Employee retention – wellness and remuneration

August 2024  |  FEATURE | LABOUR & EMPLOYMENT

Financier Worldwide Magazine

August 2024 Issue

Employee turnover rates vary from industry to industry and even more from company to company. In the UK, according to the Office for National Statistics, average turnover (or churn) for UK workers is 35 percent. This can be broken down into 26.9 percent who move to a new employer and 8.2 percent who are not working one year later, which could be due to study or retirement. In the US, according to the US Bureau of Labor Statistics, the average annual turnover rate is 47 percent.

There are a number of truisms which unite all organisations, including, most notably, that the cost of replacing an employee can be significant – ranging from one half to two times that employee’s annual salary, according to Gallup. A 100-person organisation that offers an average salary of $50,000 can expect turnover costs of up to $2.6m per year. The Society for Human Resource Management estimates that replacing an employee costs a firm between six to nine months that employee’s salary.

In addition, it can take time for companies to bring new employees up to speed. According to Better Team, it takes around one to two years before an employee can be considered fully productive in their role. Moreover, a new hire may never be as productive as the person they replaced.

There are other downsides too. Typically, there is a lengthy period where the company is short staffed, leading to inefficiency, low productivity and extra pressure on remaining colleagues due to the additional workload. According to YuLife 89 percent of employees and 97 percent of HR professionals believe that high employee turnover can negatively affect productivity and morale at work.

With these issues in mind, it is clear that companies must give serious consideration to their workforce retention strategies. While there are many different avenues to explore, two of the most important are employee wellness and remuneration.

State of mind

Having wellness programmes that keep employees engaged can significantly improve employee retention. When employees have a positive wellbeing – physically, emotionally, financially, socially and mentally – they gain contentment, security and stability.

“Wellness programmes are designed to give employees support, with the hope that support helps to improve morale and job satisfaction,” notes Seth J. Safra, a partner at Proskauer. “There is a broad range of programmes that are common. Some companies have, for example, employee assistance plans that employees can use as a counselling resource. Others offer rewards for healthy activities such as going to the gym, preventive screenings and smoking cessation programmes. Some offer in-office vaccination programmes, on-site health clinics, in-office ‘free’ lunches, speaker series, financial wellness programmes, and professional development.

“It is worth noting that these programmes have mixed levels of success, however, depending on factors such as the employer’s culture and how easy or difficult employees find the programmes to use,” he adds.

According to Mr Safra, though wellness programmes are a useful tool for employee engagement, demonstrating a culture of support, they are of themselves not sufficient to noticeably improve morale or retention. “The biggest issue with these programmes is lack of utilisation,” he says. “With respect to counselling programmes, this could be due to employees not remembering how to use them when needed or being afraid to ask for support. Also, group programmes tend to be impersonal and short term, which detracts from their perceived value.

“In addition, while some employees take advantage of the range of wellness programmes, employees tend not to perceive differentiation in quality among potential employers – so, the risk of losing a wellness benefit tends not to keep employees from exploring other options,” he adds.

A work culture in which employees feel valued and cared for tends to influence job satisfaction and morale. Cultural aspects of the employee experience include aspects such as supporting career development and training, and showing flexibility to help employees balance work with outside demands.

As Simon Daly, employee experience strategy director at Qualtrics, suggests, wellness programmes can help create this culture. “Companies can utilise various feedback mechanisms from levels of take up of the benefit to using conversational analytics to listen and understand what people across the business are saying and feeling,” he says. “The most innovative organisations will put the time in to ask employees what they want to see in a health and wellness programme before launch – ensuring people are involved and valued from the onset of every initiative. They will continue reviewing feedback, being agile and making enhancements as workforce needs change.”

Mental health has become an area of increased focus. Businesses with an increased awareness and understanding of mental health difficulties tend to promote a culture of acceptance and authenticity. Feeling understood and supported by management increases the likelihood of employees staying with a business.

“In a landscape where burnout and poor mental health are leading to ‘quiet quitting’, where employees disengage without formally resigning, companies must recognise the impact of employee wellbeing on talent retention,” explains Mr Daly. “Studies have shown that a significant portion of employees, especially younger generations, cite poor mental health as a reason for leaving their jobs, underscoring the need for organisations to prioritise employee wellbeing initiatives.

“To truly make sure their people are looked after, organisations must leverage data to understand employees’ preferences and behaviours,” he continues. “For example, by identifying patterns such as peak periods of workload, companies can ensure they are offering supportive initiatives at the right time. Fostering a positive employee experience has far-reaching benefits, including increased engagement, retention, overall business performance and productivity. Instead of relying solely on solutions like mental health app subscriptions, organisations should focus on addressing the root causes of burnout and low engagement.”

