How to Keep Good Employees: Pay and Development Trump Benefits

It’s no secret that replacing an employee is expensive. A 2019 retention report by the Work Institute found that conservatively, employers can expect to lose around $15,000 with the departure of an employee. In 2018, nationwide turnover costs were an estimated $617 billion, and that’s not accounting for the (very necessary) costs associated with training a new employee.

With so much at risk, it’s difficult to find the time or brain space to strategize employee retention. Some managers may get stuck in the mindset of “there’s nothing I can do to stop people from quitting—no one cares about this business as much as me.” Yet based on the Work Institute’s findings, 76% of those 2018 turnover cases were “controllable,” which means now is not the time to give up on employee retention.

So how do you “control” employee turnover and retain them as long as possible? The answer may not be the one you want, but it could be the one you need.

Career development over culture

It’s easy to blame the swift departure of any employee on fit. “They didn’t get what we’re doing here,” you might say. Company culture is a popular subject, and in many regards, a relatively easy (or cheap) fix. Stock the break room with tasty snacks, get a foosball table or a nap pod, and people won’t think so much about working somewhere else, right? That would be nice, but unfortunately, no.

According to the Work Institute, just 5% of employees left their jobs in 2018 because they didn’t like their work environment. Far more—22%—said they left for career development. If managers are going to stop the flow of outbound workers, they’re going to have to invest in their employees—knowing workers may leave regardless.

But as eLearning Industry reminds us, career development doesn’t just benefit employees. “Career development plans are equally important to employers. They attract talent and reduce employee churn. They encourage employee self-development and help companies discover and use their top talent. They also help increase diversity and refresh the company culture.”

And speaking of self-development, the Harvard Business Review has another suggestion: give up control. It might sound strange—giving over control to someone who, in your mind, could be gone in just a couple months. But ceding control conveys confidence and trust in the person who is being given the chance to take on more. And confidence is a powerful feeling. “Managers need to adequately scope assignments, grant resource authority, and not undermine it later,” the article says. “Ceding control also requires a certain tolerance for mistakes.”

As you begin to hand off more responsibilities, you may find that employee growth impacts business growth. Happy employees make happy customers. Plus, with fewer tasks on your plate, there are more opportunities to strategize, innovate, and plan for the future. All things that could grow your business and employment offerings.

Read more on millennials relocating for work.

But for all that, the real secret to retention is pay

Career development can keep employees interested and engaged, but let’s be real. If you want to keep good employees around for the long haul, your compensation offerings must be competitive.

43% of small business employees are looking to change jobs at some point in the next two years, according to a 2018 pay and benefits report. And 16% of these cite underpayment as their reason. Luckily, the market is on their side. Unemployment rates are at a record low, and wages are rising.

As a result, workers now have more power to negotiate higher pay, which isn’t to say you should wait until they bring it up to give your top talent a raise. Women, in particular, are less likely to ask for a raise outright. They may be inclined to take a new job if they feel they’re underpaid, rather than ask a manager for a pay bump.

So let’s say you decide to increase employee wages. One resource you should check out is your local Small Business Development Center (SBDC). The Society for Human Resource Management also recommends running a job analysis to figure out if your current wages are competitive for your area—something the U.S. Office of Personnel Management (OPM) can help with. The OPM offers several resources on the subject, including a six-step checklist for conducting a job analysis.

As for making up the money to pay for raises, while there’s certainly no easy solution to boosting profits (otherwise, everyone would be doing it!), a few places to start include pricing, benefits, and overhead costs.

• Pricing: If your prices are too low, you miss out on what customers might be willing to pay. And charging less could negatively impact your reputation.
• Benefits: According to the aforementioned pay and benefits report, 60% of workers would sacrifice their benefits to receive a higher base pay. It may be worth talking to employees about what they really want, then rebalancing how they’re compensated, based on their priorities.
• Overhead costs: For many small businesses, keeping the lights on is the biggest expense. Why not save on overhead and support a healthy work-life balance by asking employees to work from home or in a coworking space?

There’s no formula for retention

But there are contributing factors.

Retention isn’t an exact science—an unfortunate reality, given how expensive it is to replace a great employee. The good news is we know what employees want, and what they want isn’t unreasonable.

When you can help those around you grow their skills, develop their professional abilities, and feel more confident in the workplace, you become more than a company owner or manager. You become a great leader. And paying your employees competitively can only increase your reputation and worth. Who wouldn’t want to work for an employer like that?