Ever wonder why so many people jump ship at their jobs these days? One reason is pay.
This shouldn’t come as a surprise—feeling valued at work includes getting paid fairly, and that’s a major factor when people decide to stay or go.
Indeed reports:
- 82% of employees find their job more engaging and fulfilling when they’re paid fairly.
- 67% of job seekers consider salary details to be the most important element of a job post.
The Awardco team is here to help businesses like yours make more informed decisions when it comes to employee turnover.
In addition to examining turnover rates by state, job role, and type of separation, we’re fleshing out insights on the impact of compensation on turnover rates.
Give your talent strategies the holistic attention they merit. Add this compensation and employee turnover guide to your retention resource hub today.
Turnover Rates Based on Wage/Salary: What the Research Says
Studies support the important role of compensation in employee turnover. According to SHRM Research, 74% of HR professionals note inadequate compensation as the top reason for turnover.
Providing competitive salaries and rewards for good performers is key to retaining top talent. Let’s get a bit more detailed and dive into some numbers.
High-Turnover Wages/Salaries
Here are a few examples of how low wages can increase turnover.
Nonprofit Sector in Illinois Experiences High Turnover
The nonprofit sector is known for its low compensation, and the industry in Illinois is certainly paying for it. The Illinois Partners for Human Service conducted a statewide survey of nonprofit service organizations across Illinois and found:
- Job loss was linked to the level of compensation.
- High wages were associated with lower two-year voluntary turnover rates.
- The voluntary turnover rate for those earning between $8.25 and $12 per hour was 43%, compared to 32% among those earning over $17 per hour.
Construction Sector Attributes Low Wages to High Turnover
Construction is among the industries with the highest turnover. Low wages and a lack of growth opportunities are cited as two top reasons for turnover.
In 2024, the wage growth rate in the industry is estimated at only 1.1%, suggesting the problem is unlikely to change anytime soon.
Research Examines the Link Between Low-Wage Workers and High Turnover
In its research, HBR defined a low-wage employee as someone who makes $20 an hour or less or who lives in a household of three with a total household income of $39,970 or less.
HBR’s survey discovered:
- Half of employers estimated turnover among low-wage workers was greater than 24% a year.
- Nearly a quarter of employers said turnover among low-wage workers was greater than 50%.
- 62% of employees said getting higher pay or a promotion would motivate them to remain in their current job.
Things to Note…
- Low-wage workers departing jobs is common: Those who are being underpaid are more inclined to leave their jobs. This seems to be common across industries.
- High turnover has a major impact on business: Experts note the impact of employees quitting creates a tide of direct and indirect costs for companies, including lower retention, increased recruiting and training costs, customer dissatisfaction, and more.
Low-Turnover Wages/Salaries
Now let’s look at how good wages can help increase employee retention.
Research on Warehouse Workers Shows Direct Link Between Higher Pay & Higher Retention Rates
Harvard University research found that a $1 pay increase per hour among warehouse workers resulted in a 2.8% increase in retention.
Meanwhile, a $1 per hour pay loss relative to other local businesses increased customer service representatives' turnover by 28%.
The findings highlight the impact that providing better pay—and keeping up with competitors—can have on worker retention.
Pay and Working Environment Enhance Public Sector Employee Retention
The public sector has one of the lowest turnover rates compared to other industries and is known to generally offer good wages.
While pay and rewards lower a government employee’s willingness to leave their job, research suggests other factors, such as a good working environment (e.g., employee participation in decision-making, support from supervisors), actually play an even greater role when deciding whether to leave or stay.
Things to Note…
- High-wage workers may be more inclined to stay with their employer, with some caveats: It’s no secret that competitive compensation is a key factor in keeping employees happy and reducing turnover across most industries. But it’s not a one-size-fits-all solution. As seen above, with public sector employees, a positive work environment often trumps salary.
Paying higher wages can also increase worker turnover under some circumstances. For example, in our turnover rates by job role guide, we note roles high in demand (and wages), such as engineering, have a high turnover rate due to plentiful job opportunities.
The takeaway? In addition to compensation, other factors must be considered. Understanding what motivates your team is crucial for crafting a successful retention strategy.
