A Surprisingly Simple Tactic For Improving Employee Loyalty

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Employee loyalty may be at an all-time low. While a recent Deloitte study found that 78 percent of business leaders rate employee retention as important or urgent, large portions of an increasingly transient workforce seem ready to jump ship. In fact, a Monster Worldwide survey revealed that 4 of every 5 respondents had updated their resumes in the previous 6 months; and well over half reported searching for a new job "all the time" or "frequently."

The impact of high employee turnover rates can be devastating for any organization, but especially so for smaller businesses. Another Deloitte report indicates the average cost of hiring a new worker is approximately $4,000 and takes nearly two months. When you factor in lost productivity and internal onboarding time and expense, these numbers are probably the tip of the iceberg. And when you consider that about one-third of new hires typically quit within six months of employment (one in six within three months), according to BambooHR, the impact of poor worker loyalty is clearly a huge problem.  

While it's true that employee satisfaction and ultimate loyalty are impacted by many factors, I've found that one part of the employee retention solution is often right at the fingertips of business owners, managers, and HR professionals. That overlooked tool is better compensation communication. Here's why this can be so important: 

Simply put, perception is reality. And most workers perceive they are being paid below market rate regardless of where they actually stand compared to their peers. Despite having no real basis in fact for this belief, it becomes an entrenched reality when no comparative market rate compensation facts are made available. How pervasive is the problem of unreal perceptions? Consider a recent Harvard Business Review report on a PayScale survey of 71,000 workers. These respondents were grouped into those who were, in fact, being paid above market, at market, and below market.

The findings were astounding: some 80% of workers who were really being paid above market believed they were either being paid below market (35%) or at market (45%). In other words, only about 1 in 5 employees at this level truly understood they were being paid above market. Similar results were true for respondents who were actually being paid at market rate, with 64% believing they were being paid below market. 

Why is this discrepancy between perception and reality so prevalent (and persistent)? Clearly it comes down to communication – or lack of communication. When employees have to rely on the workplace grapevine, industry rumors, or their own imaginations, their attitudes, performance – and ultimately their workplace loyalty – suffer.  

Correcting this misalignment between market realities and employee perceptions about their compensation is relatively simple. It has two primary components: 1) communicating proactively to all employees about compensation programs, and 2) communicating responsively and respectfully to individual employee concerns. 

To address the first component, don't let compensation communication be the tail wagging the dog. Make it a carefully crafted and thoughtfully implemented part of your compensation program design. From the beginning of their employment, give employees the bigger picture of the working world beyond your corporate walls. Why does this matter so soon? According to an ERE Media report, only one-third of employees knew "they would stay with their company long-term after their first week." 

So, clearly, it is critical to proactively communicate early and often. For example, share the results of an available Market Rate Analysis so employees have an accurate picture of where they stand. If there are reasons your workforce lags behind the marketplace as a whole, explain why or put plans in motion to correct the inequity. The result of proactive company-wide compensation communication will almost certainly be a netpositive attitude shift.  

To address individual employee concerns, be sensitive to likely perceptions of individual employees regarding their compensation. Encourage them to share their concerns with management. When they do, truly listen, ask questions to better understand the scope of the concern or complaint, and commit to researching the issue and responding in a timely manner. Keep the employee apprised of progress throughout your research. Even if the employee doesn't like the eventual response, the effort and respect shown will almost surely be appreciated. 

Ultimately, better compensation communication can help you align internal perceptions with market realities. Your employees will know where they stand, and will likely feel they are being heard and respected. The result of proactive and responsive compensation communication could very well be better employee performance, improved morale, and increased company loyalty.  

Cassandra Faurote is President of Total Reward Solutions, a compensation consulting firm.

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