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Role Money Plays in Employee Retention

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Some issues, though common, are rarely simple, and employee retention is one of those. I have heard quotes like “an employee doesn’t leave a company, but leaves his/her boss,” and while in some cases such an assertion may be true, in most cases it is not. This article focuses on correlations between employee loyalty, employee retention, and the role that money (compensation) plays in attaining company objectives.

Building employee loyalty is the key to retaining employees

This is true in most cases, but it also depends upon what is defined as employee loyalty. There can be loyally non-productive people in any company. In fact, in many cases, when employees want to leave, but stay on due to the money part, proponents of the theory that money can purchase loyalties feel justified.

However, when people stay back in a company only because of the money, and it appears to all that money-based employee retention strategies are successful, such employees are rarely found as productive as others. So, purely money-based employee-retention strategies often create problems for the company while seeming to offer solutions.

On the other hand, the price of loyalty can be paid by money, as exhibited when loyal employees leave companies to join others with bigger pay packages.

The difference in compensation the other company needs to pay to poach a loyal employee is the price of that loyalty – without offering a bigger pay package, it would be impossible to poach a loyal employee. But, without a bigger pay package, simple offers decorated with bouquets of opportunities are insufficient to make loyal employees leave their companies and join others.

These are observations made from what we see happening before us, and not drawn from research papers or textbooks.

Employee loyalty is a key to employee retention only when ‘loyalty' takes into account productivity as an essential component of loyalty, and a productive employee, usually with proper pay raises, is beneficial to retain. Indiscriminate employee retention without justification is of course not a corporate goal.

Okay, so it's not only about loyalties, and though money is a factor, employee engagement counts equally in employee retention


If we accept that employee loyalty leads to employee retention, but do not divorce productivity from employee loyalty, then the missing piece in the equation is employee engagement. Employee engagement assures productivity from the employee because he/she values his/her contribution and knows that his/her contribution is essential for the company in attaining its objectives.

Employee engagement builds self-esteem in employees, nurses genuine relationships (where they can come out and have a talk, if it is simply a question of more money), and helps to build comfort zones which act both as incentives to employee productivity, as well as employee retention.

Yes, the relationship with the boss matters. It is here, really, in achieving or failing in exercises of employee engagement that bosses make or break strategies of employee retention. Managers, who are well aware and efficient with applying employee engagement tactics and strategies, automatically yield better employee retention.

The non-salary component of pay, and the performance reward system is more effective than negligible differences in salaries when it comes to employee retention

The non-salary components of a pay package, including weekend leaves, early Fridays, occasional partying, compassionate responses to personal family exigencies, and other work-life balance issues play a major role in building productive employee loyalty and assuring employee retention. When the non-salary components are proper, along with good employee engagement practices including challenging work and accommodating hierarchy – trust is built.

It is really the trust factor that plays a role in employee retention more than money or anything else. The way to build trust is not only through regular salaries, but a responsive performance reward system, and equitable non-salary components that make an employee be productive, and also feel certain of his/her place in the company.

In a work environment where occasional transgressions are forgiven, potentials are realized, personal exigencies are understood, pay is regular, and achievement is rewarded with surety – all the components of productive employee loyalty are present, and trust is built when employees see the system as reliable. Once an employee has that trust in a company, they would be loath to risk their careers in other companies, unless the counteroffer is from a truly heavy employer brand offering much greater benefits.