Employee Engagement, Retention and Pay (Part 1)
By James T. Stodd, SPHR, SHRM-SCP
July 13, 2015
Like many of you, I receive a lot of information about how to improve employee attraction, retention and engagement…a lot! In fact, for me these topics have been my professional “passion” since I made the decision to study industrial-organization psychology and human resource management in graduate school, and that’s been quite a while ago. Some of the information I receive is grounded in survey research, extensive data analysis and other objective (if not scientific) methodology, while other conclusions and advice are based upon experience, opinion, and sometimes pure conjecture. Collectively, this information often leaves a somewhat confusing picture for those of us who want to help employers do well with talent management. As a result, we may find ourselves “swinging at every pitch,” and pursuing any and all possible solutions.
The other day, while working through my inbox, I found a link to a brand new report issued by PayScale. The contents of that report pretty much floored me! You see, the report1 states that since 2006 “real wages” for the typical American (when adjusted for inflation) have actually gone down by approximately 7{56cd7e6aa1a9e8b37b474966a37e40db52ca317c7a8b7c79ab3d6ff71decf1c7}. I thought to myself, “WHAT? Surely, that can’t be!” So, being the data junkie that I am, I went to the Bureau of Labor Statistics (BLS) website and started looking at their reports on compensation trends and inflation. What I found there convinced me that the PayScale researchers have pretty well summarized the big picture.
Specifically, the Employment Cost Index-Constant Dollar2 shows that from 2005 up through the first quarter of 2015 (a longer period of time than that covered by the PayScale researchers), real increases in wages and salaries, when adjusted for inflation, have gone up, not down. However, that increase, over the span of a full decade plus one quarter, has been only 2.1{56cd7e6aa1a9e8b37b474966a37e40db52ca317c7a8b7c79ab3d6ff71decf1c7} for workers in private industry (the same sector studied by PayScale), and only 3.3{56cd7e6aa1a9e8b37b474966a37e40db52ca317c7a8b7c79ab3d6ff71decf1c7} for the entire civilian workforce. So, regardless of which source and/or methodology you use (PayScale or the BLS), the picture over the last decade has been very bleak if you are a paid employee trying to get ahead!
Given the context established by these statistics, there are some other facts and figures that may help us develop a better understanding of the current attraction/retention/engagement challenge:
1. A recent report by Aon Hewitt3 indicates that the “top” characteristic responsible for attracting individuals to their current employer was “good pay and benefits.”
2. That same research project found that “good pay and benefits” also topped the list of qualities that employees would most like to see improved in their workplace, and would most likely increase their overall engagement and satisfaction.
3. In its 2015 report on employee job satisfaction & engagement,4 the Society for Human Resource Management reported that “compensation” ranked 4th (falling from its 1st place ranking during the year before), following respectful treatment, trust of senior management, and benefits. However, that same study revealed that only 62{56cd7e6aa1a9e8b37b474966a37e40db52ca317c7a8b7c79ab3d6ff71decf1c7} of the employees surveyed were either satisfied or somewhat satisfied with their compensation.
4. With respect to retention, that same SHRM study found “compensation/pay” to be the most important factor behind a person’s decision to stay or leave their current employer, followed by “better career advancement opportunities,” a factor also logically associated with pay. This is consistent with the results of a 2008 report issued by Salary.com5 which found the most common reasons employees leave their current jobs (in rank order) are: inadequate compensation, lack of career advancement, insufficient recognition, boredom, and inadequate opportunity for professional development. And, PayScale’s 2015 Compensation Best Practices Report6 noted the two primary reasons people quit their jobs last year were a) personal reasons (family, marriage, health, school) and b) seeking higher pay elsewhere.
5. Finally, the Aon-Hewitt report noted above also revealed that only 61{56cd7e6aa1a9e8b37b474966a37e40db52ca317c7a8b7c79ab3d6ff71decf1c7} of today’s workforce felt their compensation actually meets their family’s needs; the remaining participants felt their compensation only partly met their family’s needs, if at all.
In graduate school I remember one of my professors lecturing on the law of parsimony, which says “look for the simplest answer or the most obvious cause.” After reviewing these trends and statistics, I have to ask, “Are we missing the obvious?” Don’t get me wrong, I love the idea that most of us go to work and give each day our very best for a host of reasons, “pay” being just one of them. And the science of workplace motivation consistently says that employee engagement involves a lot more things than just money. However, these new trends establish a “context” that shouldn’t be ignored. And, the data clearly states that if we really want to excel in attracting, retaining and engaging top talent in today’s marketplace, we are likely fooling ourselves if we don’t address the “compensation” issue.
Addressing that issue doesn’t necessarily mean that employers need to drive-up base salaries and add to fixed costs. Yes, in some cases, there may be need for some of that. But there are also other options available that I will discuss in future messages.
1 PayScale, The PayScale Index, United States, 2015, Q2. http://resources.payscale.com/hr-us-compensationtrends.html?utm_source=Marketo&utm_medium=Newsletter&utm_campaign=July{56cd7e6aa1a9e8b37b474966a37e40db52ca317c7a8b7c79ab3d6ff71decf1c7}208&mkt_tok=3RkMMJWWfF9wsRonu6{56cd7e6aa1a9e8b37b474966a37e40db52ca317c7a8b7c79ab3d6ff71decf1c7} 2FPe{56cd7e6aa1a9e8b37b474966a37e40db52ca317c7a8b7c79ab3d6ff71decf1c7}2B{56cd7e6aa1a9e8b37b474966a37e40db52ca317c7a8b7c79ab3d6ff71decf1c7}2FhmjTEU5z16e8kWqe2lMI{56cd7e6aa1a9e8b37b474966a37e40db52ca317c7a8b7c79ab3d6ff71decf1c7}2F0ER3fOvrPUfGjI4GSMZrI{56cd7e6aa1a9e8b37b474966a37e40db52ca317c7a8b7c79ab3d6ff71decf1c7}2BSLDwEYGJlv6SgFTrHCMa5s0bgNUxE{56cd7e6aa1a9e8b37b474966a37e40db52ca317c7a8b7c79ab3d6ff71decf1c7}3D
2 US Bureau of Labor Statistics, Employment Cost Index, Historical Listing-Volume IV, April 2015, Constant Dollar, March 2001March 2015 (December 2005=100). http://www.bls.gov/web/eci/ecconstnaics.pdf
3 Aon Hewitt, Inside the Employee Mindset: Key Findings on What Differentiates, What Rewards, and What Communicates, 2015. http://www.aon.com/human-capital-consulting/thought-leadership/talent/inside-the-employee-mindset.jsp
4 Society for Human Resource Management, Employee Job Satisfaction and Engagement: Optimizing Organizational Culture for Success, http://store.shrm.org/2015-job-satisfaction-and-engagement-report-optimizing-organizational-culture-forsuccess.html
5 Salary.com INSIGHT, The 2007/08 Employee Satisfaction and Retention Survey, Salary.com Surveys, March 2008 http://swz.salary.com/docs/resources/Emplyee_Satisfaction_Insight.pdf
6 PayScale, 2015 Compensation Best Practices Report, 2015 http://www.payscale.com/cbpr