Employee Engagement Trumps Pay Hikes

Ultimately, it’s morale and a sense of belonging—rather than increased salaries and other perks—that foster employee retention. Pro or con?

Pro: Workers Need Deeper Connections

Major U.S. companies are on track to pay their employees a projected $140 billion this year—a record high (and 20% more than 2007 payouts). As the market rebounds, businesses will do what it takes to retain their top talent. However, more money does not guarantee happier employees or increased employee loyalty.

Businesses must take a strategic approach to employee relations to come out on the winning side of the talent wars. Hundreds of studies have shown that employee engagement directly drives productivity and employee retention. According to an October 2009 Midland HR survey, however, a majority of organizations do not understand how to engage their employees.

Today’s employees, particularly the Millennials (aged 24-32), who within five years will make up 60% of the workforce, value open communication, meaningful work, and connection to their company more than they do high salaries, as reported in the 2009 10th annual Deloitte Best Company to Work For survey. Employees who feel valued and engaged with what’s going on in their companies are far more likely to stay longer than disengaged, slightly higher-paid employees; the income effect wears off over months of discontent.

Fortunately for companies, online social networking technologies provide forums for employees to communicate with one another, as well as gain greater insight into what colleagues are doing and talking about. Employees are increasingly assessing potential employers on their culture and work environments and whether they offer these kinds of technologies. Those who invest in (two-way) employee communications and encourage open discussion will be the companies who will attract and retain top talent.

As we anticipate the next wave of talent wars, it is crucial that businesses deploy the best strategies to retain top talent and remember that this has more do to with employee engagement levels and less with bonuses and pay raises.

Con: Cash Is Still King

It is wishful thinking to imagine that companies can retain highly talented employees by fostering an atmosphere of employee engagement. Open any popular business magazine or peruse research from academia, and you will come across articles in which authors bemoan that employee engagement levels have fallen drastically over the years. This tough economic climate only compounds the problem with highly talented employees jumping ship at the first opportunity to seek greener pastures in other firms.

Money always talks, and not just in this tough economy, for a multitude of reasons. The chief reason is our capitalist ideology, which rewards risk takers, treats loyalty between employee and employee with disdain, and confers prestige and power upon top earners. Second, staying on in the same firm, especially when one is highly talented, can be construed as a sign of weakness. Third, in today’s global economy, there is a dearth of talent, especially in the areas of operations, finance, law, and engineering. Such employees can be easily wooed by rival firms that offer a higher compensation.

This malaise has spread to emerging economies as well, where multinationals are willing to pay top dollars to entice talent. Fourth, the trust between employers and employees has been long damaged, and this recession has only served to hasten its demise. Witness the downsizing that has plagued Corporate America during the past decade. In their obsession with meeting the quarterly earnings dictated by Wall Street, firms have tossed out their employees. There is little wonder then that money beckons talented employees.

Opinions and conclusions expressed in the BusinessWeek Debate Room do not necessarily reflect the views of BusinessWeek, BusinessWeek.com, or The McGraw-Hill Companies.

Reader Comments

Matt Herrmann

While it's all well and good to talk about pay and employee engagement, I think we're missing a larger trend at work. There is no more loyalty from the company toward the employee. The era of 30 years and a gold watch are a bygone dream. And as that respect disappeared and was replaced with "what have you done for me today," employee engagement levels have dropped. Why put in more than the minimum if I can be fired at the drop of a hat? And if I can get more money for the same amount of work, that just makes me a more likely target for the executioners.

Until employees are treated as people with families and lives again, and not as numbers on a payroll or budget sheet, engagement will continue to drop. Why be loyal to a company that will turn on me in a moment regardless of what I've done for them?

Carlos Bonilla

As a twenty-year-old about to enter the workforce and currently interning, I can safely say I would rather take much lower pay at a job where I actually feel like I'm doing something than a higher-paying boring job. I simply have to be entertained. My generation and I are accustomed to be always doing something. Money is important, but I would not hesitate to leave a job where I am bored all day.

Alaina Love

I'm inclined to agree with Anne (sorry Hema!). My research indicates that individuals at both ends of the generational spectrum are hungry for meaning and purpose in their lives, especially at work. They are also feverishly searching for an outlet for their passions so that work is a reflection of who they are and not just what they do to make ends meet. While employees require a baseline level of pay to assure a modicum of satisfaction, engagement really comes from doing work that matters. Pay alone will not assure retention or engagement, but leveraging employee passions will make a difference in their contributions. We talk about this extensively in the book The Purpose Linked Organization (McGraw Hill, 2009) and offer access to The Passion Profiler (TM) tool, which identifies and measures work-related passions.

Brandon

Kudos, Matt Herrmann, kudos. You have just said what every employee wants to say but may not have known the words to say it. I can honestly say that I have also been trying to convey that same point for a long time, but how do you tell a faceless corporate boss that sentiment and be taken seriously when money is the root of all business and you, my friend, are just a money-making number in corporate America?

Mala Bhargava

Why should it have to be either/or? It's not cash vs engagement. Employees need both.

A company that engages its employees fairly well should not go off and keep remuneration down. And just because a company pays well, shouldn't mean employee-employer respect and engagement has no place in the equation.

As an employee, I think I'd resent that one is being pitted against the other in the first place. Both are necessary and in the right balance.

Loraine Antrim

As a communication coach, what I'm taking away from this debate is the message, "money vs. engagement." I agree with Mala--it should not be an either/or. For companies who want to attract and retain talent, the strategy should be a mix: Meaningful work, job satisfaction, engagement, and a respectable bonus can be the winning combination so that employees and the organization can both win.
Loraine Antrim
Core Ideas Communication

Cori Curtis

As an employee recognition specialist, I agree that retention takes a mix of appropriate compensation and employee engagement.

