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A Summary of Recent Studies on Monetary and Non-Monetary Compensation

By Dr. Clennon Presson, Esq.

Within any business or corporation, hiring and retaining highly qualified employees is paramount to success. In today’s changing job market that has become more difficult than ever. One reason for such difficulty in this area may be that businesses do not currently understand how to effectively entice and manage their employees. Wages and benefits should be reviewed more carefully by employers when seeking to adapt to the ever changing face of the global economy.

In the current job market, there are several fields experiencing intense competition among employers for the best and most highly qualified employees; moreover, some of the most crucial fields of employment in society, such as manufacturing, education, and medical services to name only a few, are experiencing severe shortages of qualified employees. The high level of competition, relatively small numbers of highly qualified potential employees, and sputtering global economy has led to some employers suffering dangerously high amounts of employee turnover. In general, employee turnover should be expected, but turnover that cycle quickly or in large numbers on a regular basis can have devastating impacts on the long-term effectiveness of any business and can affect profit margins due to the high cost of retraining new employees on so regular basis. Seeking a recourse to stem the tide of employee burnout and employee turnover and slow the hemorrhage of funds spent to continue training new employees, many companies and academics have begun studying the impact of different types of offerings by employers on employee retention and have made some useful and somewhat unexpected discoveries.

First, and most surprising, among companies whose employees are similarly situated in other areas, the amount of the actual wages earned by the employees had minimal impact on the rate of turnover. Studies across the spectrum from hospitality, to manufacturing, and even to financial corporations saw similar results when analyzing the effect of higher wages on employee turnover, notably, that employees were not measurably more likely to remain in positions or even within companies with higher paying jobs than in comparable companies that paid substantially lower wages. Clearly, this particular piece of the employee turnover puzzle flies in the face of generations of conventional wisdom. However, there is one additional wrinkle found in the studies of employee compensation in the form of pay and wages; in a focused study of the banking industry in Pakistan, surveyors found a marked increase of productivity, but not retention, among employees who were receiving higher wages than other employees. It was discovered that, among the employees and managers surveyed, the higher the compensation received by the employee the higher the employee’s perceived or measured productivity rate was. This particular point is of substantial importance in the decision-making apparatus for employers, because, while higher wages do not tend to increase employee longevity and retention, wages play an integral part in the effectiveness of employees while employed by any company.

The second thing discovered by the experts trying to equip employers to better compete for the loyalty of highly qualified employees is that there were marked and undeniable correlations between positive work environments, including but not limited to factors such as competitive paid time off policies, the provision of quality healthcare insurance, and flexible management policies, and long term employee retention rates. Traditional models regarding this field of study suggest that employers are more likely to gain better employees in a hiring environment by adding small extra benefits to their compensation package, but it has long since been dismissed that retaining an employee who has accepted a position hinges very heavily on maintained benefit packages, but the facts uncovered in several studies tend to call the veracity of such models into question. As compared with the issue of basic wages and compensation, employees that viewed their position to be within a generally positive work environment and to provide positive non-wage benefits were roughly three times more likely to remain in the same position when other positions were available to them than those whose work environment was viewed neutrally and were primarily being motivated by wages alone. That particular fact is likely to be surprising to almost every employer that has heretofore subscribed to traditional hiring and compensation models.

In short, current employee retention rates in competitive fields are dangerously low, among some employers, and it is evident that new approaches to employee retention should be considered in order to improve the stability and financial status of those employers. Recent studies in this area have shown that, while important for enticing potential employees to accept positions and work productivity; higher wages have very little impact on retention rates of those same employees when compared to other factors. However, fostering a positive work environment by developing better benefits for employees appears to be three hundred percent more effective in retaining qualified employees.