A high staff turnover can be an operational challenge for employers. A proactive approach to retaining talent can help to reduce the risk of losing valued workers and having to recruit to replace. But for employers facing rising costs and many other challenges as the economy re-adjusts post-pandemic, giving pay rises may simply not be a viable option.
While it goes without saying that pay is a key factor for employees to stay with an organisation, there are often other benefits, perks and recognition that can contribute to retaining talent.
In this guide for employers, we consider alternative ways to help to retain employees beyond paying more.
What is employee retention and turnover?
Employee retention relates to the extent to which employees remain employed by an organisation, as opposed to leaving (’employee turnover’). It can be measured as the proportion of staff with a specified length of service, typically a year or more, expressed as a percentage of workforce numbers. In contrast, staff turnover refers to the proportion of employees who leave an organisation, again expressed as a percentage of the total workforce, and usually on a year-on-year basis.
The term ‘staff turnover’ is used broadly to cover all leavers, including those who retire, or leave involuntarily, due to either dismissal or redundancy. It’s also possible to calculate more specific breakdowns of turnover data, such as redundancy-related turnover or resignation levels, although the number of resignations tends to be the most useful statistic when it comes to assessing the effectiveness of people management practices, and informing the design of targeted retention initiatives if more needs to be done to help retain staff.
Why is staff retention and turnover important?
Where staff retention is an issue, securing suitable replacements in a competitive job market where candidates are getting lots of offers can be extremely difficult. There are also a number of other logistical and costs consequences arising from poor staff retention, including:
- administration costs relating to each resignation
- low productivity of resignees during their period of notice
- the cost of temporary cover during the period in which there are vacancies
- recruitment and selection costs to replace lost members of staff
- induction training and onboarding costs for replacement members of staff
- low productivity of new employees during their first weeks or months in a role
- low performance and productivity levels amongst established staff due to loss of morale
- interruptions in daily operations and business continuity due to being understaffed
- an overall inability of an organisation to meet short and long-term strategic goals.
There’s no set point at which staff turnover starts to have a negative impact on the performance of a business, where much will depend on the type of labour markets in which your organisation competes. In cases where it’s relatively easy to find and train new employees quickly, and at reasonably low cost, it’s possible to sustain high quality levels of service provision despite having a high turnover rate.
However, where skills are relatively scarce, recruitment is costly or where it takes several weeks to fill a vacancy, poor staff retention rates are likely to be problematic. The more valuable the employee in question, where individuals either have specialist skills or where they’ve established strong relationships with customers and clients, the more damaging the resignation, especially when they move on to work for competitors who can offer a more lucrative pay packet.
Why is it important to monitor and measure staff retention?
Monitoring and measuring staff retention rates, and understanding the reasons behind high staff turnover, means that employers, managers and HR personnel can more effectively devise retention initiatives that reduce the numbers of employees resigning.
There are a number of reasons why employees may choose to leave an organisation, where it’s important to identify any pattern in poor staff retention to decide how this can be best dealt with moving forward. In addition to a lack of regular pay rises, common reasons for high staff turnover rates include unfair treatment at work, poor working relationships, a negative working environment, poor employee wellbeing, inflexible working practices, limited career advancement and a lack of any adequate forum for staff to voice concerns.
In some cases, it may simply be the attraction of a new job that ‘pulls’ someone away from their existing employer, especially if this offers better pay and benefits. In many cases, however, it’s the ‘push’ factors, where an employee feels forced to seek alternative employment because they’re dissatisfied in their present job or with their present employer.
Should a staff retention strategy be put in place?
The first step in reducing high staff turnover rates is by developing an effective staff retention strategy for your organisation. To develop an effective strategy, you’ll not only need to identify the reasons for employees leaving, but the impact that this has on your business, including the associated costs. This data can then be used to develop a costed retention strategy that focuses on the particular issues and causes of high staff turnover specific to the organisation.
Having identified where any problem lies, careful thought must then be given to the ways in which you can continue to meet the economic and operational needs of your business through your existing workforce, whilst keeping that workforce loyal and committed.
Ideally, the methods to be employed should be clearly set out within a written policy to be used by all line managers, HR personnel and anyone else responsible for people management practices within the business. This will provide a clear template on how to get the best out of your people, and ensure a consistent and united approach across the board.
What steps can be taken to increase staff retention?
