Employers Seeking Creative Ways to Help Workers Save Money
More and more employers are looking for ways to help their employees save money on their shopping. oNesto solves this.
Employee retention requires intentional steps to keep employees engaged and focused so they choose to stay on the job and contribute fully to an organisation’s success.
In the wake of Covid-19, employee turnover has become known as the “Great Resignation”. In Australia, a tight labour market means employers are struggling to fill open positions. Retention of key people is crucial.
Businesses must seek to understand why some employees leave and others stay in an increasingly competitive and fast-moving labor market. Our Blog post and associated white paper on the Great Resignation highlight the importance of keeping key people engaged and loyal.
Organisations that can retain – and attract – talent in this environment have a strategic advantage over their competitors, and Executive Leadership Teams should make retention a key strategic focus of their efforts through 2022 and 2023. This includes knowing what employees value, calculating the financial impact of staff retention and turnover, and controlling and improving employee retention.
A robust employee retention program can help attract and keep important personnel while also lowering turnover and its associated expenses. Retention influences an organization’s productivity and overall success.
Some estimates calculate that the cost of replacing a key employee is 150% of their annual salary. It is, therefore, almost always more cost effective to keep a good employee than to hire, train, and orient a new one of the same caliber.
Why Does Employee Retention Matter?
Employee retention is critical since employers cannot afford excessive turnover. High turnover impacts revenue, productivity, employee experience, and knowledge retention, much of which might be avoided with early management intervention. Studies(1) suggests that 80% of resignations are avoidable.
Interestingly, competitive compensation to keep employees is only part of this equation. Employers must also keep their employees fulfilled and engaged. This is both salutary and concerning for employers. Beyond the industry average, increased compensation has a limited effect on employee retention.
In another of our blogs, we look at the two ends of the employee spectrum: key senior employees, and front line, lower skilled workers. Key employees, who produce output that are many multiples of their salary will always have the opportunities beyond the company, so increased monetary compensation will not even linearly increase their loyalty, or “stickiness” to the company. And in many industries is is difficult to increase the income of front-line employees, as these increases need to be replicated across the organization and hourly wages are often controlled by awards or workplace agreements.
In an organization with 500 front line staff, a one-dollar an hour pay increase costs $4000 a day, $20,000 a week, or $1m a year. Doubling the salary of a $300,000 CTO costs the business much less. It is a conundrum that senior executives face. The extra $1 per hour increases front-line pay by $35 a week, which whilst beneficial, is hardly like the doubling of a CTO’s salary, and therefore doesn’t create employee stickiness, but a top line CTO could probably earn multiples of their salary, so a doubling of salary, on it’s own, won’t create the desired stickiness either.
A recent survey by Boston Consulting Group1 which surveyed 200,000 people, ranked salary at 8th out of 10 factors for employee happiness.
1. Appreciation for your work
2. Good relationships with colleagues
3. Good work-life balance
4. Good relationships with superiors
5. Company’s financial stability
6. Learning and career development
7. Job security
8. Attractive fixed salary
9. Interesting job content
10. Company values
Employers should take note. Increasing salaries seems like an obvious fix to improve retention, but other factors can be much less expensive, and much more powerful.
“The best time to plant a tree is 20 years ago, the second-best time is now.”
Increases in income may not have the desired effect of increasing retention, and if people still leave, then it will have the negative effect of unnecessarily increasing an organisation’s costs and therefore decreasing profits.
Leadership teams must, therefore, approach retention as a multi-pronged strategy. Leaders often use salary increases because they can be implemented immediately and don’t require much extra short-term effort, but the longer-term consequences, as outlined above, can be harmful.
The factors that rank higher than salary revolve around corporate culture and attitude: appreciation for work done, good relationships with colleagues and superiors, learning and development, and work-life balance.
These factors take time and require effort across the organization. But implementing better policies and practices in an organization need not spend undue time. Simply signaling that the organization cares about employees can be achieved with a few simple measures. And these measures should be implemented immediately. A sage Chinese proverb says that the best time to plant a tree is 20 years ago, but the second test time is now. It talks to the fact that better things could have been enacted in the past, but it is pointless to dwell on them and better to act in the present.
The following components will help progress an organization into a place that employees want to work at. For critical high-value people this may mean they aren’t looking around and so aren’t cognizant of how much more they could be earning elsewhere. It also means that the organization can attract top talent, which reduces stress on everyone in an organization.
