What role does compensation play in employee engagement?

Posted by Judy Fort on November 11, 2016

How to turn revenue into profit blog series

According to Glassdoor, “68% of people say that salary and compensation is among their top considerations before accepting a job.” But how does this affect an employee’s decision to stay at their current company and be actively engaged in the organization? And why should you care?

Surprisingly, compensation may not be as much of a factor in employee engagement as you’d think. As Bersin points out, “in most roles, compensation is what we call a ‘hygiene’ factor—not enough compensation has negative effects, but more and more compensation often has no impact on performance.”  And Randstad states that “happiness is so important that more than 1 in 3 employees (36%) would give up $5,000 a year in salary to be happier at work.”

In reality, the relationship between employee engagement and compensation may actually be flipped.  Often times, increased pay and advances along a career path are the results of an employee being actively engaged within the organization. By being engaged, they can often out-perform and move ahead of their employees through higher pay and moving up the ladder more quickly.

With this in mind, organizations should have clear compensation policies and make sure that employee compensation focuses on both short- and long-term goals. 

What do we need to do to ensure we are meeting the requirements an employee has to prevent the negative effects, and how should an employee’s compensation change overtime as they grow within their career and responsibilities?

Simply put, creating a Career Development Plan that shows the growth within the role your employee is in can help determine the pay increases that they are looking for. Constant growth and talking with an employee on their pay, will also help with the short and long term compensation goals that they are looking for.