High turnover can be frustrating for business owners and HR managers. When employees leave to work elsewhere, you have to find new employees to replace them. Replacing employees can be time consuming, but it’s also expensive. According to ERE Media/Talent Management, estimates for the cost of employee turnover can be as high as 400 percent of the departing employee’s annual salary. This is an eye-opening HR statistic that shows the importance of improving retention.
Employees leave jobs for many reasons, but nearly 70 percent of employees say low pay is the main reason they’d leave a job. To improve retention, your employees should feel like they’re being well-compensated. If your employees feel like they’re underpaid, they may start job hunting. The best way to make your employees feel well-compensated is to focus on total compensation.
What Total Compensation Means
If you ask your employees how much they make, they’ll probably tell you their salaries. That’s because salary is the most visible part of compensation. Every time your employees get their paycheques, they get a reminder of their salaries. Other parts of compensation are just as important, but they’re less visible.
You offer your employees a lot of compensation outside of their salaries. Your benefits package is a major part of this additional compensation. Health insurance, life insurance, and retirement benefits are paid for by your company. Incentive payments, like bonuses, contests, or profit sharing, are also part of your employees’ compensation. Any paid time off you provide, like vacation days, sick days, or personal days, are also part of compensation.
Total compensation refers to employees’ salaries, plus all the extras mentioned above.
How to Talk about Total Compensation
It’s easy to communicate salaries with employees. You can tell them how much their salaries are, and they see the proof every two weeks on their paycheques. It’s harder to talk about all the other aspects of employee compensation. However, that doesn’t mean it’s impossible.
Technology has made it a lot easier for companies to communicate compensation with their employees. In the past, business owners would need to calculate the value of all their compensation on paper. This is time consuming, and worse, mistakes can be made.
Today, you can use your human resource information system to provide total compensation statements. These statements give employees a breakdown of all the different types of compensation they receive from your company. The statements also show how much each type of compensation is worth. Since the information comes from your human resource information system, your employees can trust it’s accurate.
Ideally, total compensation should be an ongoing discussion between you and your employees. If you only mention the subject once, your employees may forget how much various parts of their compensation are worth. Plus, compensation can change often. If an employee gets a raise, or if you make adjustments to your benefits plan, you should have another conversation about compensation. This ensures your employees always know exactly how much they’re being compensated.
Why Employees Appreciate Total Compensation
If your employees think their salaries are their only compensation, they may feel underpaid. They may feel underappreciated by you and your company. This isn’t a good feeling, and it’s not great for morale. Your employees work hard, and they can become discouraged if they think you don’t appreciate them.
When employees see how much their compensation is worth, they may be surprised. They may not have known about some of the aspects of their compensation. Or they may have never thought about how much things like benefits plans or personal days cost businesses. When they see how much you’re actually spending on their compensation, they may realize they’ve been being paid fairly all along.