1. Salary and Benefits Must Be Competitive
Only 24% employees believe financial security encourages them to stay in a company, according to a collection of recent employee retention polls. But a salary on par with the market is important. What is provided in this area must be comparable to what other companies in your industry in your area are offering.
But compensation is more complex than just base salary. It can encapsulate individual performance based bonuses (which are great for high-value employees, because the extra cost comes with extra revenue or business value) and stock options, which incentivize key people to stay to see them exercised.
It can also include tenure awards that promote longevity, and team or company-wide bonuses for hitting corporate milestones. This type of “secondary” compensation can boost team morale and bring people to a sense of shared culture.
For front-line staff, benefits that effectively stretch income can be powerful when it is difficult to increase base wages. Large organisations can take advantage of their collective bargaining power to offer discounts on insurance, utilities, memberships and a range of consumer goods. As these benefits are enjoyed by employees using post-tax money, then they can provide significant advantages.
Further, psychological studies initiated by Daniel Kahneman and Amos Tversky’s “loss aversion” principle, suggest that people don’t like losing what they already have compared against what they might gain. Therefore, benefits and discounts provided by employers are hard to give up, even if they are matched against gains that could come in the future. So employers should concentrate on implementing benefits ahead of slight wage increases.
2. Recruitment: Hire The Right Person At The Start
According to research, providing applicants with a realistic job preview throughout the recruitment process increases new hire retention. Hiring people who aren’t a good fit for the organization, or a particular job role, leads to people leaving – either the new hire, or the people around them who become unhappy because of the new ill-fitting employee.
Employers must be upfront about expectations. To get someone to bite, don’t hide or sugarcoat components of the task. Finding the appropriate workers requires transparency.
Also, a negative onboarding experience for a new hire sets the tone for their ultimate impression of the whole company, so onboarding should be a process designed to thrill and include new hires.
3. Make Employee Engagement Possible
A survey of over 50,000 employees found that engaged employees are 87 percent less likely to leave a company. They are five times less likely to leave than those who are not engaged (2). Employers must understand what inspires people to become engaged in their work and what motivates them:
What drives people to participate, care, and desire to remain a member of the team?
Provide worthwhile learning opportunities
• Cross-training programs to ensure that individuals broaden their skill set
• Mentoring programs that encourage mentees to take on the role of mentor.
• Leadership ladder so that staff understand what they need to accomplish to advance.
Allow for advancement
People who have tangible and achievable goals are often more driven, whether it’s job progression, promotion, or some other sort of professional development. Provide staff with concrete success opportunities People have a strong need to feel successful and that their talents and abilities are being put to good use in a way that benefits the company.
4. Supervision: Keep An Eye On Your Managers
People leave managers, not companies. Several studies (3) have suggested that the most crucial determinant of retention is fair treatment by a supervisor. People follow their leaders, and a lousy boss creates an unpleasant environment for everyone. But employees often don’t understand the challenges their bosses face and expect them to be a vending machine for their own needs. (oNesto has written a whitepaper on Managing Up, which outlines the causes and solutions for this phenomenon.)
Benefits and rewards programs provide great signals to employees, and moments for managers to recognise good work.
Trust is won in small gestures. Employers that implement a structured process to recognize employees at all levels, win trust and loyalty.
While every company must assess where their salaries and benefits stand in relation to area industry standards, financial incentives aren’t the only way to keep staff.
Employees stay on the job for a variety of reasons, but there are some commonalities. Respect, fair salary, feeling trusted and empowered, job security, and the freedom to use their skills and abilities to their full potential are among them.
Just keep in mind that your staff is concerned with where they work, how they work, and with whom they work. It’s vital to remember this when competing in a tight employment market, rather than engaging into an unwinnable salary bidding war that could wipe out your bottom line.
Judge, T. A., & Kammeyer-Mueller, J. (2022). Staffing Organizations. McGraw-Hill Irwin.
2. Driving performance and retention through employee engagement. Corporate Leadership Council: https://www.stcloudstate.edu/humanresources/_files/documents/supv-brown-bag/employee-engagement.pdf
3. Torrington D, Laura Hall L & Taylor S ,(2008) ,Human resource Management 7th edition, Pearson Education Limited publisher, UK.http://www.mim.ac.mw/books/Human%20Resource%20Management%207th%20edition.pdf
Muir, M. R., & Li, L. (2014). What are the Top Factors that Drive Employee Retention and are there Demographic (Gender, Generation, Ethnicity, Geography etc.) Differences in these Factors? Cornell University, ILR School. Retrieved September 11, 2017, from: http://digitalcommons.ilr.cornell.edu/student/59
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