Retain Employees by Paying for What Matters Most,
Only about one-third of U.S. workers say they see any connection
between their performance on the job and the pay increases they
get. This means that most companies are getting no value out of
what could be their most powerful employee retention tool, stresses
human resources expert Leigh Branham.
In his new book Keeping the People Who Keep You in Business: 24
Ways to Hang on to Your Most Valuable Talent Branham points out
that one in seven workers in the U.S. quits his or her job every
month (compared to 1 in 10 in 1995), and 55% of employees say they
think about quitting or plan to quit.
Furthermore, Branham notes that the average time it takes to
fill a job opening is now more than 40 days, and the cost of
replacing and retraining an employee is typically more than $10,000
That makes retaining valuable employees a priority for a
According to Branham, there are four basic reasons why job
performance is not connected
- Individual performance is difficult to measure in many
- Managers are often hesitant to evaluate employee
- Companies often do not hold employees accountable for specific
- Traditional pay systems hinder performance recognition.
Moreover, companies often limit pay raises for existing
employees to a paltry 3% or less, while they offer job hoppers 10%
to 20% raises over their previous salaries. These employees often
then turn around to get higher salaries from their previous
employers when they return.
The result is a system that rewards company disloyalty
handsomely, Branham observes.
One solution Branham suggests is using variable pay options to
replace systems in use today. What follows are a few options along
Special recognition monetary rewards. Make a
one-time cash payout to recognize an unplanned significant
individual or group contribution that exceeded company
Be sure to make the award soon after the contribution happens,
and do it in a very public manner, so it is in every employee’s
Gain sharing. Share improvements in
productivity, cost savings and quality with employees. Awards are
funded out of those savings. Performance periods
can be made monthly, quarterly or yearly.
Win sharing. Win-sharing grants awards are
based on pre-determined goals, and focus on profit, quality and
customer value. They differ significantly from gain sharing in that
they measure accomplishments against group goals rather than
specifically on dollar savings. Rather than rewarding for
seniority, these plans focus on the achievement of the desired
outcomes. They let employees know that they’ll be rewarded for
their contributions which enhances commitment.
Most pay plans now send employees the wrong message,
or no message at all, Branham comments. He adds that, in order to
change that situation, employers need to take the following three
1. You must tell your people exactly what’s expected of them and
how they must change their behavior to get results.
2. You must measure results. The results, furthermore, must be
within the employee’s control, and the potential reward should be
worth the effort.
3. You must link the compensation directly to performance.
Branham suggests that, for maximum results, the reward from the new
system should be 10% to 12% higher than the old one. To implement
it and maintain it successfully, let those who have to live under
the new pay system have a hand in creating it. Focus on team
performance rather than individual performance.
Recognize achievement as it occurs, Branham concludes. Don’t
wait until January to reward employees for actions in July.