But in times when companies cannot increase salaries or give large bonuses, they should be communicating how much they value employees and their contributions. Ultimately, employees want to know they make a difference, and hearing a sincere "thank you" can mean more and be more motivating than getting a check in the mail.

Cori Curtis
Baudville

Stone

When executives who get very large bonuses will pass these up to feel connected and know they are making a difference, then and only then I may believe the Pro on this.

Derek Irvine, Globoforce

Cash doesn't motivate. It compensates. Each element of your total rewards package must have its own "currency." Money is the currency of compensation, not motivation, recognition, or engagement. A simple “thank you” and sincere appreciation of effort will motivate and engage far better than cash, which only becomes an expectation and entitlement.

David Kingsbury, Business Energy Strategist

While I do know of some exceptional leaders, it never ceases to amaze me how many business leaders fail to understand and make a priority the full and continuous involvement of their teams. This means sharing company plans, listening to feedback, and taking action together. Leaders should remember the reason you hire is to multiply yourselves--you can do this most effectively only if your team knows what's in your mind. And then using the collective mind power of your team to make your plans even better--together. You may have hired them for their hands, but don't waste their minds. If you do involve them, your decisions and direction will be as many times better as the number of people on your team.

Deano

In lieu of a 5% payraise, I'll gladly take a seat at the conference room table. Right! I certainly hope you people out there aren't that stupid. This author certainly does.

John

It is not a simple "yes or no" question. Engagement is hard to maintain when all the cash is going to upper management. It is also possible to create a workforce of highly paid but apathetic people. You probably need to do some paying, and focusing on engagement. And by the way, executives who collect (not earn) more in a year than most employees will in 10 lifetimes cannot engage anyone. So unless you really believe your CEO is working 1000x harder and smarter than anyone else and you can prove it to everyone in your company, you might need to do something about that.

Dr. Bob Nelson, Nelson Motivation Inc.

Money is definitely a motivater; it's just not the only motivater, although you'd never know it from the single dimension focus on the topic of which this debate is but one example.

Likewise, "engagement" is not a single dimension, but represents a wide range of activities, practices, behaviors, and beliefs. You can't bind the human spirit and all its potential by framing an "either or" debate about it, so why even try?

As for retention, studies have shown that the #1 reason people leave organizations is "limited recognition for the work they do" (Robert Half International) and "the relationship with their immediate manager" (The Gallup Organization).

Employees go to work for a company, but inevitably leave their jobs because of a poor manager who isn't doing a wide number of things today's employees expect and even demand. Paying an employee more to stay when they threaten to leave will work in the short-term, but rarely in the long term for most employees. Life is too short and we all spend too much of at work to tolerate an intolerable boss.

Bob Nelson, author
1001 Ways to Reward Employees
and Keeping Up in a Down Economy

muggeridge

No wonder all the greedy bankers want their bonuses paid now. The fall of capitalism now showing on the horizon after the horse-traders ate large chunks out of our savings. Total freedom buys hedging for failure and total collapse. The dice were always loaded in their favor. That's what we finally agreed upon in the fallout of their toxic waste.

Mike

It's a combo that is needed. We need to feel appreciated and to like our jobs but all that feel-good does not pay the mortgage. So in the real world if you want to buy food or a house or pay for an education, you need to be compensated.

Brian P.

In my 40 years on this earth and several great jobs I have never, and let me repeat myself, never come across anybody with a set of skills that said, "I stay here for this small pay check because this company appreciates me." 100% of the folks I rub elbows with are at well paying jobs, that respect them, not because the company is in some feel-good dream world but rather because the employee contributes to the company making money. Plain and simple.

If companies want to take the lower-paying professional over a higher paying one, I say go for it. The old saying goes, you get what you pay for.

Come on, let's get past the corporate spin. Even this magazine wants us to believe warm fuzzies are better than green moola. Show us some respect and pay us what we are worth. This is not some third world socalistic commune.

Gen X

Carlos Bonilla--you'll learn soon enough. With a lack of a safety net for retirement and ever-increasing health care costs (not to mention a bankrupt Medicare by 2018), you will soon find out that the goal is to maximize your income as early as possible.

Ankur

You are talking about employee engagement as a means for retention. Isn't 'employee engagement' needed first for simply getting the work done for the business? Employees are meant for engagement! They are supposed to be engaged. Let's not put the cart before the horse.

Second, there is no running away from the fact that employees who are doing good work need to be financially rewarded. It would be an insult to a hard-working employee if the management were to tell him/her that he/she should be thankful just for getting an opportunity to work ('employee engagement').

Third, saying please, thanks, well done, etc. are simply good social manners, and they need to be followed by the management. Don't glorify these simple things in the name of 'non-monetary incentives through recognition and better work environment.' Management following social manners or wishing Happy New Year is no substitute for financial rewards.

Fourth, when you want the employees to work toward financial performance of the company as the single most important parameter, how can you expect them not to consider financial reward as their own most important criterion in choosing which company to work for?

Really, get out of HR consultants' corporate spin of engagement vs. cash and see the reality rather than fuzzy confusion.

echo

The baby boomer generation has lived way beyond its means, leaving the folks from Gen Y and the millennium a huge deficit, high levels of unemployment, poor ethical standards, and a deteriorating standard of living. I will settle for cash, anyday. How else am I supposed to pay for my food, shelter, education, and medical expenses?

--A disgruntled Gen Y school student

PLANETwebfoot

Excellent article here. The findings of Deloitte's Best Company to Work For survey is no surprise, but it just hammers home the point that engagement is king. Our company has found the use of corporate social networking technology to be highly useful because employees are more connected than ever before and many find social networking to be a more comfortable and easy way to communicate among on another, especially when new hires are communicating with higher seniority employees.

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