Is It Worth It to Win the Talent War? Evaluating the Utility of Performance‐based Pay

Abstract

Although the business press suggests that “winning the talent war,” the attraction and retention of key talent, is increasingly pivotal to organization success, executives often report that their organizations do not fare well on this dimension. We demonstrate how, through integrating turnover and compensation research, the Boudreau and Berger (1985) staffing utility framework can be used by I‐O psychologists and other HR professionals to address this issue. Employing a step‐by‐step process that combines organization‐specific information about pay and performance with research on the pay‐turnover linkage, we estimate the effects of incentive pay on employee separation patterns at various performance levels. We then use the utility framework to evaluate the financial consequences of incentive pay as an employee retention vehicle. The demonstration illustrates the limitations of standard accounting and behavioral cost‐based approaches and the importance of considering both the costs and benefits associated with pay‐for‐performance plans. Our results suggest that traditional accounting or behavioral cost‐based approaches, used alone, would have supported rejecting a potentially lucrative pay‐for‐performance investment. In addition, our approach should enable HR professionals to use research findings and their own data to estimate the retention patterns and subsequent financial consequences of their existing, and potential, company‐specific performance‐based pay policies.

The effects of organizational learning culture and job satisfaction on motivation to transfer learning and turnover intention

“…There is no indication that there has been a decrease in the study of turnover in the past twenty-four years (Trevor, 2001). Although studies have not been well integrated in the literature, HRD-related fields have explored turnover and turnover intention in association with job satisfaction, organizational commitment, personality, aptitude, intelligence, governmental policies, and rates of unemployment (Hatcher, 1999;Sturman et al, 2003).…”

“…According to Trevor (2001), most major voluntary turnover models are descendants of the March and Simon (1958) model. Because of the practical implications and potential for impact productivity, employee turnover has been examined by researchers in multiple disciplines for some time, often exploring the inverse relationship to job satisfaction (Sturman, Trevor, Boudreau, & Gerhart, 2003). Muchinsky and Morrow (1980) estimated the number of turnover-related studies to be between fifteen hundred and two thousand.…”

High Commitment HR Practices and Top Performers

“…in particular, attracting and retaining top performing knowledge workers whose levels of performance are extremely high may significantly influence organizational effectiveness (cappelli 2000;lepak and snell 1999;Randall 1987;sturman et al 2003). scholars have argued that the retention of top performers impacts organizational effectiveness because their turnover not only imposes high replacement costs but also decreases organizational morale (cascio 1995;hollenback and Williams 1986;lucas 1999;Mobley 1982;Randall 1987;staw 1980).…”

Turnover prediction using attitudes towards benefits, pay, and pay satisfaction among employees and entrepreneurs in Estonia, Latvia, and Lithuania

“…They exhibit significant relationships with organizationally important outcomes such as absenteeism, turnover intentions, perceived organizational attractiveness for job seekers, organizational citizenship behaviors, and job performance (Carraher et al, 2006a, b;Gaiduk et al, 2009;Labatmediene et al, 2007;Sturman et al, 2003).…”