Updated: Jul 5, 2022
The perception of wage fairness largely defines whether an employee stays at your company or leaves. However, only 1 in 5 employees believes they receive fair compensation, according to research by Payscale. This perception of justice has 5.4 times more impact on their satisfaction, than the amount they are paid in itself.
At a time when many companies have adopted remote work on a permanent basis and, thus, have overcome the geographical limits of “talent hunt”, the dispute over talented work is becoming increasingly fierce. Given the current context, more than ever, employee turnover is an urgent issue on many companies' agendas. We want to show you how to reduce employee turnover at the company, increasing transparency in the compensation process.
The perception of fairness has 5.4 times more impact on employee satisfaction than how well-paid they really are.
The Importance of Employee Turnover
Employee turnover is the metric that specifies employee replacement in a company/sector in a given period of time. It identifies the rate at which a company is able to attract the right individuals and provide a motivating environment for people to want to remain working there.
High employee turnover generally points to the existence of problems that, if not remedied, can lead the company to lose large sums of money on the entry and exit of employees. The cost of replacing an employee may be as high as 5 salaries, considering that, besides comprehending the costs of termination, they also include:
Recruitment and Selection Processes,
The cost of training new employees,
The time it will take for the new employee to reach the same level of knowledge of the job and the company as the previous one,
The overloading of the team due to the old employee's absence and supporting the replacement,
Reduction in productivity due to the previous factor.
In addition to all these costs and probability, high employee turnover may generate Employer Branding issues and lead your company to be viewed negatively in the market, which would in turn impact the business' appeal to potential high-quality professionals, feeding back into the loop.
Compensation and Employee Turnover
The process of compensation is so significant when it comes to employee turnover as it goes beyond the mere numerical scope and it concerns - mainly - recognition, valuing people, and justice. In the publication of the 2020 Global Human Capital Trends, a survey conducted by Deloitte in Sweden, the perception of fairness in compensation processes positively impacts the motivation of employees and even their well-being.
Promoting fair compensation, however, does not mean offering high salaries. Transparency in the compensation process, clear communication and, above all, the perception of fairness by employees when comparing contribution versus compensation amongst colleagues, have a greater impact on their decision to remain at the company than a comparison between the wages offered by the company and that offered by others. The numbers are considerable: 82% of employees are able to keep satisfied at work, even if they receive less than the average paid by the market, if the company maintains transparent communication about the reason for such a difference.
Another important fact is that employees who feel appreciated have higher levels of satisfaction, and among the highest rates are those who received a pay increase without asking for one (or needing to defend it, in the case of companies that use Self-Set Salary methods).
Among the highest levels of satisfaction with the company are employees who received a raise without having to ask for or defend it before committees.
How to Reduce Employee Turnover?
As we have seen so far, the perception of fairness in comparing compensation amongst colleagues is key to promote employee satisfaction, boost their motivation, make them more engaged and, therefore, reduce employee turnover.
If the company believes in values such as transparency, open communication, collaboration and fairness but won't transpose those into compensation, there's a risk its talents will end up vanishing, along with a lot of money.
Webgoal Software Studio managed to reduce its employee turnover by 66,7% after implementing a tool which allows for a collaborative, transparent compensation process, which directly affects the team's perception of fairness. Up to 2017, annual employee turnover used to be 33,3%, which means at every three years, the number of employees who left the company would be equivalent to its whole staff.
In November 2017, the Studio incorporated Percival in its compensation process. In 2018, employee turnover rates dropped to 21,7%, reaching a mark as low as 11,1% in 2019. That means using Percival has contributed to reducing employee turnover by 66,7% in two years.
Percival makes use of the Team-Set Salaries method and it's the only tool which allows for making compensation ationable and collaborative, including for teams working remotely.
Percival comprehends the total compensation budget as a "cake"which administrators and teams - at flat hierarchical companies - need to share, according to how deserving each member is and their contribution to results. The appraisal results point toward which percentage of the "cake" each member must receive.
Administrators are provided with powerful insights, allowing for them to visualize how much of the total budget each member deserves to make, according to the consolidated opinion of the team. That enables administrators to recognize which members deserve a raise, offering them better compensation even before they ask.
Percival is a tool that, besides providing greater perception of fairness to the process of compensation, will also positively influence the levels of satisfaction, motivation and well-being of employees.
Do you want to reduce employee turnover and boost your team's satisfaction and engagement? Start a free trial and get to know the tool better.