Academic journal article IUP Journal of Organizational Behavior

Linking Compensation and Turnover: Retrospection and Future Directions

Academic journal article IUP Journal of Organizational Behavior

Linking Compensation and Turnover: Retrospection and Future Directions

Article excerpt


A proactive and committed organization clearly recognizes that the primary and most valuable source of competitive advantage is its people. They are the only differentiator that helps the organization to survive, sustain and attain competitive advantage. Hence, it could be well understood that the people are its biggest expense, or its biggest investment. Pay has always been a priority to both the parties of employment relationship, i.e., employers and employees, as it is rightly pointed out by Simon (1951) and Milkovich, and Newman (1996) that the beginning of any employment relationship between employer and employee is the pay and thus is a distinctive characteristic of any employment relationship.

Compensation is a connecting factor that brings the employee and organizational goals together. It takes care of the most critical issue that every organization is facing today and that is talent retention. It is a bridge between macro issue of talent retention in organization and micro behavior of its member in the organization. Compensation as an effective tool for talent retention strategy is well established when a survey conducted by Hay Group UK (2010) established that almost 70% of respondent organizations were concerned about the retention of high performers and 63% of organizations use pay increases as a means for rewarding their high performers. According to one survey by Aon Hewitt (2013), pay is regarded as one of the top levers of talent engagement and retention. In other words, the bottom line is that people work to earn a living, so compensation is a key factor in an effective talent retention.

For years and decades, debate about compensation being instrumental in quitting one job and starting another has been heavily contested among scholars and working professionals. This still remains the scenario despite decades of research looking at the issue from different perspectives, using different methodologies and sample groups. While, on the one hand, for some it is self-evident that the pay received for doing a job forms a major, if not the biggest, consideration in any decision they may make about where to work, others take the view that pay levels are more commonly a second-order consideration, one of a wide range of factors that act as potential antecedents of voluntary employee turnover, but not especially prominent in most decisions to quit.

In order to delve deeper to understand the convergence between compensation and turnover, it is quite pertinent to understand historical development of both the independent and yet interlinked areas, viz., compensation and turnover. In an effort to analyze and synthesize the historical development of the fields individually, it will be far easier to link that phase or epoch wherein both the areas have merged to provide an interdependent relationship. A historical and narrative review of all the major and classical works in compensation and turnover will allow us a clearer perspective on the literature from which new vistas for research can emerge.

Objective of the Study

To capture the historical development of research in turnover and compensation, the paper has divided the timeline into three epochs that mark key transitions and methodological developments in turnover and compensation research individually. Figure 1 shows the convergence of compensation and turnover research which revolved around a few key concepts.


The paper focuses on the literature published in various HR and OB journals published during the last century. To carry out the literature review, databases of Taylor and Francis, JSTOR, Elsevier (Science Direct), EBSCO, Emerald, SAGE, Google Scholar, and Research Gate have been explored.

While searching for relevant literature, specific keywords were used, viz., 'compensation and talent retention', 'compensation and employee retention', 'the relationship between compensation and retention', 'pay and employee retention', 'linkage between compensation and retention', the effect of compensation on employee retention'. …

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