The impact of not getting a raise: Why pay increases matter to engagement, performance and wellbeing.
While ideally, employees should have things about their job that they appreciate besides the salary, the fact is that money is the driving force behind why most of us are at work in the first place.
So though it's vital for managers to have ways of building employee engagement that don't rely on financial incentives, everyone would like (and sometimes expects) a pay bump every now and then, especially if they've been with the organisation for a while.
But what happens when that desire isn't filled or expectation met? What are the impacts of not getting a pay rise on employee engagement, performance and wellbeing?
Having your raise request ignored makes it hard to stay engaged
While performance-based financial incentives can sometimes do more harm than good, the fact is that rates of pay can be a significant source of concern for many employees.
Research from Ceridian shows that 80% of North American workers are stressed about the amount of money they make. Less than a third of workers were satisfied with the level of pay transparency in their company, and over 50% of women cited pay as the leading reason for being dissatisfied with their employer, compared to just 35% of men.
These findings and others suggest that there are still deep running issues with pay equity, despite years of calls to address issues such as the gender pay gap.
Then there's the issue of financial wellbeing.
While it's hard to argue that someone on a salary well into five or six figures needs a pay bump to ensure their wellbeing, the impact of not getting a raise can be much more severe for the millions of workers much closer to their country's legal minimum wage levels.
A lack of financial wellbeing can have disastrous consequences, whether it's a notable increase in stress, an inability to pay bills or buy essentials.
Making employees feel valued is a huge part of engaging them, and an engaged workforce is the backbone of a productive business. While a pay rise is far from the only way employers can make their workers feel valued, it still remains one of the clearest forms of measurement from the staff's point of view.
When employees don't feel valued, their incentive to do their best work suffers because all that effort seems to go unnoticed. If employees seeking a pay increase keep getting shut down, it sends the message that they just don't matter.
Not raising employee salaries can increase turnover
If you need more proof about the impact of not getting a raise, then it's time to talk about turnover.
A 2019 survey of 1000 US workers who had changed jobs within the previous two years found that over 60% reported that they could be persuaded to switch jobs for a 9% pay increase. Additionally, nearly a third stated that being underpaid would probably cause them to seek new employment.
When you look into the costs, it's easy to see why effective managers are expected to reduce turnover as much as possible. It's fairly common to see job listings advertising competitive or negotiable salaries, and it's these positions that can draw dissatisfied workers away from other businesses.
For employees, the impact of not getting a raise is that it can be quite demotivating, but for organisations, it risks being far more costly if it does result in turnover.
The cost of turnover can vary a lot by position and even country. In the US, replacing someone in a low-paying, high turnover position can cost approximately 16% of their salary.
This rises to obscene levels with high-ranking personnel such as CEOs at well over 200% of their base salary, easily reaching hundreds of thousands of dollars.
Management positions occupy a middle ground. Some research suggests that management turnover could cost a fifth of their salary.
But according to SHRM's findings, it can cost as much as 6-9 months of wages.
On the other hand, research from Employee Benefits News calculates that turnover costs an average of one third of the employee's salary.
The reason it's so difficult to calculate turnover cost with any kind of precision is the sheer number of unseen costs, from specialist training and recruiter's fees to advertising budgets and the cost of new equipment.
Employees may expect pay rises, but how realistic is that right now?
A little while back, we wrote an article for the online legal publication Today's Conveyancer, about how legal sector employees generally expect a pay rise. But lawyers aren't the only ones who seem confident about getting a pay bump despite rampant economic uncertainty.
41% of UK employees surveyed by CV-Library reported that they expected to receive a pay rise within the next year.
In some ways, the post-COVID-19 return to work may help prompt meaningful change to office culture, such as a greater emphasis on flexible work.
But it's not all sunshine and roses, as the job market is also expected to become much more competitive, meaning anyone looking to secure a pay rise through a change of job may find themselves in a position of reduced negotiating power.
While employees riding the line of minimum wage will likely still receive an incremental boost to their hourly rate as a result of inflation, the future for those on higher base salaries may be less certain.
This kind of uncertainty is exactly why transparency matters when it comes to managing employee expectations. Yes, it sucks to know a pay rise isn't on the cards for you in the immediate future.
But if you've been expecting an increase all this time, only for it to be swept off the table at the next performance review or staff meeting, the effect it can have on morale stands to be all the more pronounced.To learn more about engaging your employees and making them feel valued in the workplace, or to find out how the return to work is shaking up office culture, head on over to the Weekly10 blog today!