Money can’t buy you love: Research shows higher pay does not produce employee loyalty

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· Trends show high GDP growth leads to higher levels of talent attrition
· No correlation found between higher wage increases and employee retention

Countries with higher GDP growth tend also to have higher levels of employee attrition, according to study of European economies by professional services company, Towers Watson. The General Industry Compensation Survey Report findings also show little evidence to suggest that countries with high real-wage growth (i.e. salary increases minus inflation) are able to use that to secure higher levels of employee retention. The research reveals that employers need to take a broader view of the employee experience beyond pay, if they are to retain talented employees in a competitive marketplace.

In Western Europe last year the highest levels of employee attrition, i.e. the percentage of a company’s professional-level workforce that voluntarily left their organisation expressed as a percentage of organisations’ total headcount, occurred in Switzerland, the UK and Sweden. These countries also enjoyed amongst the highest GDP growth in the region, between 0.8% and 1.9%, revealing a correlation between GDP growth and employee attrition.

By contrast, countries such as Spain, Portugal and Italy which suffered a decline in GDP levels in 2013, also had the lowest levels of employee attrition in Western Europe. These trends were also seen in other regions such as Central and Eastern Europe, the Middle East and Africa, where the majority of countries with high GDP growth also recorded high levels of employee attrition.

Carole Hathaway, Director of Towers Watson’s Rewards practice in EMEA said: “It’s quite common to see people moving jobs more often in countries with healthy economic conditions as there are likely to be new jobs available in these places and people have more confidence in their job security when moving between jobs. The economic conditions in a country can create either an ‘employees’ market’ with lots of jobs and a limited talent pool, or an ‘employers’ market’ with fewer job opportunities and lots of competition for each role. The latter tends to occur in countries with more challenging economic conditions and as a result workers tend to play it safe and stay put.”

By contrast, there was no correlation found between employee attrition and real-wage increases across the region. For example, the UK, the Netherlands and Spain all experienced low wage growth but had very different levels of employee attrition amongst professional level employees. Similarly Switzerland, Sweden, Italy and Portugal all enjoyed relatively high wage growth but had very mixed levels of professional level employee attrition as a percentage of overal headcount.

Hathaway said: “Talent retention isn’t a clear-cut issue, pay is just one of many factors that can affect it. If employees feel they are underpaid then many will look for other opportunities. But the opposite does not seem to be true as companies paying high wage increases cannot count on employee loyalty. Company culture, good communication, responsive leadership, opportunities for career development and a clear understanding of mission and values within an organisation all contribute to the ‘employment deal’, or Employee Value Proposition and are likely to have an impact on employee retention.”

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