Pay stagnation, employee retention, and the perception gap
Seven in ten workers say their annual salary has not moved in the past year, while nearly half of employers report they increased pay for at least some employees. That disconnect sits at the center of the current pay and retention problem, because employees feel the gap between what leadership says and what hits their bank accounts. When people compare their pay to rising costs of work, life, and caring responsibilities, they often feel undervalued and start scanning the market in their limited free time.
The Morgan McKinley 2024 Salary Guide, based on survey responses from more than 8,000 professionals and 3,400 employers across multiple regions and published in late 2023, shows 67% of employers experienced employee turnover in the past six months, yet only 19% explicitly link employee turnover to perceptions of pay. That is a striking underestimation, because when employees leave over opaque pay decisions, organizations lose institutional knowledge, see lost productivity, and pay a premium to backfill critical roles. For a mid sized company, replacing a single experienced employee can cost well over one annual salary once recruitment, training, and ramp up time are fully loaded. For example, a £70,000 role can easily generate £15,000–£20,000 in hiring costs, £10,000–£15,000 in onboarding and training, and several months of lost output that pushes the true replacement cost above £100,000.
Targeted raises for so called critical roles can deepen the perception gap when the rest of the team hears about them informally. Employees who do not receive competitive compensation but carry the same workload question the fairness of the retention strategy and the broader company culture. Over time, that erodes engagement, weakens loyalty, and nudges high performers to leave even when they like their job and colleagues.
For CHROs, the signal is clear, because pay and retention dynamics now show up in pulse surveys, exit interviews, and stay interviews across sectors. When employees feel they are funding shareholder returns through frozen pay while executives receive outsized equity, trust in leadership and the organization’s stated values collapses. That trust deficit then contaminates other areas of work, from openness to training to willingness to support cross functional projects that depend on a committed team.
Data callout: In the same Morgan McKinley 2024 research, which draws on thousands of responses across EMEA, APAC, and North America, 43% of professionals said they were actively looking for a new role, and a further 35% were open to moving — with pay and benefits cited as the top trigger for considering a change.
Employee financial wellbeing is no longer a side benefit but a core part of any serious retention strategies portfolio. If employees feel their pay is stagnating while the company reports strong results, they interpret that as a culture choice, not a temporary constraint. In that context, even generous benefits or mental health programs cannot fully compensate for the sense that they do not feel valued for their contribution over the long term.
Why targeted pay actions backfire without transparent communication
Many employers now reserve pay increases for specific roles, hoping to protect scarce skills while containing costs, yet they rarely explain the underlying strategies. Employees outside those bands see colleagues in similar jobs receive raises and understandably feel the system is arbitrary, which accelerates employee turnover and undermines retention. When employees leave under those conditions, they often cite culture and leadership rather than pay alone, because the real issue is perceived fairness.
In organizations that treat pay as a confidential black box, managers struggle to answer basic questions about how compensation decisions are made. That leaves front line leaders exposed in stay interviews and performance reviews, where employees feel they are negotiating in the dark about career development and career growth opportunities. Over time, this opacity corrodes engagement and makes every pay conversation feel like a zero sum fight rather than a shared effort to improve employee outcomes and business resilience.
Pay transparency does not mean publishing every annual salary, but it does require clear pay bands, criteria, and timelines that people can trust. When a company explains how competitive compensation is benchmarked, how market adjustments work, and how long term incentives are allocated, employees feel more agency even if they must wait for the next cycle. That clarity also helps leadership align retention strategy with actual employee expectations instead of assumptions formed in the boardroom.
CHROs who pair transparent pay frameworks with rigorous root cause analysis of attrition data close the perception gap faster. A structured method such as the approach outlined in this analysis of root cause analysis for better employee experience, which draws on multi year datasets of employee feedback, helps teams separate noise from signal in why employees leave. When people leaders see that exit themes cluster around pay fairness, promotion timing, and work life balance rather than headline salary alone, they can redesign retention strategies with more precision.
Communication cadence matters as much as content, because a one off town hall about pay will not reset trust. Employees need to hear consistent messages from HR, from their direct manager, and from senior leadership about how the organization is handling inflation, market shifts, and internal equity. When that narrative is coherent, employees feel valued even when budgets are tight, and they are more likely to stay through a rough patch instead of triggering avoidable turnover.
From raises to relationships: feedback driven playbooks for retention
Pay related retention challenges cannot be solved with compensation tables alone, because employees experience pay as part of a broader relationship with their employer. When people talk about why they stay or leave, they mention their manager, their team, their workload, and whether the company culture matches the story told during hiring. That is why leading organizations now treat employee feedback on financial wellbeing as a strategic asset, not a compliance exercise.
High performing HR teams use multiple feedback channels, including stay interviews, pulse surveys, and structured listening sessions, to understand how employees feel about pay, benefits, and work life balance in real time. They then connect those insights to concrete levers such as training for managers on pay conversations, adjustments to benefits that support mental health, and clearer pathways for career development. When employees see that their feedback shapes decisions, engagement rises and the organization earns the right to ask for patience when immediate raises are not possible.
Career progression is a critical pressure valve when pay budgets are constrained, because visible career growth can offset temporary stagnation in cash compensation. Research on stalled advancement, such as the analysis of career plateaus in this study of career development stalls and promotion data based on more than 250,000 employee survey responses, shows that opaque promotion criteria drive disengagement as powerfully as pay freezes. When companies publish promotion standards, invest in targeted training, and align development plans with retention strategy, employees feel valued for their potential, not just their current job.
Operational roles often feel the sharpest edge of pay stagnation, yet they are also the backbone of company culture and daily employee experience. As this analysis of how administrative professionals shape employee experience, drawing on qualitative interviews and large scale engagement data, highlights, support staff set the tone for how work actually gets done. When leadership includes these employees in feedback loops, recognizes their institutional knowledge, and offers meaningful benefits and development, the whole team feels the signal that everyone matters.
For CHROs, the mandate is to treat pay perception as a measurable, manageable driver of employee retention, not an intangible sentiment. That means tying feedback on compensation and benefits to clear KPIs, tracking the impact of each retention strategy on employee turnover, and reporting those results to the board with the same rigor as any other investment. In the end, raises are a transaction, but how you listen, explain, and respond is the relationship — and relationships, not engagement surveys, are the real signal.