How Pay Equity Affects Employee Turnover Rates

Employee Benefits News reported that turnover can cost an employer 33% of that employee’s annual salary. To give you a dollar amount, if an employee earned $50,000 annually, it would cost the company $16,500 to replace them. A few resignations and this problem will be costing your organization a lot, not to mention the time wasted.

So, every employer should seriously consider what impacts employee turnover. It could be an issue with company culture. Perhaps career growth opportunities are lacking. But have you considered how you pay your employees? Pay equity has a direct impact on employee satisfaction and loyalty to a workplace.

What Exactly is Pay Equity?

How familiar are you with pay equity? It is a tool for creating fairness in the workplace. Salary.com defines it as equal pay for comparable jobs that is internally equitable, externally competitive, and transparently communicated. This means that, regardless of gender, race, or any other protected characteristic, employees receive fair pay.

Properly implemented pay equity builds trust with employees, making them feel confident that they’re being compensated equitably compared to their counterparts. Do you think a team will work better when they can trust their employer or when they’re uncertain and feel misled?

Pay equity doesn’t mean offering generous compensation. You may not be able to offer the salary range that your bigger competitor can. What you can do is ensure that salaries are based on the things that matter, such as experience, education, and the role your employee performs. If you can’t do that, you may start to see people walking out the door.

Measuring the Impact of Pay Equity on Retention Rates

Still questioning whether pay equity factors into employee turnover? Let’s dive deeper. Studies have shown that companies with better pay equity have lower turnover rates. According to Josh Bersin’s Definitive Guide to Pay Equity, companies with the right pay equity practices are 1.5 times more likely to engage and retain employees.

Many believe that a big salary will do the trick, however, Josh Bersin also found that high compensation and benefits ranked 75th out of 83 employee experience strategies. Coming in sixth? Fair and equitable rewards. The 5% of companies that excel in pay equity experience better profitability, customer satisfaction, and more success in attracting and retaining top talent.

You can measure the impact of pay equity in your organization using a number of techniques. Regularly conduct salary surveys and compare them to internal and external data. Ask for employee feedback using anonymous forms. Use meetings, both when hiring and when someone is resigning, to discuss the role that pay equity plays in their decision.

The Role of Fairness & Recognition in Employee Turnover Rates

When employees feel like you appreciate them and their work, they’re more likely to stick around. Everyone expects fairness and recognition in a professional environment. This is important regarding pay, but it should also apply to benefits and opportunities.

Take promotional opportunities. Are you offering the same career development opportunities to employees who are notably performing well? Or is there a subconscious (or conscious) bias stopping you from promoting a woman on the team? Or someone of a different ethnic background? Are certain workers receiving more recognition than others?

When you actively neglect pay equity, you’re demonstrating signs of discrimination. The thing is, sometimes you may not realize it’s happened. It could have been a hiring error or something a previous manager missed. But if you start to notice higher employee turnover, this could be the reason.

You can read more on why you should be worried about high employee turnover in Paula Crerer’s article Why Companies with High Turnover are Doomed.

Challenges of Implementation & Long-Term Results

Long-term goals are what keep businesses evolving. With the new pressure around pay equity from HR organizations, government bodies, and employee expectations, some employers may rush the process. Oftentimes, pay equity will require a whole restructuring. After adjusting your compensation system, you then need to ensure you’re reviewing and updating regularly.

Pay equity programs can have immediate positive impacts on employee turnover rates, but long-term success is what matters more. This is dependent on how well you implement and manage the process. Employers should be aware of the costs and time necessary to manage pay equity. You’ll need to consider tools and technologies to help you. Outside consultation services come with a fee, too.

The point is, you want to ensure that when you take on pay equity, you do it right. The return may not be evident initially, but when you start to see employees with longer tenure, it’ll all add up. Managing to retain staff will not only reduce turnover rates but will also attract talent and boost employee morale for better performance.

Take Home Message

Pay equity is a critical factor in employee turnover rates and retention. Achieving fair pay for all employees helps foster morale, trust, and loyalty. With this comes improved job satisfaction, performance, and productivity.

Companies that recognize the importance of pay equity are ahead of the game. They’re not only doing what’s right by their employees but they’re also meeting their compliance responsibilities. The cherry on top of the cake is the increased business success – a direct result of decreased turnover thanks to pay equity.