The Role Of Compensation In Employee Retention

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Ask any boss and they will all agree that finding good workers can be challenging.  There can be many reasons why you have lots of applications for a job but no one suitable. For example, they may not have the experience you need or they may not fit with your current work ethos. 

Whatever the reason, when you do find good talent you’ll want to hang onto it. After all, it’s not just the fact that they do the job well or anticipate what you need. Losing any staff means advertising for new staff, interviewing, offering a job, and then training. It’s complicated, time-consuming, costly, and may still result in a poor-quality employee!

This is even worse when you have a disgruntled employee that seeks a reputable compensation lawyer Burwood to take the matter further. 

In short, you need to keep your good employees happy without being unfair to the lower quality employees!

What may surprise you is that compensation has a role in this, in some aspects money can buy happiness!

Here’s why increased levels of compensation can help you to retain your employees:

Standard of Living

Everyone has to live somewhere. That means they have bills to pay and these can be extensive. In many cases, people have debts to clear and they still want to have money to put aside for retirement and enjoy life now. 

In short, the more money you earn, the easier it is to achieve all these goals. While there is a limit to which money can buy happiness and loyalty, giving your employee enough to live comfortably will make them think twice about leaving. 


It’s normal to start an employee on a low wage and increase the wage gradually as they prove themselves. Employees accept this and it helps to negate the cost of hiring and even firing. In many cases, reviews are done and increases are awarded at the end of a trial period and every year after that.

However, there is no hard and fast rule regarding this. If you reward an employee with a pay increase more regularly they will realize that they are appreciated and their efforts have not gone unnoticed. 

This translates into increased productivity and loyalty. After all, you may offer them more again. Appreciation through financial incentives is an effective tool to retain employees.

Priced Out of Market

Don’t forget, the more valuable the employee the better it is for you to increase their pay. In particular, you should be looking to increase it above the industry average and, if possible, above what your competition can afford. This will make it very difficult for your employee to find a different job that offers them the same rewards and will maintain their lifestyle. 

In short, they will be staying with you. 

Don’t forget that part of the financial reward is often unseen, that’s the bit you contribute to the pension fund, healthcare, and other items to improve your employee’s life in later years. Make sure they are aware of this element of their pay package. 

Is Compensation Enough?

High compensation levels are going to help you retain staff. After all, everyone wants to enjoy the finer things in life and the compensation level helps this become a reality. But, no matter how good the compensation is, it will never be enough by itself. 

You need to consider the other important elements to employee retention:

Job Satisfaction

An employee that enjoys their job is more likely to stay with the company. It makes sense, if they get paid well and enjoy what they are doing why would they leave?

You should sit down with all your employees individually throughout the year and listen to what they think would improve the working experience. In many cases, the ideas are simple, such as a vending machine, separate eating area, or some other thing that you can easily cater to.

By doing this you’ll improve the job satisfaction and reduce staff turnover. You’ll also be reminding your employees that you listen to them. That counts for a lot.


If you have ever worked in a toxic environment you’ll know that no amount of pleasure in the job or compensation will keep your employee happy. In other words, it is just a matter of time until they have had too much and quit. 

That’s why you need to assess the working environment and make sure it is friendly, relaxed, and that no bullying is occurring. This can be difficult to monitor but keeping an open door and an open mind will help employees come to you with issues, that’s half the battle. 


Most productive employees would like to advance. This may mean moving up through the ranks or learning new skills. Make sure you give all your employees the opportunity to do this and offer training courses. You’ll be able to identify the ones with drive, which are probably the ones you want to hang on to. 


Finally, you need to appreciate that every employee has their own life outside of work, and sometimes the two interact. An employee can’t help it if their child is sick and their partner elsewhere. 

But, they will appreciate you being flexible. This means allowing them to work from home or adjust their hours to suit their needs. 

Flexibility makes you a better employer and them a happier employee. All you need to do is set up a process by which your employees know flexibility is an option but that it is monitored to ensure it’s not abused. 

The Bottom Line

Offering extra money will keep an employee with you for longer. But, if they are unhappy you are simply buying a little time. However, if you make increased compensation part of a package of measures to improve the workplace, you’ll find that your staff retention shoots up.

Equally, your staff will be happier and more productive, that’s not a bad thing! They may even be more innovative when dealing with issues.