Low turnover pays off for businesses: Low turnover suggests satisfied and motivated employees who will likely produce better work. Plus, imagine the cost savings. Instead of constantly churning through new hires, you can reinvest that money into the business and focus on growth initiatives. With a stable team, workflow processes remain smooth, allowing everyone to hit the ground running and contribute fresh ideas.
How Compensation Ranges Can Impact Turnover
Here are some examples of how compensation can impact low-wage, mid-range, and high-wage earners turnover.
Keep in mind that “good” compensation varies across jobs and industries, so these are only generalizations. We encourage you to use these insights to elevate your retention efforts.
Low-Wage Earners
A flexible schedule could be more meaningful than a few extra bucks an hour for workers just starting out or making a low wage. The Harvard Business Review says offering flexible work arrangements could be a game-changer for keeping these folks around.
A job that provides flexible scheduling options may entice some low-wage workers to stay, enabling them to balance their job with other commitments or additional part-time work.
In some cases, however, increasing wages may be essential for improving retention. If a seasoned professional is still making entry-level wages, this can brew resentment and dissatisfaction. They may feel undervalued and search for other better opportunities.
Mid-Range Earners
Let’s face it: most folks in mid-range salary jobs have developed serious skills and experience. But what happens when their paychecks stay stuck on repeat, even while everything gets more expensive?
That’s a recipe for hitting the job boards. Workers deserve raises that keep up with the cost of living, or they might just depart for a company that values them more.
High-Wage Earners
When there are plenty of opportunities on the other side, why bother to stay? Some highly compensated individuals, like specialized software developers, may experience lower loyalty to specific employers due to their in-demand skills and the availability of lucrative offers elsewhere.
This can lead to job-hopping to secure the best compensation package.
Things to Keep in Mind…
Keep in mind that compensation is only one piece of the employee retention puzzle. Creating a positive work environment, offering opportunities for career development, and fostering a sense of belonging are also crucial for keeping employees engaged and happy.
So, while we’re focusing on compensation here, remember—it’s all about finding the sweet spot. Maybe for your team, that means offering killer benefits alongside a competitive salary. It depends on your crew and what matters most to them.
Strategies to Reduce Turnover Across Wage Ranges
Now that we understand the what and why, here’s the how. Learn how your business can look at compensation levels with a more critical lens to make impactful adjustments.
- Competitive wages & targeted benefits: Conduct regular reviews to ensure wages are competitive within your industry and local market for each position. Consider offering targeted benefits that cater to specific needs across wage ranges. For example, lower-wage earners might value affordable childcare options, while higher-wage earners might appreciate student loan repayment assistance programs.
- Internal mobility and upskilling programs: Research from the Harvard Business Review shows that top-down communication goes a long way in elevating turnover among low-wage workers. This includes offering clear internal career paths, training and development programs, and mentorship opportunities. These measures demonstrate investment in employee growth and can incentivize staying with the company for career progression.
- Salary transparency & clear pay progression: Implement transparent salary bands for different roles to create a sense of fairness and predictability. Due to the high turnover rates in the food service industry, Chipotle has made its salaries transparent across job roles. This helps employees understand how their compensation can grow along with their contributions.
- Customized recognition & rewards: Implement recognition and reward programs that acknowledge achievements and contributions across all wage ranges.
For example:
- For folks on the lower end of the pay scale, a public shout-out or a bonus tied to hitting their goals can be a huge motivator. They’ll feel seen and appreciated.
- For your higher earners, think beyond the paycheck. Extra paid time off to recharge, a stipend to level up their skills, or even some stock options can be a sweet addition to their package. It shows you value their contributions in a way that matters to them.
Partnering with a renowned reward and recognition platform like Awardco can help ensure you’re providing employees with quality and meaningful offerings.
Achieve Fair and Equitable Pay with Comprehensive Data
Focusing on fair compensation and good jobs for low-wage workers is about reducing turnover, ethical business practices, and social responsibility.
But there’s no denying that worker retention and satisfaction pays off for businesses. By analyzing turnover rates by wage and salary to address compensation concerns, businesses can create a more engaged workforce, reduce costs associated with churn, and maximize their ROI in employees.
Explore additional resources on employee turnover data and discover how well-designed compensation packages and recognition programs can be powerful tools for reducing turnover:
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