In addition to pay and benefits, there are various ways in which staff retention can be increased, all of which have been shown to play a positive role in improving retention. This means that even if a higher paid job is on offer, there can still be ways to avoid losing valuable employees, as the size of a pay packet isn’t always what motivates an individual.
Below we set out a number of different steps on how to retain staff if you can’t pay more:
Treat people fairly: perceptions of unfairness, especially when it comes to equality and diversity, is often a major cause of voluntary resignations. This means that there must be policies in place which adequately deal with equal treatment and inclusion in the workplace, as well as harassment, bullying, discrimination and victimisation. It’s in every employer’s interests to promote an inclusive and fair working environment in which employees can thrive, and any unwanted and unlawful conduct is eradicated.
Foster healthy working relationships: poor relationships with line managers or colleagues can often lead to disengagement or even workplace conflict which, in turn, can lead to resignations. By encouraging effective and open communication, employees should feel more comfortable in airing their views and raising concerns to help minimise any conflict. Putting in place easily accessible grievance procedures can also help employees to feel confident that any complaint will be fairly investigated and their voice will be heard.
Promote a supportive working environment: if employees feel overworked and/or unsupported, this can often result in the loss of valuable members of staff. It’s vital that employees are not only practically supported in their job roles, but also made to feel good about what they do and appreciated for their efforts. By ensuring that your staff feel recognised for the work that they do, even through just verbal praise, this can help to create a positive employer-employee relationship. In this way, employees are much more likely to feel happy and motivated in their role, and loyal and committed to your business.
Safeguard employee wellbeing: effectively managing issues such as workplace stress are vital to ensuring the health and happiness of your workforce. This means ensuring that your staff are not overworked, they’re fully supported, and any personal or professional problems are taken seriously. An employer who looks after the wellbeing of their workforce, and each employee’s individual needs, is more likely to boost both morale and levels of retention.
Provide flexible working practices: you should be open to flexible working arrangements and accommodate individual preferences on working hours wherever possible. In this way, staff can fit in personal and family commitments around their working arrangements, where a better work-life balance will promote a more positive workplace culture. Having an employer that’s flexible can often be more highly rated by employees than slightly higher pay.
Offer career development and progression: you must maximise opportunities for employees to develop their skills and careers, making them feel confident that you value their future aspirations. Equally, it’s important to understand and manage people’s career expectations, such that where promotions are not feasible, you should look for sideway moves that allow employees to gain different development experiences. In this way, employees are less likely to become bored or disengaged, and far more likely to enjoy their work and want to stay.
Enable staff consultation: in addition to encouraging effective and open communication, you should ensure that employees have a voice through things like morning meetings, regular performance conversations, one-to-one appraisals, attitude surveys and even consultative bodies. If there’s no opportunity to voice issues or concerns, or to influence outcomes that impact their daily working lives, resigning may feel like the only option.
Finally, it’s worth remembering that poor recruitment and selection decisions, by either the employee and employer, are commonly to blame for early leavers, where individuals are taken on in job roles for which they’re ultimately unsuited. This may be because a candidates’ expectations are raised too high during the recruitment process, for example, by the recruiter overstating the scope of the role or the opportunities for progression. This means that you must give prospective employees a realistic job preview at the recruitment stage, avoiding any temptation to oversell the job or minimise aspects of the role. Equally, when a successful candidate is onboarded, suitable induction procedures should be put in place, as first impressions can influence an employee’s decision to leave a business sooner rather than later.
How to retain staff if you can’t pay more
In many smaller organisations, an employer will not necessarily have the resources to invest in creating a comprehensive staff retention strategy. However, even in the absence of any formal written document, it’s still important to develop a positive workplace culture.
The following checklist can be used as a reminder on how to retain staff if you can’t pay more:
- Ensure diversity and inclusion within the workplace, treating staff fairly and lawfully
- Foster healthy working relationships, where staff are encouraged to voice their concerns
- Safeguard employee wellbeing, ensuring the health and happiness of your workforce
- Provide flexible working practices for a healthy work-life balance
- Offer career development and progression to encourage high levels of employee engagement
- Enable staff consultation, where employees have plenty of opportunities to have their say.
Need Assistance?
DavidsonMorris’ HR specialists support employers with all aspects of employee remuneration and benefits. Working closely with our employment lawyers, we provide comprehensive guidance on how to approach employee engagement to support your organisation’s operations and commercial goals. For help and advice, speak to our experts.
Alternatives to Pay Rises FAQs
What are the main reasons for considering alternatives to pay rises?
