Businesses need to get creative if salary increases aren’t keeping up with the rate of inflation
Two-thirds of employees are planning to quit their jobs with the top reason being compensation. This shows businesses need to get creative if salary increases aren’t keeping up with the rate of inflation.
This is the first time in six years that compensation has trumped career growth as the number one reason employees decide to hunt for a new job. This fundamental shift in employee priorities is likely reflective of the current economic landscape, says a survey of 3,800 employees and 1,450 human resource (HR) professionals from Australia, Canada, the UK, and the US by Achievers Workforce Institute (AWI). The 2024 Engagement and Retention report says 71 percent of people are struggling to pay their bills or must budget carefully to meet their needs.
“In 2021, AWI predicted the Great Resignation, when more than half of employees said they intended to job hunt that year. Now, we’re witnessing a new wave of job hunting due to compensation,” says Caitlin Nobes, lead analyst with AWI. “As cost of living increases and salaries don’t, twice as many people identify compensation as the top reason to job hunt. Businesses must find a way to stay competitive with wages — or high resignation rates will return.”
To hold onto valuable talent in a time when just 35 percent of employees are certain they’ll stay in their current job in 2024, AWI data suggests that organizations should enact meaningful changes.
Pay to keep top talent engaged
People who live comfortably on their current salary are almost twice as likely to have a strong sense of belonging at work than those who are struggling. While it’s impossible to outpay every one of their competitors, employers must consider both market rate and local living wage as a critical pillar of workplace wellbeing and pay their employees adequately to avoid a second Great Resignation.
Once a reasonable compensation level is met, AWI suggests compensating with praise. It says an ‘emotional salary’ can also reduce employee turnover. AWI defines ‘emotional salary’ as the non-monetary aspects of a job, such as culture, career, and work-life balance. Recognition is one key protective factor within an emotional salary. In fact, people who are paid below the local market rate that are recognized at least monthly are 33 percent more likely to say they are not job hunting in 2024.
“We're in an economic plateau and a labour shortage. And historically, those two things do not go together,” says Nobes. “So, HR needs to hang on to the people they have and hire strategically while facing a big budget crunch, no easy feat at all. The way to do it is to close skill gaps and do it by investing in greater employee development and recognition, which is crucial to building a loyal and engaged workforce with higher retention.”
Nobes says that it is important for employers to have structured recognition programs and to show recognition often – this way they it will be more impactful and can be measured. The report shows that most employees are being recognized approximately quarterly, but Nobes says all metrics increase approximately 25 to 30 percent across the board when they are recognized monthly.
“When we see organizations increase people’s recognition each year from four to 12, we expect to see engagement go up and voluntary turnover go down; productivity and performance also improve. This direct impact on employee motivation and outlook on their jobs is crucial.”
Promote equitable promotion structures
Employees also want to see that people like them are recognized. Just one in eight respondents say their company consistently promotes people who look and identify like them.
Not only does this gap impact employees’ feelings of belonging and psychological safety at work, but it also increases employee turnover. People who see promotion equity in their workplace are more than twice as likely to say they can see themselves having a long career at their company. They’re also almost twice as likely to say they are productive at work. Therefore, employers must determine if they’re promoting equitably and, if not, rectify any gaps.
There are two sides to the question of equity: perception and reality. Employers need to assess and respond to both. Fixing the reality doesn’t help if the perception is still there. AWI says to ensure that promotions are communicated clearly, and that the communicators represent the full scale of diversity at your organization, rather than the same faces in all instances.
Five ways to improve emotional salary
AWI has identified five ways to improve emotional salary:
- Culture alignment
- Frequent recognition
- Work relationships
- Consistent feedback
- Career progression
Each of these correlates positively with job satisfaction regardless of whether or not compensation is above or below market rate. For example, when employees say their company makes values-aligned decisions, they are more engaged, committed, and productive at work, compared to average.
When HR can implement initiatives that increase emotional salary, their company can compete for talent beyond base salary.
