From 2001 to 2008

by imxnhucd on 2011-07-15 11:11:44

"Alas, Yongzhou Recruitment Network! How will I be able to give an account of my duties this year? The company has stipulated that the upper limit for employee departures in my department this year is only five people. But already six employees have left, and there is one more in the process of handling resignation procedures." As the year-end approaches, Mr. Wang, a department supervisor in a production-oriented enterprise, feels very troubled: For several consecutive years, the company's salaries and benefits have been on the rise, yet the turnover rate has also been climbing year by year. In order to retain a key employee who is about to leave, he even proposed to increase the salary by another 8% on top of a 9% raise given just half a year ago, but the employee still insists on leaving—has retaining people through salary increases become ineffective?

**Dilemma: Turnover Rate Rising Alongside Salaries**

It is understood that companies encountering similar situations to Mr. Wang's, where the turnover rate of employees in their departments is included in the performance evaluations of supervisors, are not isolated cases. However, most supervisors struggle to cope with the reality of the rising annual turnover rates. The higher-ups at Mr. Wang’s company have also noticed this trend, so they gradually relaxed the maximum limits on employee departures allowed for each department annually. Mr. Wang himself deeply regrets this situation: "Am I really such a poor manager that I cannot retain employees?"

According to a special survey by Hewitt Associates (翰威特), as salaries continue to rise, the turnover rate also inevitably increases. Data shows that from 2001 to 2008, the turnover rate in automobile manufacturing enterprises rose from 8.3% to 17.4%. At the same time, corporate managers calculated their own cost accounts: for a company with 300 employees and a turnover rate of 15%, reducing the turnover rate by 5% would equate to saving approximately 1.7 million yuan in direct and indirect costs annually.

For this reason, using salary increases to retain employees has become a common practice among many companies, but this approach does not seem to be entirely effective.

**Cause: Imbalance in Talent Supply and Demand**

Has the rise in salaries led to a surge in turnover rates? Regarding this, Hewitt Associates believes that with the rapid economic growth, the imbalance between talent supply and demand is the fundamental cause of why high salaries cannot suppress the rising turnover rates. Many companies are continuously expanding in the market and across cities, increasing job opportunities while making it difficult for talent supply, especially mid-to-high-level talent supply, to keep up with demand. Some positions, such as sales and marketing, have particularly high demand. Key personnel often receive numerous recruitment calls from headhunters.

Of course, there is indeed some subtle relationship between salary increases and turnover rates. Taking a certain star-rated hotel industry as an example, in the past one or two years, with star-rated hotels sprouting up everywhere, despite significant salary increases offered by many hotels to retain talent (some even doubling their salaries), they have still been unable to change the fact of frequent talent mobility.

**Reflection: Emphasizing Rewards Over Salaries**

"Salary increases are indeed important means to attract talent, but this directly leads to increased business costs and cannot solve all problems. What should we do?" In response to this, a senior consultant from Hewitt Associates provides a solution strategy: Consider shifting from comprehensive compensation retention to comprehensive rewards retention. Relying solely on wages is insufficient. If you find that salary-based retention strategies are no longer effective, then it is necessary to consider measures beyond salary, such as training opportunities, implementing long-term incentive measures, and establishing non-salary-related incentive mechanisms.