How sharing compensation data with your employees can save your company some big bucks
Compensation can be an uncomfortable subject to talk about. But being more transparent about pay practices can save companies thousands of dollars each year. Why? Compensation is the number one driver of employee engagement and retention, according to a 2016 Global Workforce Study by Willis Towers Watson.
According to a recent study from Kronos Incorporated, 95% of HR leaders admit employee burnout is sabotaging workforce retention, with “unfair compensation” cited as the biggest contributor to burnout. Even though companies are struggling to retain their employees – 87% of HR leaders called improved retention a critical or high priority over the next five years – a full one-fifth of those surveyed said there are too many competing priorities to focus on fixing the issue in 2017.
As the marketplace becomes increasingly competitive, business leaders will have to address employee retention if they want to avoid the costs that come with hiring new talent. According to M4 Workforce Solutions, employee turnover costs an organization 150% of an employee’s salary to replace them – and that’s just for a mid-level employee. The costs go up to 400% of an employee’s salary for replacing high-level employees.
Why such high costs? It comes down to the time and productivity that is lost when employers have to go through the hiring process: identifying candidates, conducting multiple rounds of interviews, and training new talent to bring them up to speed. TLNT.com also identifies two other costs: separation costs (severance pay, unemployment insurance claims, continued benefits, etc.) and productivity costs (the hours of productivity that a company loses while the position goes unfilled). Retaining employees keeps productivity up and prevents companies from needing to dedicate any additional resources to the process of recruiting, interviewing, and training.
Furthermore, pay is more than just a number on a check – it is an emotional measure that reflects employees’ perceived worth and value to their organization. And of course, how employees feel about their pay influences how engaged they are in their work. If employees aren’t feeling appreciated, they are more likely to join the 51% of employees who are currently looking for new opportunities, according to Gallup. This is where HR needs to step in and open up the organization-wide conversation about compensation and increase pay transparency.
In a recent study of high-turnover companies conducted by Quantum Workplace, the second-highest-rated issue in employee engagement was the organization’s willingness to “listen to an employee’s perspectives.” Employees want to be heard especially when it comes to issues they have with regards to what they are being paid. You want to have employees feel comfortable talking about their pay – if they aren’t, they will likely become disengaged and leave the company.
Take Whole Foods for example. They go so far as to release every employee’s total salary and bonuses from the previous year in its annual wage disclosure report. If employees are concerned about their compensation, they are encouraged to make an appointment with HR to discuss their issues. If your company isn’t ready or suited for full transparency, just increasing the frequency of conversations between HR, managers, and employees about their individual pay will greatly increase their satisfaction with their jobs and decrease their likelihood of leaving. Regardless of your organization’s specific approach to pay transparency, increased transparency and visibility helps employers become more competitive in both recruiting and retaining new employees.
In response to an increased focus on retention and pay transparency, companies are turning to analytics tools that allow them to measure their position within the market and the effectiveness of their pay programs. In fact, according to a recent study from Gatepoint Research, 62% of respondents with engagement and retention issues wished their compensation management tool could better analyze internal and external pay practices and trends. With Salary.com’s all-new CompAnalyst solution, organizations can have complete access to the most updated and accurate compensation information on the market, along with proactive analytics that identify pay equity and flight risk concerns within the organization. Book a demo to learn more.
Edited by Meredith Wright.