Pay and Profitability
Posted on August 28,2014
Although employees may claim that job satisfaction, career prospects, training opportunities or appealing work culture drive their productivity, salary is a significant factor regarding employees’ performance and the impact it has on increasing productivity. Within the competitive talent war, we are seeing various creative tactics aimed at attracting or retaining the best talent. Some of these tactics include offers of above average salaries, counter-offers, productivity incentives, talent poaching, job title inflations, attractive relocation packages just to name a few. Where some employers may offer above market average salaries, others offer lower salaries with higher productivity bonuses based on successful performance.
According to Glasgow Caledonian University research, increasing salaries in the hope of increasing productivity can have a negative impact on profitability. This strategy can lead to increased competitiveness between individual team members and distract from the collaboration towards a common aim. Towers Watson survey also demonstrated that inflated salaries tactic aimed at attracting or retaining the best talent was often a flowed strategy, which was seldom used by top performing companies. Although such talent management strategy can be successful in attracting and retaining best executives, it fails to lead to incremental performance resulting in increased profitability.
In order to motivate employees effectively and increase productivity, employers often use a set of tools which, in addition to basic salary, place value on non-monetary rewards, such as flexible working arrangements, providing high quality training or an empathetic work environment. These type of incentives are known to have a positive impact on creating a loyal, productive workforce and can have a greater benefit on productivity than offers of above average salaries.
Higher performing companies do not pay inflated salaries because, although they can be good for attracting or retaining talent, they do not usually lead to increased productivity. Instead, their preferred business management strategy is to focus on bonus incentives, and/or non-monetary rewards, as these lead to longer-term profitability.
So it is the whole salary package, including incentives, that drives profitability, rather than the initial competitive salary aimed at attracting new talent.