Why retention is important
In the year 2023, hiring has cooled but retention is still important. A recession may be on the horizon — but despite layoffs, unemployment remains low, inflation remains high, and the labor market is still competitive. Although employees are less likely to leave their jobs now than during the Great Resignation, organizations must still be mindful about strategies for retaining top talent.
There are many reasons employees may choose to seek another job.
A common assertion is that people quit managers, not jobs, but a primary instigator of job-seeking behavior is actually the perception that compensation is unfair — especially when pay increases are lower than desired and employees know that better pay is available in the job market because of pay transparency. Employees also may not feel confident in where the organization is headed, especially if there have been layoffs. Even if they like their manager, employees may leave due to feelings that they are embroiled in a toxic organizational culture.
What most drives quitting?
The role of compensation in talent attraction and retention has garnered more attention lately due to pay transparency legislation, which requires organizations to publish pay ranges to job ads. But does pay transparency improve retention — or does access to pay ranges and other pay information drive employees to seek new opportunities? Moreover, which factors are most correlated with decreasing intent to leave among employees?
This report analyzes data from Payscale’s online salary survey and applies data science using logistic regression to ascertain the probability that pay transparency will increase job seeking behavior as well as which factors (bright future, fair pay, company culture, manager relationship, and pay transparency) are most closely associated with decreasing the likelihood to seek a new job. In addition, we looked at how the findings differ by generation and industry.
For details, see the methodology.
Video summary of findings
Our Retention Report is original research that uses data collected from employees and job seekers who participated in Payscale’s online salary survey to answer a big question: What is the impact of pay transparency on employee retention?
This video explainer provides a high-level overview of the research methodology and the top level findings, which is that pay transparency increases retention but other variables such as employee perception of a company’s future outlook, fair pay, workplace culture, and manager relationships have a greater probability of decreasing intent to leave when analyzed in comparison to each other.
Amid ceaseless layoffs, a company’s future outlook is the top instigator of job seeking behavior, followed by the perception of unfair pay, workplace culture, and manager relationships. The research suggests that pay transparency will have more impact on retention when implemented as part of a total compensation strategy with pay communications.
Impact of pay transparency on retention overall
Job-seeking behavior decreases as pay transparency increases.
In our online salary survey, we ask participants to respond to the statement “How pay is determined at my company is a transparent process.” Respondents answer according to a Likert scale where one is “strongly disagree” and five is “strongly agree.” We also ask if participants will be seeking a new job in the next six months: yes or no.
Using a logistic regression model, we then correlate job-seeking behavior with pay transparency. According to our analysis, the likelihood that employees will seek a new job decreases as pay transparency increases. For example, job seekers who strongly disagree (1) that their organization’s pay practices are transparent are much more likely to seek a new position compared to those who strongly agree (5). On average, an increase of one transparency level rating is associated with a decrease of 30 percent in the odds of seeking a new job. Or, conversely, a decrease in one pay transparency level is associated with a 30 percent increase in the odds of seeking a new job.
Pay transparency's impact by generation & industry
The impact of pay transparency on retention varies by industry type and generation. For example, white-collar industries (professional services, scientific and technical services) see a higher correlation between pay transparency and retention (36 percent). Conversely, for blue-collar industries (accommodations, food services, and retail), an increase in pay transparency was associated with a 28 percent decrease in the odds of seeking a new job.
This can be explained by blue-collar industries being comprised of more lower-wage workers, minimum wage workers, and unionized workers, who have a better sense of what their jobs are worth on the market than white collar, salaried workers usually do. For example, minimum wage workers comprise 43 percent of the leisure and hospitality industry and 16 percent of retail, but only 1.8 percent of professional, scientific, and technical services.
There are also differences in impact by generation. Millennials are the most likely generation to see a positive correlation between pay transparency and retention, where an increase in pay transparency level is associated with a 32 percent decrease in the odds of seeking a new job. Gen X and Boomers both see a lower, but still positive, correlation between pay transparency and retention. This makes sense, as workers in these generations are more established in their careers or nearing retirement and therefore less likely to change jobs over pay.
However, pay transparency has an adverse impact on Generation Z, who are actually more likely to seek a new job when pay is transparent. An increase of one pay transparency level is associated with a 3 percent increase in job-seeking behavior for Gen Z — meaning that you’re more likely to lose Gen Z talent when pay is transparent compared to other generations.
Although Generation Z has been pushing for pay transparency more than other generations, it should not be surprising that pay transparency drives job-seeking behavior in this group. Younger workers want pay transparency because they are more anxious about their pay and more sensitive to injustice than more established workers who are being paid more due to tenure and experience. Younger workers are also more likely to be underpaid or frustrated about their pay due to a lack of understanding about how pay is determined, especially if they work at organizations that do not have a compensation strategy that rewards proficiency and skills attainment proactively. Younger workers also have the most to gain from seeking new opportunities that pay more, which pay transparency can illuminate.
