Employee satisfaction series- Is salary the only reason for attrition?

by Ashvini on August 29, 2010

in Management

Some industries are facing the attrition of the life time. The attrition range for them is from 20% to 40%. This means that 20% of 40% of the employees move on every year out and join somewhere else. This is not a favorable situation as there are costs associated with such huge employee turnover. Some of them are listed below.

  • cost of losing employees to competition,
  • costs of replacement
  • costs on their trainings
  • costs of the projects
  • costs of losing future managers

and many more. If you calculate the opportunity costs of such turnovers, they may run in billions of dollars.
The reason that is often cited for this attrition is that employees migrate for higher salaries. As a consultant who has worked for around ten years in consulting companies, I believe salary ranks low as the criteria for change. Let me explain why.
In human history, people have resented change. People do not want unfamiliarity of the new place, dealing with new colleagues and working in a new environment. The pull of the salary has to be substantial for people to lose the network that they have created and move to to a totally unfamiliar environment. A 30 -40% salary increase makes it easy for people to justify the change of job but most of them, if given a chance, would love to stay where they are.
Most of the times, it is the push from the existing company that makes them take the move. I have seen people dissatisfied even before they received the salary increment letter. The appraisals kick in before the salary is decided and many times, people come out fuming from appraisal room angry, about how their contributions were ignored and promotions denied. Of course, everyone cannot get promotion, but most of the time, management does a very poor job of explaining them what has gone wrong.
I have observed that people make up their mind at the end of performance appraisal cycle to leave their jobs. The appraisal cycle or rather the unfairness of it makes them search for new opportunities. Most of the people that I talked to had their contributions significantly unrecognized, objectives not matched for results and poorly performing co-workers promoted.
And important is that it all happens before increment letter comes in. A bad increment letter confirms employee’s suspicion that he is not cared for.
Performance appraisal is a complex procedure and unfortunately, organizations do not train their managers enough to handle the fallout. Salary becomes the fall guy then. It becomes a simplistic answer to all attrition woes. The keywords are ‘We cannot pay him more that is why he is moving on’. I think companies should put a question in the exit form, if salary is the reason for employees departure. I am pretty sure, it would rank in middle to bottom of all the factors.

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