By the time a good employee quits over pay, you are already late

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HR Perspective with MEMORY NGUWI

I HAVE dealt with remuneration issues for more than two decades, and one pattern keeps repeating itself. Organi­sations often become seriously interested in market salaries only when something has already gone wrong. A valued em­ployee resigns, a candidate rejects an of­fer, several employees start complaining about pay, or turnover suddenly increases in a critical function.

That is the wrong time to start look­ing at the market. By the time a good employee resigns because of pay, the organisation may already have lost more than the employee. Trust may have been eroded long before the resignation letter arrived.

The employee may have spent months feeling that their contribution was not ad­equately recognised. They may already have compared their salary with what other employers are paying, spoken to re­cruiters and attended several interviews. The resignation letter is therefore not necessarily the beginning of the problem; it is often the final visible symptom of a problem that has been developing quietly.

The instinctive reaction when a valu­able employee resigns is often to make a counter-offer. Suddenly money that apparently wasn’t available is available. Management hopes that matching or getting close to the competing offer will solve the problem and persuade the em­ployee to stay.

Imagine an employee earning $2,000 per month who resigns after receiving an offer of $2,700 elsewhere. Management responds by offering $2,600 to keep them. The employee is entitled to ask a difficult question: if I was worth $2,600 today, why were you paying me $2,000 yesterday?

That is where the issue moves beyond money and becomes an issue of trust and perceived fairness. A counter-offer may persuade the employee to stay, but it doesn’t automatically repair the employ­ment relationship. The employee now knows that resignation, rather than per­formance or market movement, triggered management’s willingness to review their salary.

There is another problem with count­er-offers that organisations sometimes underestimate. Other employees may eventually discover what happened and conclude that threatening to leave is the fastest route to a meaningful salary in­crease. Management may also begin questioning the employee’s commitment because they now know that the employ­ee was prepared to leave.

One of the most important uses of salary surveys is frequently overlooked. Market salary data should function as an early warning system, not simply as evi­dence used to justify salary increases. Ex­ecutives need to know what the market is paying for critical roles even when there is absolutely no immediate intention of increasing salaries.

That distinction is important because benchmarking salaries does not mean matching the market every time salaries move. Organisations have different eco­nomics, strategies, financial circumstanc­es and approaches to remuneration. Some deliberately position themselves around the market median, while others may pay above the median for scarce skills and below it for roles where labour is readily available.

The first purpose of benchmarking should therefore be to understand your exposure. Suppose your finance manag­er earns $2,500 per month, while credi­ble market data indicate that comparable roles are paid around $3,000. That doesn’t automatically mean you should increase the employee’s salary to $3,000, but man­agement should certainly be aware of the gap.

Without that information, the organi­sation is effectively managing an import­ant people risk without measuring it. The employee may know their market value even when the employer doesn’t. That information imbalance becomes partic­ularly dangerous when competitors start approaching your people.

As a practical management trigger, I advise executives to pay particular atten­tion when an employee in a key role is being paid more than 15 percent below the relevant market median. The 15 per­cent should not be treated as a scientific law or an automatic salary adjustment rule. It is simply a warning signal that should trigger investigation and manage­ment discussion.

When such a gap appears, manage­ment should ask why it exists. Perhaps the employee is relatively new to the role and still developing, or their performance doesn’t justify positioning them around the market median. Perhaps the organisa­tion’s remuneration strategy deliberately targets a lower market position because its financial circumstances cannot sup­port market median salaries.

There may therefore be perfectly le­gitimate reasons for an employee being materially below the market median. The problem arises when nobody knows why the gap exists or, even worse, nobody knows that the gap exists at all. That is when an organisation can lose a valuable employee over a remuneration problem it could have identified months earlier.

If someone occupying a business crit­ical or difficult to replace role is materi­ally below market, performing strongly, and possesses skills that competitors need, management should understand that person’s retention risk. Waiting until they receive an external offer transfers considerable negotiating power to the employee and the competing employer. At that point, management is responding to someone else’s timetable rather than proactively managing its own workforce.

