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How Does Compensation and Compensation Management Affect Employee Retention?

Retaining key employees should be one of the main focuses of a successful business. When you look at the three main factors which determine successful operation of a business – people, product, and process – you notice that employees make up a third of that equation. Without the right people, you can’t enact the process which then produces the product. Simple enough, but what factors determine employee retention, ensuring that you hold on to some of your organization’s most valuable assets? There are multiple factors, though compensation is definitely one of the largest.

You want your employees to be engaged, to enjoy coming in to work every day and to get fulfillment out of what they do. Nobody wants to think that their employees are only in it for the money, but let’s face it – compensation provides security. Workers can truly enjoy what they do for a living, but that enjoyment alone can’t sustain them at the end of the day. Basic needs need to be fulfilled – food, shelter, clothing, et cetera – and families need to be provided for. More than just basic needs, though, workers need to have a general sense of security and comfort. It’s not enough to give the bare minimum, as any unforeseen catastrophe could decimate them financially. This general anxiety would sit over them like a dark cloud, providing a great deal of stress and thus affecting their performance. Furthermore, with that stress weighing down on them, you can bet that they’d be looking for a way out towards something better.

So compensation is a key factor in employee retention – in terms of both monetary compensation and benefits – but it’s far from the only factor. Employee engagement is definitely another important thing to consider. You can play your employees well but if their work is tedious, monotonous, and leaves them feeling stagnant, then compensation alone may not be enough. Furthermore, if they feel trapped in their current position with no opportunities for progression, or feel as though they are underappreciated or mistreated by managers, there’s a good chance that they’ll also be looking towards greener pastures.

And even if they’re adequately compensated and engaged, there are still factors which can affect employee retention. If their field or position is one that involves a great deal of stress, long working hours, or lots of travelling and time spent away from family, these things can also wear away at them. These types of positions require workers who are able to withstand the stressors the job entails, and will eventually cause even the most dedicated workers to burn out if they’re not given enough time to recover every now and then.

Compensation and compensation management is one of the most important factors affecting employee retention, though it’s far from the only one. Ensuring retention of your most valuable employees is a balancing act that requires spinning multiple plates, something that can be difficult to accomplish depending on the situation. There is no correct formula for every position or situation, but being well-armed with knowledgeable HR professionals and the proper tools can make this task much easier.

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