At Payscale, we believe that pay transparency can have a positive impact on retention even for Generation Z workers (i.e., decrease intent to seek a new job) when combined with compensation strategy, career pathing, and pay communications.
For more detailed guidance, employers should download our whitepaper: Strategies to improve employee retention in the age of pay transparency.
Comparison to other factors
Future outlook impacts retention more than pay.
When discussing what drives employees to quit their jobs, a lack of pay transparency is not what first comes to mind. A common adage is that people quit their bosses, not their jobs, but is that true? What drives people to start looking for a new job the most? Conversely, what factor is most important for retention?
In Payscale’s online salary survey, we offer participants a number of statements related to job satisfaction, with each possible response falling on a Likert scale where one is “strongly disagree” (negative response) and five is “strongly agree” (positive response). These statements include the following:
- Pay transparency: “How pay is determined at my company is a transparent process.”
- Bright future: “I am confident my employer has a bright future.”
- Company culture: “Interactions at my organization tend to be positive and productive.”
- Manager relationship: “I have a great relationship with my direct manager.”
- Fair pay: “I feel that I am paid fairly.”
According to our analysis, job-seeking behavior is associated with lower ratings across all of these variables. Bright future, company culture, and manager relationship outpace fair pay and pay transparency by a visible margin at more dissatisfied levels. In other words, intent to leave climbs highest if the organization is struggling, the culture is toxic, or the relationship with one’s direct manager is very poor. However, fair pay and pay transparency certainly have an impact on intent to leave as well.
To determine which variables have the highest impact on retention compared to the others across all level ratings, we used a logistic regression model where the intent to seek a new job in six months was the dependent variable and the above employment characteristics were the independent variables.
Our analysis revealed that bright future is the most important variable for retention overall, as each increase in bright-future ratings among respondents was associated with a 39 percent decrease in the likelihood of seeking a new job. This makes sense. After all, why would employees stay at an organization that is a sinking ship or where job security is shaky? In an uncertain economic climate, communicating the health of the business is extremely important for retaining talent.
The second most important variable across all levels in comparison to other variables is fair pay, which decreases intent to leave by 27 percent with each level. Again, this shouldn’t be surprising. Employees work in exchange for compensation. If the employee feels undervalued, they will look to take their talents elsewhere. Although fair pay perception may be more likely to impact retention at organizations that are otherwise healthy, fair pay is paramount for retaining talent across all levels of evaluation.
Company culture and manager relationship were in the middle, decreasing intent to leave by 22 percent and 21 percent, respectively. Here, intent to leave is probably impacted by day-to-day interactions and whether or not the employee feels that the situation is reversible or can improve with time or effort. In an irredeemably toxic situation, employees are still likely to leave, and this could be compounded by unfair pay or a poor outlook on the future of the business.
The least important variable when it comes to impacting retention is pay transparency. This doesn’t mean that pay transparency doesn’t have an impact; the overall data shows that pay transparency does have a statistically significant impact on retention. However, pay transparency decreases intent to leave by only 1 percent at each level when compared to other variables studied. As mentioned, pay transparency is more likely to impact retention when combined with pay communications and career pathing to help employees understand how they are valued and how to move up in the organization.
Multivariate comparison by industry & generation
The perception of fair pay matters more in white-collar industries
We analyzed the results of our logistic regression by industry groupings to see if there were differences between blue-collar industries, white-collar industries, and healthcare. While bright future still has the biggest impact on retention regardless of industry type, there were differences when it comes to fair pay and pay transparency.
For blue-collar industries and the healthcare industry, as fair pay ratings increase, the likelihood of seeking a new job decreases by 23 percent with each level. This is the second most impactful variable on retention after bright future. However, for white-collar industries, the likelihood of seeking a new job decreases even further to 32 percent with each level. This is likely due to salary determination being more secretive in white-collar industries than in blue collar industries or healthcare.
Expectedly, pay transparency has a higher impact on retention for white-collar industries, with the likelihood of seeking a new job decreasing by 3 percent with each level on average when comparing the impact of pay transparency to other factors. Although modest, this is a notable impact. In comparison, there is no statistically significant impact of pay transparency on retention for blue-collar industries or in healthcare. Again, this is likely due to transparency around pay being more of a given in these industries.
Fair pay matters more to younger generations than older generations
We also analyzed the results of our logistic regression by age to see if there were differences by generation. While bright future continues to have the most impact on retention across generations, the importance of fair pay perception declines as workers age.
This is likely due to older generations being more established in their careers. Older workers earn higher pay commensurate with their experience and have lower expectations for larger pay increases than younger generations. In contrast, Millennials are just starting to hit their peak for earning potential. They are also still impacted by stagnation in real wage growth from the Great Recession, which makes them more conscious about fair pay and sensitive to being underpaid. Generation Z workers also care more about fair pay than older generations, as they’re relatively new to the workforce and eager for pay increases and promotions that reward skills attainment and tenure.
