a practical means to living. The importance of compensation in employee retention depends somewhat on the type of job and industry. A financial planner or stock broker, for example, often is more concerned about compensation than most people who go into nonprofit and health care fields primarily to help people. Compensation includes not only salary, but also benefits and other perks.

Keep Salaries Competitive

  1. Regardless of a person's field, she wants to know her compensation is competitive with what others who perform similar work are earning. Salaries need not be the highest in your area but should be among the top. Paying low salaries means top people will leave and low performers will take their jobs. The Society for Human Resources Management, peers in your field and your local chamber of commerce can give you insight into local salaries in the industry.

Well-Rounded Benefits

  1. The high cost of health and life insurance means that including them as part of your employee compensation package is a big plus. It's important to find out the details of your peers' plans and compare them with yours. Ask if other employers are paying for their employees' full coverage or how much employees must contribute. Ask if dental and vision are included with their plans and if the employers contribute to employees' pension plans. If your company has stock, offer stock options for employees who stay with the company for a defined number of years.

Raises, Bonuses and Awards

  1. Raises are an excellent way to keep employees, especially in times when many companies aren't giving them. The more significant the raise, the more appreciated the employee feels. If you have a small amount to award for raises, consider giving more to your top performers. If you can't afford to increase salaries, give bonuses instead. They go a long way toward showing appreciation without locking the company into higher salaries. Contests and awards for performance also reward high achievers while increasing morale and enthusiasm.

Why Employees Leave

  1. Leigh Branham, CEO of Keeping the People, notes that 89 percent of managers believe people leave their jobs due to compensation, but 88 percent of employees actually leave for other reasons. Branham says the seven hidden reasons are: the job not being as expected, people not being a good fit for the job, too little support or feedback, little opportunity for growth, feeling unappreciated, stress and overwork, and loss of confidence in management. Resolving these common problems can keep employees satisfied in their jobs so they are more likely to stay.