Employers might seek alternatives due to economic constraints, inflation, or the need to maintain budget flexibility while still aiming to retain and motivate staff.
Can flexible working hours really replace a pay rise?
Yes, for many employees, flexibility in their work schedule can be just as valuable as a pay increase. It offers a better work-life balance, which can lead to increased job satisfaction and loyalty.
How do non-cash incentives compare to traditional pay rises?
Non-cash incentives like bonuses, extra holiday, or wellness programmes can often have a significant impact on employee morale and motivation without the long-term financial commitment of a salary increase.
Is offering additional annual leave a good alternative to a pay rise?
Increasing annual leave can be a highly valued benefit, providing employees with more time for rest and personal pursuits, which can improve their overall well-being and productivity.
How can professional development be an effective alternative to a pay rise?
Investing in employees’ skills through training and development opportunities shows a commitment to their career growth, which can enhance job satisfaction and loyalty without the need for immediate financial reward.
Are wellness programmes a cost-effective alternative to pay rises?
Yes, wellness programmes can boost employee morale, reduce absenteeism, and increase productivity, often at a lower cost than pay rises. They also demonstrate a commitment to employee well-being.
What are the legal considerations for increasing pension contributions instead of offering a pay rise?
Employers should ensure that any increased pension contributions comply with UK pension regulations and that they clearly communicate these changes to employees to avoid any confusion.
How can recognition programmes substitute for a pay rise?
Recognition programmes provide regular, meaningful acknowledgement of employees’ efforts, which can increase engagement and motivation, often with minimal cost compared to salary increases.
What if my employees prefer a pay rise over other benefits?
It’s important to communicate openly with employees and consider offering a combination of a smaller pay rise alongside other benefits to meet diverse preferences and needs within your workforce.
How can I ensure that the alternatives I offer are valued by my employees?
Conduct surveys or hold discussions with employees to understand their priorities. Tailoring benefits to their specific needs will make them more effective and appreciated.
Glossary
| Term | Definition |
|---|---|
| Pay Rise | An increase in an employee’s salary or wage. |
| Flexible Working Hours | A work arrangement that allows employees to choose their working hours within agreed limits. |
| Annual Leave | Paid time off work that an employee is entitled to take each year. |
| Professional Development | Training and education provided to employees to enhance their skills and career progression. |
| Wellness Programmes | Initiatives aimed at improving the physical and mental health of employees, often including fitness, mental health, and nutrition support. |
| Performance Bonuses | Additional compensation awarded to employees based on their performance, typically in the form of cash. |
| Non-Cash Incentives | Rewards other than money, such as gift vouchers, extra holidays, or other perks. |
| Pension Contributions | Payments made by employers into an employee’s pension fund, often as part of their benefits package. |
| Recognition Programmes | Formal systems for acknowledging and rewarding employees’ achievements and contributions. |
| Employee Engagement | The level of commitment and involvement an employee has towards their organisation and its values. |
| Remote Work | Working from a location other than the traditional office, typically from home. |
| Customise | To modify or tailor something to suit a particular individual’s needs or preferences. |
| Economic Constraints | Financial limitations or restrictions faced by a business, often influencing decision-making. |
| Work-Life Balance | The equilibrium between personal life and work responsibilities, contributing to overall well-being. |
| Non-Monetary Rewards | Benefits or perks offered to employees that do not involve direct financial compensation. |
| Employee Retention | The ability of a company to keep its employees and reduce turnover. |
| Absenteeism | The habitual absence of an employee from work, often due to illness or dissatisfaction. |
| Job Satisfaction | The level of contentment employees feel about their work, which can affect performance and retention. |
| UK Pension Scheme | The retirement savings system in the UK, where employees and employers contribute to a pension fund. |
| Communication Strategy | A plan for effectively conveying information to employees, especially regarding changes in policies or benefits. |
Author
Founder and Managing Director Anne Morris is a fully qualified solicitor and trusted adviser to large corporates through to SMEs, providing strategic immigration and global mobility advice to support employers with UK operations to meet their workforce needs through corporate immigration.
She is a recognised by Legal 500 and Chambers as a legal expert and delivers Board-level advice on business migration and compliance risk management as well as overseeing the firm’s development of new client propositions and delivery of cost and time efficient processing of applications.
Anne is an active public speaker, immigration commentator, and immigration policy contributor and regularly hosts training sessions for employers and HR professionals
