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.