New data released this week finds that pay transparency increases employee retention but other variables such as a company’s future outlook, fair pay perception, workplace culture, and manager relationships have a greater impact.
Those were the findings of the 2023 Retention Report released Thursday by the U.S. software compensation and data company Payscale, Inc., which looked at why employees consider quitting and how pay transparency impacts their decision.
“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,” said Lexi Clarke, chief people officer at Payscale. “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 by 3% for Generation Z (workers under age 26), the report said.
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, the report said.
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, the report said. 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 resign 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,” she said. “Employers must go a step beyond posting salary ranges to really show they value their employees, while also proving the company has a positive work culture and a bright future.”
Salary range transparency is required by laws in seven states and has become a growing trend elsewhere. Almost half (45%) of all employers surveyed by Payscale for its separate 2023 Compensation Best Practices Report said they include salary ranges in job postings.
The 2023 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. The full report and its methodology can be accessed on Payscale.com here.