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New Payscale Research Reveals Top Drivers Behind Employee Turnover and the Impact of Pay Transparency

  • Amid ceaseless layoffs, a company’s future outlook is the top instigator of job seeking behavior, followed by the perception of unfair pay, workplace culture, and manager relationships.

  • Research suggests that pay transparency is more effective in retaining talent when implemented as part of a total compensation strategy with pay communications.

Today, Payscale Inc., the leading provider of compensation data, software and services, released the results of its Retention Report, a first-of-its-kind look at the top reasons employees consider quitting their jobs. The research found that pay transparency increases retention but other variables such as a company’s future outlook, fair pay perception, workplace culture, and manager relationships have a greater impact.

“Although employees are slightly less likely to leave their jobs now than during the Great Resignation, there is and will continue to be an increase in demands from employees, and companies must directly address and understand what they can do to meet those requests in order to retain their workforce,” said Lexi Clarke, chief people officer at Payscale. “Employees are most likely to put in their notice if a company’s long-term viability is questionable or if they perceive that their pay is unfair; publishing pay ranges to job ads alone does not communicate fairness and may not be enough to drive retention.”

While pay transparency decreases intent to quit by 30% when analyzed in isolation, pay transparency surprisingly increases job seeking behavior for Generation Z by 3%. This is likely due to younger workers being more motivated to change jobs for a larger salary, especially if they see higher pay ranges advertised and don’t understand the rationale behind their current pay. This is why compensation strategy and pay communications are essential components of pay transparency.

Payscale’s analysis found that an organization’s future outlook is the most important factor for retention. With a constant deluge of layoffs and hiring freezes, communicating improved business health can decrease intent to resign by 39%. Employees are exceedingly tempted to jump ship and seek out a more stable role when they sense financial distress, so clear dialogue regarding organizational health is crucial to retaining talent.

The perception that pay is unfair also heavily impacts turnover. When raises don’t match inflation and better wages can be found in online job postings, employers must do more than just post pay ranges to job ads; they must also communicate how pay is determined, why it is competitive to the market, and how it can be progressed. Improving fair pay perception can reduce intent to leave by 27%.

The report also provides evidence that employees who feel that their workplace is negative or unproductive are more likely to hand in their resignation to preserve their mental health. When leadership acknowledges workplace dysfunction and makes a concerted effort to cultivate a positive company culture, intent to seek a new job declines in likelihood by 22%. Improved relationships between managers and their direct reports can also decrease job seeking behavior by 21%.

“To build transparent pay practices you need a compensation strategy that makes sense for your business, robust internal and external pay equity analysis, committed manager training, and meaningful pay communications with employees,” said Ruth Thomas, pay equity strategist at Payscale. “The objective should be for every employee to know their pay is fair and why it’s fair. Employers must go a step beyond posting salary ranges to really show they value their employees, while also proving that the company has a positive work culture and a bright future.”

Payscale’s 2023 Compensation Best Practices Report found that in the light of recent legislation, pay transparency is becoming standard practice to compete for new hires; almost half of all employers (45%) now include salary ranges in job postings. This is likely to expand. Payscale offers a Pay Transparency Solution that delivers comprehensive compensation data and software as well as professional services to help organizations of all sizes reach pay transparency objectives quickly, including publishing pay ranges with confidence, facilitating pay communications, and conducting pay equity analysis to embed fair pay practices. To learn more, visit Payscale.com.

The Retention Report analyzed crowdsourced data from over 578,000 U.S. workers who took Payscale’s online salary survey between March 2018 and March 2023. To determine the impact of select variables on retention, researchers employed a logistic regression model.