Pay growth does not secure staff retention

There is little evidence that countries with high real-wage growth (salary increases minus inflation) are able to use that to secure higher levels of employee retention, according to research by Towers Watson.


Its General industry compensation survey report found that, in 2013, the highest levels of employee attrition (the percentage of an organisation’s workforce that voluntarily left the organisation expressed as a percentage of the organisations’ total headcount) occurred in Sweden, Switzerland and the UK.

The research found that these countries also enjoyed among the highest GDP growth in the region, between 0.8% and 1.9%, revealing a correlation between GDP growth and employee attrition.

In contrast, countries such as Italy, Portugal and Spain, which suffered a decline in GDP levels in 2013, had the lowest levels of employee attrition in Western Europe.

These trends were also seen in other regions, such as Central and Eastern Europe, the Middle East and Africa, where the majority of countries with high GDP growth also recorded high levels of employee attrition.

However, there was no correlation found between employee attrition and real-wage increases across the EMEA region.

For example, the UK, the Netherlands and Spain all experienced low wage growth, but had very different levels of employee attrition among professional-level employees.

Similarly, Switzerland, Sweden, Italy and Portugal all enjoyed relatively high wage growth, but had very mixed levels of professional-level employee attrition as a percentage of overall headcount.

Carole Hathaway (pictured), director of the rewards practice in Europe, the Middle East and Africa at Towers Watson, said: “It’s quite common to see people moving jobs more often in countries with healthy economic conditions, because there are likely to be new jobs available in these places and people have more confidence in their job security when moving between jobs.

“Talent retention isn’t a clear-cut issue; pay is just one of many factors that can affect it. If employees feel they are underpaid then many will look for other opportunities.

“But the opposite does not seem to be true, as organisations paying high wage increases cannot count on employee loyalty.

“Company culture, good communication, responsive leadership, opportunities for career development, and a clear understanding of mission and values within an organisation all contribute to the ‘employment deal’, or employee value proposition, and are likely to have an impact on employee retention.”