Pay or Disrespect – What Drives High Performer Turnover?

A recent Harvard Business Review article provided convincing data that top performers are the first to quit when new hires are getting paid more than they are. The strong message is that while it’s easy to see that same-job incumbents will grouse about getting paid less, it’s the best of your team, your top performers, who vote with their feet.[i]

The article also details that overall salaries will increase another 4% this year, causing even more salary compression. And importantly, the increase in online-everything makes it far easier for employees to know how much peer employees are getting paid…especially new hires whose pay is blasted across Indeed and other hiring sources. So yes, everyone knows.

High Performers and the Disrespect Effect

The HBR article sums up the impacted employees’ feelings this way:

There’s also a phenomenon psychologists call the “sucker effect.” Similar to FOMO, or fear of missing out, the sucker effect refers to employees’ fear of being a “sucker,” or of doing more than their fair share and missing out on better opportunities. Interestingly, even employees who aren’t actively looking for a new job may become more aware of shifting market prices when a new hire joins at a higher salary, sparking concerns that they may be being taken advantage of.

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Further Reading: To Retain Your People, Supervisor Trust Stands Alone

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So, let’s break this scenario down into three lessons for learning…or LFLs.

LFL #1: These suddenly-quitting high-performers are leaving totally because of disrespect, even though they will indicate on their exit surveys that they are leaving because of pay.

“Disrespect” in this case becomes a synonym for loss of trust, which has been written here hundreds of times as the main reason employees quit. And this adds even more reasons to why exit surveys and published surveys of why employees quit are usually junk.

LFL #2: Top-performers out-perform average performers by four-to-one, meaning we are paying one salary for the output of four workers.

I learned this when working with an I/O psychology professor who had special interest in employee retention, who sent me two studies that reached this identical conclusion. Chewing on these findings leads to adding one additional shortcoming regarding employee engagement surveys in that those surveys result in anonymous conclusions that lead to one-size-fits-all programs…disregarding the unique needs of each top performer because we don’t know what they are.

LFL #3: Employers are in a crunch because some simply can’t afford to raise everyone’s pay at all at once.

High Performers and New Hire Pay

We’ve proven here before that raising pay is not the panacea to employee retention, but those who are proactively looking for a job consider pay more heavily that those who are not. So, companies are caught in a legitimate bind between matching Amazon’s and other local companies’ starting pay while knowing they are causing compression for current employees.

One ugly outcome is this scenario:

• A top-performer approaches her first-line manager to say that new hires are making more so I need a raise.

• That first-line manager goes one level up to his manager who after hearing the plight says, “Well, you know, times are tight”…because times always seem tight when a first-level manager is fighting for a deserving employee’s out-of-cycle raise.

• The first-line manager returns to the top-performer and tells a bureaucratic story mixed with a bit of blame, subtly asking the employee to sit tight.

• The employee then either leaves or engages less.

I suspect one reason top-performers are the first to leave is because they are the first to do anything. They have more energy, more pride in their work, and maybe more work-related ambition. That combination can easily lead to their putting your company in the rearview mirror. And remember, in this case their leave reason is not because of pay but because of the subtraction of trust.

You know how they say, “If you want to get something done, give it to someone who’s busy?”. That’s because most busy people are producers.

So, what to do?

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Further Reading: Preventing Surprise Resignations With Stay Interviews

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Three Immediate Ideas for High Performer Retention

The article presents four solutions which are (1) raise awareness, (2) audit pay equity regularly, (3) address pay inequities asap, and (4) invest in agility.

It’s more important though to address this issue in the long term rather than continue to react to the continuous doom loop of pay compression. Here are three ideas I’d implement immediately, beyond the recovery plan offered above:

1. Identify your top 25% based on performance or importance in their jobs and make sure you are always paying them at market or more, including in comparison to new hires.

This eliminates the scenario described above where first-line managers know someone is indispensable but no one above them gets it. And it ensures you won’t lose a top-performer solely because of pay.

2. Train managers on all levels to use Stay Interviews to learn what matters most to your top-performers…and for everyone else.

We tend to talk way too much about pay when seeking retention solutions. Most employees including top-performers are smart enough to know that a 5% raise doesn’t matter as much as changing schedules, working remotely, earning a certification, or training for a different job.

3. Hold first-line managers accountable to retention goals.

That way they own responsibility for making the case that a top-performer on their team deserves a raise…and can point upward if they lose that employee because she didn’t get one.

Want to keep learning new ideas and ways to improve your retention but not sure where to start or how to convince your executives of the importance? Write me DFinnegan@C-SuiteAnalytics.com or connect with me if you want to have a one-on-one conversation on how you can get started on your life-long learning journey to cut turnover.

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[i] https://hbr.org/2024/03/when-new-hires-get-paid-more-top-performers-resign-first#:~:text=Research%20shows%20that%20unaddressed%20pay,talent%20to%20find%20new%20jobs.&text=To%20attract%20top%20talent%2C%20employers,existing%20employees%20in%20equivalent%20roles.