This, he adds, may involve implementing tangible solutions based on employee feedback, such as flexible work arrangements, workload management strategies, and clear communication channels between employees and management.

Money talks

Although wellness and workplace culture go a long way to building employee satisfaction, remuneration is another major factor behind retention rates. “Wellness programmes are essential for demonstrating a culture of support, but they are not an effective substitute for competitive ‘take home’ compensation packages,” says Mr Safra.

In terms of compensation, salaries are the most common way to pay individuals fairly for their work. Bonuses and incentive-based pay can provide additional encouragement for employees to work hard and achieve specific goals. This can boost employee motivation and engagement, leading to better job performance and higher retention rates.

A growing skills gaps across many industry segments, alongside ongoing labour shortages, has created a candidate-driven market in which salary expectations have shifted. Workers are less likely to accept stagnant wages because they now have more options available.

Amid record levels of inflation and a persistent cost of living crisis, employees have come to expect competitive pay, and appropriate pay rises and benefits, to help relieve some of the burden their households have been forced to endure.

Companies can use compensation and benefit surveys, and other research, to ensure that the total pay package they offer remains competitive. Companies should endeavour to find out whether their target employees tend to value cash compensation more than benefits – and, if so, emphasise cash compensation in their retention strategies.

There are issues with using traditional compensation packages for talent retention, however. “It is difficult to use traditional compensation packages, such as salary, cash bonus and core benefits, for retention,” says Mr Safra. “We have to focus instead on the overall employee experience, which means demonstrating support and flexibility.

“The challenge is to offer the flexibility that employees crave while also getting people into the office on a regular enough basis to build community and a culture of support. We are constantly searching for the right incentives to get there,” he adds.

Some organisations may also consider implementing retention bonuses to incentivise invaluable team members to stay with the organisation. These will either be a single lump sum payment or incremental payments over time, typically determined based on a percentage of an employee’s salary, with the average falling between 10 and 15 percent of annual base pay.

In the view of Mr Safra, individual retention bonuses that are contingent on staying around can only be effective if not offered to too many people. “It is difficult to expand cash incentives across a range of employees,” he explains. “As programmes broaden, employees tend to perceive the incentive as a take-away – the employer choosing to put strings on compensation that they believe would be more fairly provided as a straight salary increase.

“Also, competitors tend to copy large-scale programmes. As a result, employees tend to believe that they could get the same compensation incentives elsewhere. For this reason, focusing on culture and the overall employee experience can be advantageous. The challenge is to get employees to buy in to a long-term objective that provides an experience and opportunity for accomplishment that they would not be able to replicate elsewhere,” he adds.

A healthy mix

Ultimately, companies should look to offer a mix of financial and non-financial benefits to employees, thereby boosting their chances of holding on to staff. Financial benefits may include health insurance, retirement plans and paid time off. Examples of non-financial benefits include flexible working hours, remote working and a positive company culture. These benefits can help employees strike a better work-life balance, improve their job satisfaction and increase productivity.

According to YuLife, just 28 percent of working adults state that a higher salary would be enough to persuade them to stay in their current jobs. A much larger number of respondents pointed to other factors. For example, 60 percent said that flexible working conditions were an important factor when choosing an employer. Fifty-nine percent said the benefits available to employees were important, while 45 percent cited company culture.

To be sure, the coronavirus (COVID-19) pandemic led many employees to rethink the level of loyalty they felt for their company. “We are still suffering from the effects of the ‘Great Resignation’, and incentives can play a pivotal role in retention,” says Mr Daly. “Performance-based bonuses offer employees tangible rewards for their contributions and achievements, creating a direct link between effort and compensation.

“Non-monetary incentives, on the other hand, offer employees additional perks and benefits beyond their base salary, contributing to their overall job satisfaction and work-life balance,” he continues. “Flexible working arrangements, such as embracing a hybrid work model, have emerged as particularly effective incentives in the current landscape. By offering flexibility in where and how work is performed, companies can attract and retain top talent while accommodating individual preferences and needs.”

The upheaval of the last five years has created a paradigm shift. Employee retention has evolved rapidly, propelled by global shifts. As companies continue to face new challenges in maintaining a productive workforce, forward-thinking solutions will put them in good stead. A focus on wellness and remuneration may not provide all the answers, but they are two essential pillars in the quest to retain employees.

© Financier Worldwide

BY

Richard Summerfield