smiling man looks at laptop in lounge area: the impact of compensation and benefits on retention
smiling man looks at laptop in lounge area: the impact of compensation and benefits on retention

The cumulation of a growing skills gap and ongoing labor shortage has created a candidate-driven market. This shift, in turn, has significantly changed workers' salary expectations. For example, workers in many areas of the world are less likely to accept stagnant wages because they now have more options available.

When you combine these factors with the current inflation concerns, it's easy to see why salaries are on the rise. To prove this point, a recent study reveals that 100 percent of employers in the U.S., 87 percent in Western Europe and 78 percent in Asia Pacific expect to increase salaries in 2022. That's an incredibly large number of employers. Still, the unavoidable truth is that for companies to acquire and retain talent, they must offer competitive pay and benefits, also known as rewards.

salaries affecting employee retention

While salaries have always been one of the biggest drivers for changing jobs, today's competitive job market gives workers the power to expect more. As you know, the 'Great Resignation' has bombarded headlines in 2021, but there's no denying workers are leaving their jobs in droves. In the United States alone, 4.5 million workers quit their jobs in November 2021. This phenomenon is not just happening in North America. Our latest Randstad Employer Brand Research report reveals that 12 percent of worldwide workers left their jobs in 2021 and another 20 percent are expecting to change jobs in 2022.

Sure, there are many reasons why workers are leaving their jobs; better work-life balance, remote work options and improved training opportunities. Some, in fact, are even leaving the job market altogether. Despite these factors, our research shows that salaries and benefits remain the number one motivator for workers changing jobs.

Like any other service on the market, salaries are based on supply and demand. With 54 percent of companies around the world citing a talent shortage, there is definitely a high demand for talent. This demand is even higher for skilled labor, since the worldwide skills gap affected employers' hiring abilities long before the pandemic hit.

With this increase in demand has come an increase in expected wage offerings. Workers' expectations are so strong that employees are willing to change jobs to obtain the pay and benefits they feel they deserve. In short, if your company doesn't invest in developing a competitive compensation package, it's likely going to lose some of its top talent.

what this means for you

Whether your company is currently facing employee retention challenges or not, now is the time to consider evaluating salaries and improving your benefits package. The good news is that there are a variety of advantages your company can realize by increasing salaries and benefits, such as:

improved retention rates

Studies show a direct link between higher pay and higher employee retention rates. A recent study conducted by Harvard University shows that a $1 per hour pay increase among warehouse workers resulted in a 2.8 percent increase in retention. Even more alarming results show that every $1 per hour loss in pay resulted in a 28 percent increase in turnover rates. It's quite simple, if your company isn't offering competitive salaries, your current workers are more likely to leave.

long-term planning

Even if your company is not experiencing a significant labor shortage right now, it likely will in the future. The reality is that the talent shortage isn't expected to end any time soon. In fact, some experts predict that there could be a global talent shortage of over 85 million workers by 2030. Not taking steps to prepare your company today could make it nearly impossible to meet your staffing needs in the future.


A wage increase can actually pay for itself when done right, providing an excellent ROI. The trick is to identify the optimal salary package — one that is powerful enough to retain your current workers while staying in alignment with the company budget. When the optimal salary range is determined, your company can save through reduced overtime pay, lower absenteeism and decreased hiring costs.

better hiring outcomes

Let's face it. Despite all your efforts, 100 percent employee retention is not achievable. Employees will leave and these positions must be filled. With the labor shortage growing and the skills gap widening, attracting talent will become more and more difficult. Having a competitive compensation and benefits package in place can help your company attract qualified candidates and entice them to accept the job offer.

improving employee compensation and benefits

Developing a competitive employee compensation package cannot be an afterthought, nor should it be done in haste. Instead, you should create a well-thought-out compensation strategy that aligns with your company’s vision and business strategy. Having a strategy in place can help your company remain competitive today and for years to come.

Here's a look at some things to consider when establishing a workers' compensation and benefits strategy for your company.

market standards

As an employer, it's critical to stay up to date on average salary offerings for your respective industry. Using this information is a good starting point and can help you determine if your current salary range is above, on or below average for your market.

At Randstad, we conduct an annual salary survey in many markets and provide the results in a user-friendly report. Salaries in our report are broken down by job roles to make it easy for your company to compare its salary offerings with other employers. Keep in mind, of course, that job titles mean different things to different employers. So, you should consider the specific duties and qualifications for each specific role when making a comparison.

know the competition

Understanding salary trends in your respective industry is a great first step, but you must also know your direct competition. For example, it's essential for manufacturers to understand salary trends in the manufacturing industry. It's equally important, however, for these employers to know what types of compensation and benefits other manufacturers hiring right in their local area are offering their employees and new hires. Conducting a comprehensive competitor analysis can provide the insights you need.

salaries aren't everything

While it's true that salaries are, and probably always will be, a top motivator for employees changing jobs, today's workers want more. In fact, workers' expectations regarding benefits have changed significantly since the pandemic.

For example, our latest Randstad Employer Brand Research shows that a healthy work-life balance is the second leading motivator for changing jobs. To meet this need, employees are looking for meaningful benefits, such as hybrid work, flexible work schedules, more paid time off and family leave guarantees. Therefore, employers that want to prevent their workers from leaving must create a benefits package that gives employees the ability to maintain a healthy work-life balance.

Additionally, today's employees care about job security and career growth. They understand that the world is changing and that skills, especially digital skills, are in high demand. To ensure their employability in the years to come, these workers want more training, career development and advancement opportunities. Offering these types of benefits can build loyalty with your workers and make them less likely to change jobs.

employee benefits

To create a compensation package that drives higher employee retention rates, it’s important to include both competitive wages and meaningful employee benefits. Higher salaries without corresponding benefits that improve the life of your employees may not be enough to keep your workers from changing jobs. On the other hand, benefits without competitive salaries won't be enough either. It's only when competitive wages and meaningful benefits go hand-in-hand that your company can obtain the improved retention rate it desires.

Learn more about how to build an employee compensation package by downloading our list of the top 10 benefits employees want.