One mistake employers make is as­suming that retention risk becomes seri­ous only when employees actively start looking for jobs. That is no longer a safe assumption in a labour market where ex­perienced people are increasingly visible to recruiters and competing organisa­tions. A good employee doesn’t necessar­ily need to submit a single job application to receive an attractive employment offer.

Professional networks and platforms such as LinkedIn have made experienced employees much easier to identify and approach. An employee can be reason­ably satisfied with their job on Monday and receive an attractive approach from a recruiter on Wednesday. The employee may not have been planning to leave, but a substantially better offer can suddenly create a decision that didn’t previously exist.

That is when your existing remuner­ation position gets tested. If the employ­ee discovers that another organisation is prepared to pay substantially more for essentially the same capability, the finan­cial gap becomes difficult to ignore. The larger that gap becomes, the more pres­sure it places on everything else holding the employment relationship together.

Salary benchmarking should also be linked to talent risk because being below market does not have the same conse­quences for every employee. Consider two employees who are both being paid 20 percent below the market median. Looking only at salary data would sug­gest that the organisation faces the same problem in both cases, but that conclu­sion could be completely wrong.

The first employee may occupy a role where replacements are readily avail­able, performance is average, and the necessary skills can be developed rela­tively quickly. The second may be a high performer running a critical operation, possessing scarce technical knowledge, maintaining important customer relation­ships and performing work that would take a new employee months to master. Losing the second employee clearly cre­ates a significantly greater organisational risk.

Good organisations, therefore, com­bine market position with performance, scarcity, criticality, and replacement dif­ficulty. Management should ask how im­portant the role is, how difficult it would be to replace the capability, and what would happen operationally if the em­ployee resigned tomorrow. It should also estimate how long effective replacement would take and what the disruption could cost the business.

Those questions transform a salary survey from an HR report into a manage­ment tool. The conversation stops being simply about whether an employee de­serves another $300 or $500 per month. It becomes a discussion about the financial and operational risks of losing the capa­bilities the organization needs to execute its strategy.

Another mistake is assuming that employees will tell management when they become dissatisfied with pay. Some employees certainly will complain, ask for salary reviews, or raise concerns with their managers. Others will say absolute­ly nothing while quietly assessing their options.

Those silent employees can represent the bigger risk because management receives very little warning from them directly. They continue working, remain professional and deliver what is expected of them. Then one afternoon they submit a resignation letter and management says there were no signs.

There may actually have been signs, but the organisation simply wasn’t mea­suring them. One of those signs could have been sitting in the salary market data for months. A growing gap between what the organisation pays and what the external market pays is information man­agement should not ignore.

The objective of remuneration man­agement should never be simply to pay everyone more, and neither should it be to blindly chase competitors’ salaries. The objective is to make informed decisions about where to position pay while bal­ancing external competitiveness, internal equity, employee contribution and organ­isational affordability. Sometimes, after reviewing market data, the correct deci­sion will genuinely be to make no salary adjustment.

But doing nothing after examining the evidence is fundamentally different from doing nothing because you don’t know what is happening in the market. When a critical employee is substantially below market, investigate the reason, assess their performance and replacement risk, and consider the organisation’s ability to respond. Management can then make a deliberate decision rather than waiting for a resignation to force one.

You may decide to adjust the sala­ry, address progression opportunities, strengthen other aspects of the employ­ment proposition, or conclude that the current salary remains appropriate. What matters is that the decision is being made while the organisation still has options. Once a competing employer puts an at­tractive offer in front of your employee, some of those options disappear.

After more than two decades of deal­ing with remuneration issues, this is one lesson I believe executives should take seriously. The best time to discover that your key employees are falling behind the market is not when they resign. Good remuneration management is not about matching every movement in market salaries; it is about recognising risks early enough to act while you still have choices.

l Nguwi is the managing consultant of Industrial Psychology Consultants and a registered occupational psychologist.