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DavidRichter

The Effect of Pay Rises On Employee Turnover

10th July 2014 - Posted By David Richter To News & Events
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The Public Sector Might Strike Over Pay But What Happens In The Private Sector?

I remember my first pay rise. I was 17 and working a weekend job in a café. My hourly pay rose from £3.98 to £4.05. Nobody had mentioned anything about this in advance. It amounted to just a few extra pounds per month but because I wasn’t expecting it I was happy. That was until my friend explained to me that it was actually below the rate of inflation and how effectively it amounted to a pay cut. Still, I can’t have been particularly enraged because I continued to work at the café for at least another year.

With today’s public sector strikes over a freeze and cap in pay rises I thought it would be interesting to look at what happens in the private sector. Do people just jump ship or do they cling on?

To find this out I analysed data from the Octopus HR system. The data used in this study is based on an analysis of 8,495 records of full time employees between 25th November 2012 and 25th November 2013 and who met the following criteria:

• Full time. I excluded part time employees as they tend to be more transient than full time workers and didn’t want to skew the figures.
• People who are leaving but have a leaving date set in the future were excluded.
• Had historic payroll records showing the annual salary of an employee on 25th November 2012 and their annual salary as of 25th November 2013.
• I only included people who received a pay rise of at least £0.01. This is because of an assumption that most people, if they receive a pay rise, receive it on an annual basis. Therefore, if someone leaves half way through the year the likelihood of them receiving a pay rise reduces drastically. If people who received no pay rise in that period were included then it would show a huge bias towards people leaving having received no pay rise for that year. (I only figured this out after analysing a massive spreadsheet of data and am still annoyed at myself).

NB. At no point was any personally identifiable information visible to anyone, nor were job titles, departments, company names etc.

8,494 people met the above criteria. Of those 735 employees left their employer reflecting an average employee turnover of 8.66%

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On average men received a greater percentage increase in pay than women for both the “Leavers” and “Stayers” segments (that’s an article in itself)

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Women were 16% more likely than men to leave their organisation during this period. Given the amount of data we have available we can be 98% confident that this is statistically significant and not just down to chance.

For the year to November 2013 the CPI rate of inflation was 2.1%. During this period, of the 8,489 people we analysed, 2,206 people (26%) received a pay rise of between 0.01% and 2.09%, i.e. they received a pay rise but it was below the CPI rate of inflation. The remaining 6,283 people received pay rises equal to or above the CPI rate of inflation for that period. The employee turnover rates for both groups of people are below.

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Women were more likely to leave their employer if they received either an above or below inflation pay rise. My belief is that this increased turnover for women isn’t down to disgruntled female employees leaving because of derisory pay rises but is probably due to more women than men leaving work in order to raise a family.

Overall people were 20.1% more likely to leave their employer if they received a pay rise below the CPI rate of inflation than their colleagues who received a pay rise above the CPI rate of inflation. With the amount of data we have available we can be 99% confident that this is statistically significant rather than down to a random distribution of data.

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According to XpertHR’s Labour turnover rates: 2013 survey, employee turnover in the public sector is much lower than in the private sector (13.9% vs 19.1%). When times get tough on pay the public sector may go on strike but it seems the private sector vote with their feet.
David Richter
Marketing Manager - Octopus HR
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GeoffBurch
GeoffBurch
2 years ago
great article.
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