It’s vital for managers to have ways of building employee engagement that don’t rely on financial incentives. Everyone would like (and sometimes expects) a pay rise every now and then, especially if they’ve been with the organisation for a while. But what are the impacts of not getting a pay rise on employee engagement, performance and wellbeing?

With the cost-of-living crisis affecting us all, it’s never been more important to talk about pay increases. As financial pressures compound existing job stress, failing to keep up can seriously damage employee relations.

Engagement falls when your pay rise request is turned down

While performance-based financial incentives can sometimes do more harm than good, the fact is that rates of pay can be a significant source of concern for many employees. 80% of North American workers feel stressed about the amount of money they make. Less than one third of workers were satisfied with the level of pay transparency. And more than 50% of women cited pay as the leading reason for being dissatisfied with their employer. Compared to 35% of men.

These findings and others suggest that there are still deep running issues with pay equity, despite years of calls to address issues such as the gender pay gap. Then there’s the issue of financial wellbeing.

The impact of not getting a pay rise on employee wellbeing

The impact of not getting a raise can be severe for the millions of workers living on the minimum wage.  A lack of financial wellbeing can have disastrous consequences. Whether it’s a notable increase in stress, or an inability to pay bills or buy essentials.

Making employees feel valued is a huge part of engaging them. And an engaged workforce is the backbone of a productive business. While a pay rise is far from the only way employers can make their workers feel valued, it still remains one of the clearest forms of measurement.

When employees don’t feel valued, their incentive to do their best work suffers. That’s because all that effort seems to go unnoticed. So if you’re not giving pay rises, this may impact how valued employees feel. And sends the message that they just don’t matter.

Not increasing employee salaries can increase attrition

If you need more proof about the impact of not getting a raise, then it’s time to talk about staff turnover. In 2022, research from Reed found that 55% of UK employees are actively seeking new work or considering it. 34% reported that salary increases have become more important due to cost-of-living increases.

It’s easy to see why managers are expected to reduce turnover. It’s fairly common to see job listings advertising competitive or negotiable salaries, and it’s these positions that can draw dissatisfied workers away from other businesses.

For employees, the impact of not getting a raise is that it can be quite demotivating, but for organisations, it risks being far more costly if it does result in staff turnover.

The financial impact of not giving a pay rise

The cost of turnover can vary a lot by position and even country. In the US, replacing someone in a low-paying, high turnover position can cost approximately 16% of their salary. This rises with high-ranking personnel such as CEOs to over 200% of their base salary. Management positions occupy a middle ground. Some research suggests that management turnover could cost a fifth of their salary. But according to SHRM’s findings, it can cost as much as 6-9 months of wages.

On the other hand, staff turnover costs an average of one third of the employee’s salary. The reason it’s so difficult to calculate is the number of unseen costs. From specialist training and recruiter’s fees to advertising budgets and the cost of new equipment. In the UK, the average cost of turnover ranges from £11,000 to thirty grand per employee.