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Compensation and Other Factors that Affect Employee Retention

April 20, 2023

By Heather Nezich, courtesy of SBAM-approved partner, ASE

Employee compensation is a critical factor in employee retention. When employees feel that they are being fairly compensated for their work, they are more likely to stay with their current employer. However, compensation is not just about salary, but also includes benefits, incentives, and other forms of rewards.

One of the primary reasons that employees leave their jobs is for higher pay – typically getting a 10-20% salary increase with the new position. When employees feel that they are being paid fairly for their work, they are less likely to look for employment elsewhere. Companies that offer below-market salaries are more likely to experience higher turnover rates. This can be very costly to the organization – research from SHRM suggests that replacement costs can be as high as 50%-60% of the employee’s salary with overall costs ranging anywhere from 90%-200%. Example: If an employee makes $70,000 per year, then it costs an average of $35,000 – $49,000 just to replace that employee and roughly $63,000 – $140,000 in overall losses to the company.

Benefits such as healthcare, retirement plans, and paid time off are also important factors in an employee’s decision to stay with their current employer. Companies that offer generous benefits packages are more likely to attract and retain top talent.

It is important to note that compensation alone is not enough to retain employees. Other factors such as a positive work environment, work-life balance, and opportunities for feedback and involvement are also critical.  Consider these additional factors affecting employee retention:

  1. Management – According to a report by TINYPulse, 40% of employees that don’t rate their supervisor’s performance highly have interviewed for a new job in the last three months — compared to just 10% for those that do rate their supervisor highly. Nearly half of employees in an Udemy survey said they’ve quit a job due to a bad manager.
  2. Professional Development – Employees who feel that they have opportunities for advancement and career growth are more likely to stay with their current employer. A LinkedIn Workforce Learning Report revealed that 93% of employees would stay at a company longer if it invested in their careers.
  3. Recognition – According to Qualtrics, employees whose managers consistently acknowledge them for good work are five times more likely to stay at the company. Studies have shown that 79% of employees who have quit their job cite “lack of appreciation” as their reason for quitting.
  4. Career Advancement – Another TINYPulse report showed that 54% of employees are unclear about their promotion and career path. 70% of high-retention-risk employees say they will have to leave their current job to advance their career.
  5. Trust – A toxic culture will result in employee turnover. According to SHRM, only 33% of employees are satisfied with the level of trust in their organization.
  6. Work-life Balance – Kronos research found that 95% say that burnout is affecting employee retention. Employees often leave for greater flexibility with remote work and work hours. In fact, companies that support remote work experience 25% lower turnover than those who do not.


Source: TINYPulse

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