Why Competitive Salaries Matter (More Than Ever Before!)
The increasing difficulty that employers face in engaging and retaining their top performers is one of the defining themes of today’s highly competitive employment market. Attrition rates are particularly stinging in the SME sector, where loss of an employee can cost a business over 20% of the leaver’s annual salary, and that’s if the company is able to replace quickly (by no means a given.)
Aside from the monetary costs, high staff turnover is also increasingly visible in today’s socially connected business world, LinkedIn and Glassdoor being just two examples of how companies with above-average attrition rates increasingly have, in terms of reputation at least, nowhere and no way to hide. The negative knock-on of this is lengthening replacement periods as companies find it harder to attract suitable replacements thanks to their rising notoriety.
But individuals’ reasons for resigning from organizations are extremely wide ranging and financial motivations are surprisingly low down the list in most studies. You create long term engagement by appealing to individuals’ motivations rather than merely placating them with ‘hygiene factors’ that are soon taken for granted anyway. People are motivated by progression, autonomy, responsibility, status and job satisfaction, all in different orders of priority depending on what most makes them tick.
So where is money in all that? Adam Smith, one of the fathers of modern economics, warned that financial and materialistic gains, far from filling our lives with joy, can actually conspire to make us less happy. Counter-intuitive as it may initially appear, this logic remains relevant 250 years later! More brutally put, as a hiring manager flatly told a colleague of mine some years ago “If I doubled your salary right now, would you work any harder tomorrow?!”
Salary is not everything, then, yet ensuring that employee remunerations are competitive in relation to industry averages has recently made something of a comeback as a crucial ingredient to headcount retention and it’s mostly due to employers having got much better at nailing the most important bit – engagement. This has therefore levelled the playing field somewhat in that quality candidates tend to now have less to go on when differentiating between multiple job offers, thereby allowing salary to re-emerge as a somewhat unlikely decider.
But this figures, and probably always will. The increased visibility – thanks to LinkedIn – of top talent has meant that passive candidates are now as sought after as active candidates, possibly even more so if the ‘best candidates are never looking’ adage holds any truth. Headhunting is now as prevalent in contingency recruitment as it is in the retained sector, so employers need to not only ensure their workforce is engaged and motivated but also that they feel like an investment rather than an expense.
The strength of any organisation lies less in its products and services and more in the individuals that make it great. Top talent has the right to be well remunerated and competitive salaries do incentivise employees to go the extra mile. While not THE most vital factor in overall staff retention therefore, employers who overlook the importance of competitive remunerations do so very much at their peril!