Pay transparency continues to have an adverse effect on Generation Z when it comes to retention when comparing pay transparency to other factors–and the impact is about the same as when analyzing pay transparency in isolation. For Generation Z, as pay transparency ratings increase, the likelihood of seeking a new job also increases by 3 percent with each level. In other words, pay transparency is more likely to cause Generation Z workers to look for a new job. As discussed, younger workers are the most likely to be frustrated by comparatively lower pay than other workers and have the most to gain by job hopping to opportunities where pay is higher.
As noted, there are compensation management best practices that can support pay transparency and pay communications to help retain employees of all generations. Download our whitepaper on Strategies to improve employee retention in the age of pay transparency for more detailed guidance.
The case for pay transparency
Pay transparency is unavoidable. In 2023, more employers are publishing pay ranges in job postings than ever — double compared to last year in the United States. In Europe, the recently approved EU Pay Transparency Directive means that all organizations in member states will soon have to disclose pay ranges to job candidates as well as to any employee who asks. Australia has also beefed up its pay transparency legislation as of late. The adoption of pay transparency is likely to continue expanding, even where it is not required by law.
Pay transparency is essential for talent attraction and is the future of compensation management, but as our research has shown, the results can be mixed when it comes to retention — as it can drive some employees to seek jobs elsewhere, especially younger workers. So, what does this mean for employers when it comes to compensation best practices?
We believe that pay transparency is going to become an indispensable part of talent attraction. However, to have a positive impact on retention as well, pay transparency must be combined with compensation strategy and pay communications, and ideally pay equity. This is especially true for younger workers who are more anxious about their pay, less knowledgeable about how pay is determined, and more apt to seek alternative employment if they are not being proactively shown that they are valued.
Fortunately, Payscale offers a Pay Transparency Solution that combines salary data, compensation management software, and professional services to empower organizations to post salary ranges posted in job descriptions with confidence, openly communicate pay, and build trust in pay practices.
For more detailed guidance, employers should download our whitepaper: Strategies to improve employee retention in the age of pay transparency.
Payscale provides insights on the impact that certain employer characteristics have on an employee's intent to seek a new job. We conduct this analysis with a logistic regression model that leveraged various groups of respondents from our salary survey. Payscale analyzed 578,141 salary profiles completed between March 2018 and March 2023 by U.S. workers to conduct this overall analysis. All findings reported are statistically significant (P < 0.05) across all breakout groups unless otherwise noted.
Respondents provided salary, job, and demographic information and responded to the following statements:
(All responses fall on a Likert scale of 1–5, where 1 is strongly disagree and 5 is strongly agree.)
TRANSPARENT: “How pay is determined at my company is a transparent process.”
BRIGHT FUTURE: “I am confident my employer has a bright future.”
CULTURE: “Interactions at my organization tend to be positive and productive.”
MANAGER RELATIONSHIP: “I have a great relationship with my direct manager.”
FAIR PAY: “I feel that I am paid fairly.
JOB SEEKERS: “In the next six months, I plan on actively seeking new jobs outside of my current company.” [Yes or No]
To determine impact of selected variables on retention, we employed a logistic regression model where intent to seek a new job in the next six months was the dependent variable and the above retention factors were independent variables. We also illustrate the solitary impact of pay transparency on retention by analyzing its effect via an additional logistic regression without other independent variables present.
Breakout groups are defined as follows:
Food & Retail (56737 Obs.): NAICS CODE 44-45\Retail Trade & NAICS CODE 72\Accommodation and Food Services
Tech (91367 Obs.): NAICS CODE 54\Professional, Scientific, and Technical Services
Healthcare (107930 Obs.): NAICS CODE 62\Healthcare and Social Assistance
Gen Z (98470 Obs.): Ages 11–26
Millennials (258165 Obs.): Ages 27–42
Gen X (145126 Obs.): Ages 43–58
Baby Boomers (32992Obs.): Ages 59–77
% Likelihood of Seeking a New Job Per Level Increase: the change in likelihood that an employee will seek a new job given a unit change of a given variable, if all other variables remain constant. (i.e. If BRIGHTFUTURE has a % likelihood of -39%, then the likelihood of seeking a new job decreases by 39% with each level that BRIGHTFUTURE increases if all other variables remain fixed.)
Std. Error: measures the statistical accuracy of the likelihood estimate, found using the standard deviation of the sample population.
% in Level Seeking Job: the percentage of job seekers (“Yes” respondents to job-seeker question) in the level rating of a given variable. (i.e. 66% of those reporting a level one of pay transparency for their employer are seeking a new job.)
Download the whitepaper
Although pay transparency is often considered to be the holy grail of compensation management best practices, especially for attracting talent, merely posting pay ranges in job advertisements can have an adverse effect on retention if you don’t first make sure that pay is fair and pay practices are understood by employees.
To get the most out of pay transparency, organizations need to combine best practices for compensation strategy, pay equity, and pay communications to ensure employees feel valued and to create clear incentives to remain with the organization.
For a deeper dive on the impact of our research on company policy with recommendations on how to take action, download our whitepaper: Strategies to improve employee retention in the age of pay transparency.