Employee turnover: it’s all about money, right?

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All organisations know employee turnover is costly. Costs are not just financial – there is also the time and effort to recruit, select, onboard and induct new people. In addition, the organisation may lose valuable knowledge – particularly if the leaver has sole responsibility for an area or task and knowledge is not explicitly recorded.

The well-being of managers can suffer when faced with what feels like a perpetual recruitment problem, as can the well-being of teams coping with the additional work a steady stream of new faces creates or chronic staff shortages.

When a team begins losing people, senior staff often tell managers the leaver has moved to a better-paid job and then plead for pay rises to stem the outward flow or offers of more money to attract new people. Staff speak of organisations they know where salaries are better, and believe all recruitment and retention issues will be solved with more cash. But is this true?

Weak positive

In fact, the causal link between money and employee retention is a weak positive, so those on lower salaries are only slightly more likely to leave than if they were paid more. It is also easier for organisations to believe money can solve the problem rather than having to (for example) admit to cultural issues or stand up to a difficult manager.

Sometimes people will secure a job offer simply to prove to their current employer they are worth more money, but this is not particularly common. We tend to get a skewed view because, when asked, people frequently cite a better salary as their reason for leaving to avoid awkward conversations and preserve relationships. Most people look for something new because they are unhappy with their role, their colleagues or the organisation (or a combination of the three).

It is sometimes possible to offer someone enough money to stay, but it is often not long before they realise the money has not changed their feelings about work and they are back on recruitment websites.

Underlying assumption

So, why do so many of us believe money is the answer? The underlying assumption is that people make rational decisions – and since money is usually the main driver to work, it is assumed offering a higher salary will retain colleagues.

But everyone has emotional responses to work and many people will at least consider leaving a well-paid job if unhappy. Non-monetary rewards (for example, career progression and training opportunities, holiday entitlement and subsidised childcare) have a larger impact than money on employee retention (Figure 1).

Benefits

Employees offered more training, development opportunities and other benefits are less likely to leave than those who do not receive non-monetary rewards. Most companies now offer some form of pay and reward package. A comprehensive offer may include pay, pension, health and welfare benefits and facilities, flexible work arrangements, recognition of good performance, and career and development opportunities.

Engagement

The third article in this series (VT51.01) looked at the link between employee engagement and performance. The relationship was a weak positive, but when it comes to employee turnover, the main components of employee engagement (job satisfaction and organisational commitment) are important because satisfied and committed employees are more likely to stay.

Satisfied employees like their jobs and enjoy working with colleagues. Committed employees are aligned with organisational goals and values, and feel they or their manager will lose something if they leave.

Managers

We are familiar with the saying “people leave managers, not jobs”, but it turns out managers and job make‑up matter. Managers have a direct influence on job satisfaction and organisational commitment. If managers set clear performance expectations, reward achievement, take an interest in employees and ask for their input, and provide development and training opportunities, employees are more likely to stay.

Employee turnover tends to increase if managers fail to deliver on promises, fail to display the behaviours they expect from subordinates, are perceived to use unfair practices, or create a deleterious atmosphere.

With job make-up, people are more likely to leave a repetitive job with unclear expectations that lacks autonomy, and where specific tasks are hard to identify or are not seen through from start to finish. People are also more likely to leave a job that seems not to matter, where the outcome is unknown, or feedback is hard to come by. The impact of managers and job make-up means we need to be honest with ourselves about management practices (and managers’ skills) within our organisations and whether we offer roles that could be better designed.

Perception

It is worth remembering that role perception is important, too. People will leave well-designed and essential roles if other employees make them feel their job is unimportant or meaningless. For example, some clinical teams are dismissive of administrative or customer service roles, then wonder why office and reception staff keep leaving.

Job redesign may appear unfeasible, but it is usually possible to provide more autonomy or feedback (for example, on task outcomes) – and if changing job design is a challenge, we can reduce turnover by changing how people feel and talk about the role instead.

Stress

Stress is another factor often cited when discussing employee turnover and stress may increase the likelihood of an individual leaving an organisation, although this is less important than perceptions of managers (as previously outlined).

Interestingly, in high-stress environments such as veterinary practices (for example, where high standards are the norm, and where people often work extra hours and invest personally in the job), those who feel more stressed are less likely to leave.

Busy/stressed people may not create a recruitment problem, but it is important to recognise high stress levels and work to improve employee well-being. Diversity is also an important consideration for employee turnover because the more different people feel from the workforce norm, the more likely they are to leave.

Research and seek solutions

Let us finish on an assumption that is true; organisations are most likely to lose people with skills or qualifications in high demand who are looking for something new. These people are even more likely to leave when they discover the many opportunities available to them. But we do not have to resign ourselves to the inevitable. Undertaking research to ascertain the underlying causes of employee turnover and working to fix them can help retain even the most in-demand people.

So, if you have a problem with employee turnover, begin by gathering some evidence. This is important because we often assume the cause of a problem and move forward with “solutions” based on gut feel or ease of implementation (for example, money is the answer). But if we keep an open mind and look for evidence, this will help us identify and then solve the real issues.

Start by looking at the overall rate of turnover together with turnover within groups (for example, job type, location or teams under different managers). If you can, compare your rates with similar businesses and look at the wider context (for example, skills shortages).

Finally, assess the impact of employee turnover on your organisation (that is, the direct and indirect costs [financial and other] of leaving and recruitment). The results of evidence gathering may be difficult to accept, but if we are honest with ourselves, we can focus efforts on the biggest issues first and be confident we know what is going on.

This article has highlighted the many causes and complicating factors of employee turnover, but do not despair. Multiple causes mean many fronts exist on which to tackle employee turnover and acting on several issues over time (based on the evidence) will lead to even better results.

Finally, we must remember the wise words of Jessie J in her song Price Tag: “It’s not about the money, money, money…”.

Further reading

Jackson TA, Meyer JP and Wang XH (2013). Leadership, commitment, and culture: a meta-analysis, Journal of Leadership and Organizational Studies 20(1): 84-106.

Judge TA and Piccolo RF (2004). Transformational and transactional leadership: a meta-analytic test of their relative validity, Journal of Applied Psychology 89(5): 755-768.

Rubenstein AL, Eberly MB, Lee TW and Mitchell TR (2018). Surveying the forest: a meta-analysis, moderator investigation, and future-oriented discussion of the antecedents of voluntary employee turnover, Personnel Psychology 71(1): 23-65.

• This article was first published in Vet Times (Volume 51, Issue 3, Pages 12-13).