Salary Growth: Key to Holding on to a Company's Future Leaders
by Charlie O. Trevor, Barry Gerhart, Ph.D. & John W. Boudreau, Ph.D.
The American Psychological Association
Voluntary employee turnover is not necessarily a bad thing; most companies see low-performing employees who leave under their own steam as a blessing. But the voluntary departure of a high-performing employee, in whom the company has invested considerable training and who would be difficult and expensive to replace, can cause serious problems: not only does the company lose a key player in the company's current success, the talent pool from which future company leaders will emerge has been reduced. But according to a study in the February issue of the Journal of Applied Psychology, published by the American Psychological Association (APA), one key to keeping high-performing employees is quite simple: pay them what they are worth.
Cornell University researchers Charlie O. Trevor, a doctoral candidate, Barry Gerhart, Ph.D, (now at Vanderbilt University) and John Boudreau, Ph.D., examined the employment records of more than 5,000 employees of a single company in the petroleum industry who had been hired between 1983 and 1988 and who were either still employed or had voluntarily resigned as of January 1, 1990. They were interested in the relationships and interactions among employee performance ratings, salary growth, promotions and tenure, specifically which of those factors make it easier or more desirable for employees to stay with the company or leave it.
Promotions, they found, increased turnover likelihood for low performers, presumably by providing them with much-needed visibility and legitimacy in the external job market. However, promotions had no effect on the turnover of high performers. Because top performers already enjoy high marketability, this suggests, the researchers say, that promotions alone (i.e., separate from pay increases) do little to reduce high performers' desire to take advantage of other offers.
High salary growth, on the other hand, while helping to retain all performers, most helped the company hold onto high performers. Because these top performers can more easily find alternative employment (compared with lesser performers), their turnover is more highly dependent on satisfaction with their employment situation, which depends in part on salary growth. Thus, the authors note, traditional merit pay systems, which are frequently criticized as insufficiently motivating top performers, may also be problematic by contributing to high performer turnover.
The bottom line, the researchers say, is clear: "Tomorrow's stars and perhaps even franchise players may be among today's few top performers; their retention, at least in part, appears to depend on paying them according to their performance."
Article: "Voluntary Turnover and Job Performance: Curvilinearity and the Moderating Influences of Salary Growth and Promotions" by Charlie O. Trevor, Barry Gerhart, Ph.D., (now at Vanderbilt University) and John W. Boudreau, Ph.D., Cornell University, in the Journal of Applied Psychology, Vol. 82, No. 1.
(Full text available from the APA Public Affairs Office.)
The American Psychological Association (APA), in Washington, DC, is the largest scientific and professional organization representing psychology in the United States and is the world's largest association of psychologists. APA's membership includes more than 142,000 researchers, educators, clinicians, consultants and students. Through its divisions in 49 subfields of psychology and affiliations with 58 state, territorial and Canadian provincial associations, APA works to advance psychology as a science, as a profession and as a means of promoting human welfare.
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