A pay rise won't fix your employee retention problem – here's what will

A resignation letter lands, and the slack message follows: what can we offer to keep them?

“It’s the worst possible moment to make a good decision,” says Gina Trautwein, Senior Comp & Benefits Partner at Staffbase, “and it’s very rarely only about money.” 

Reaching for pay is the reflex when retention issues are brought to the table. It’s a high pressure time, and it seems the simplest solution.

But, usually that counter offer or retention bonus is too late – or pay isn’t actually the thing driving them to look elsewhere.

We spoke to Gina Trautwein, Senior Compensation and Benefits Partner at Staffbase, and Henriette Zimmer, VP People at Nofence – two Reward Leaders who've faced employee retention compensation problems many times over.

Their view in a nutshell: retention is rarely Rewards’ to fix alone, and it's rarely as simple as "give them more”.

Why a pay rise or retention bonus doesn't automatically fix retention

In reality, a salary increase only helps to retain under fairly specific conditions.

"A pay adjustment works when two things are true: the root issue really is about compensation, and everything else is broadly fine – the work, the manager relationship, the role," says Henriette. 

"When those two things line up, fixing the pay problem can retain someone, because it’s actually a pay problem."

“But when the pay concern is sitting on top of something else – a difficult manager relationship, a role someone has outgrown – the adjustment buys time but not commitment, and they’ll usually leave in six to twelve months. They stayed, but they’re not really with you.” 

Gina's seen exactly what it looks like when that test gets skipped. 

"My favourite example – favourite because it taught me the most – is someone who got promoted three times in two years,” she says. “They pushed hard for it, which made the business feel they were a flight risk, and we didn’t have a proper process around promotions at that time.” 

"On paper it looked like we were retaining one of our top talents. What actually happened is that we kept raising their market credibility until they were senior enough to easily land a role elsewhere – and then they left, without ever really being ready for or performing at the level they'd reached with us.”

Neither of Henriette's two conditions had actually been checked. "We'd promoted someone on pressure, not readiness," Gina says. "And nobody had invested in the manager-employee relationship. There was never a real emotional bond to the company – and when there's no bond, walking away is easy."

It's an easy trap to fall into, because the fear of losing a great team member is there, and pay feels like an easy fix to grab for. 

So what should we be doing instead?

Find the real reason before reaching for pay

Gina and Henriette’s advice is to start with finding out what's really going on for that individual – not what you can offer them.

Firstly, that’s about surfacing risk as early as possible – and that's rarely the job of a Reward Leader alone. 

"Reward can't spot risk if it's sitting centrally, waiting for a manager to escalate," Gina says. "We do watch the signals we can – attrition patterns, engagement data, tenure and promotion velocity – but the earliest signal usually sits with the manager."

But, Rewards can advocate for managers to be informed about those risks.

“A lot of it comes down to the quality of the manager-employee relationship,” Gina explains. “If a manager knows their people, and there’s trust between them, the risk will surface during 1:1s.”

“One thing that’s worked well at Staffbase is for all new joiners to write a ‘manual of me’ for their team that explains how best to work with them – how they communicate, their feedback style, and so on. It sounds soft, but it really does help to build those relationships.”

On the compensation side, it’s then about ensuring that managers are equipped with a deep understanding of the company’s approach. “A lot of what we’ve built is aimed at pushing the framework rather than locking it inside reward: giving them a total-rewards view they can use, and building manager capability to explain it," says Gina.

Once risk is identified, it becomes a detective situation. 

"Before you decide how to proceed, you need to be reasonably confident about why someone is actually at risk," Henriette says. "How is this person's relationship with their manager? Is the work still a good fit? Do they feel like they're growing? The answers shape the action you should take.”

In many cases this investigation will show that compensation isn’t the core issue.

But, sometimes it is. 

Gina and Henriette see two common situations where compensation is driving the retention risk.

Firstly, market drift – when a role’s value has changed in the market, and the employee’s compensation package hasn’t kept pace. 

“Try to stay ahead of the market rather than reacting to it,” Henriette advises. At Nofence, every review cycle includes defining which roles are key to the business and reviewing their pay against current market rates at their target percentile. They also create opportunities for employees to share feedback on compensation too.

It's worth catching that drift early. 

Employees on below-market pay make up a disproportionate share of departures within their first year in a role, and employees paid above the 55th market percentile consistently show the lowest share of departures overall, according to Ravio's analysis.

So, make monitoring for market drift a core priority for Rewards – ensuring regular access to up-to-date, reliable market data, and making market adjustments a non-negotiable compensation budget line item. 

If you're not sure where to start with that, our guide to spotting pay-related retention risk walks through exactly how to ensure you always know where your own employees sit against the market and each other before it shows up as a resignation.

Secondly, changes in the individual’s financial situation can also spark retention risk due to compensation.

“Someone who has started supporting a family back home, or is now saving towards buying a house, or who simply has an expensive lifestyle, can be very pay-sensitive, “ Gina explains.

“This can be the case in any role and at any level, but it is usually more likely for those early on in their career – as lifestyle shifts and large financial goals are more common.”

Ravio's own analysis backs that pattern: market-leading pay meaningfully improves retention for Support roles and early-career Professionals, at P1 and P2 level. From P3 onwards, and across Management, target percentile makes no measurable difference to how long people stay.

So when pay is actually the core issue, what should we do about it?

What to do when compensation is the culprit for retention risk

Getting the diagnosis right is key, but it doesn't decide which instrument to reach for.

A salary increase is permanent, and harder to reverse than a one-off retention bonus.

But, if market drift or internal pay fairness is the issue, then the salary adjustment is what’s needed to close the market gap rather than papering over it.

On the other hand a bonus avoids baking the decision into payroll – less permanent, and works well if there’s a retention risk with an end date (until the end of a critical business project, or to extend handover and succession planning time, for instance). 

But, if you’re looking to retain that employee for the long-term, it won’t fix a structural pay gap, simply delaying the conversation until later on. 

Gina learned this the hard way with retention bonuses.

“We’d usually grant a retention bonus when there’s a knowledge risk – that person is definitely going to leave, they’ll take vital expertise with them, and we just need to buy time for a proper handover and succession planning,” she explains.

“But we’ve historically been good at paying the bonus and bad at resolving the knowledge risk. So a few months down the line the same point of failure still plays out, and it’s become a more expensive failure.”

So the team changed the process. Every bonus at Staffbase is now paired with a documented risk-mitigation and succession plan. "Knowledge transfer, cross-training, a named successor, and a target date to close the risk," Gina says. "The bonus buys time to eliminate the dependency, and that time needs to be used properly by the business.”

Of course, there are other compensation levers too – an equity refresh grant, or a benefit might matter more to an individual than base pay does, depending on what they’re optimising for at that time in their career.

In fact, Gina finds that often at-risk employees aren’t fully aware of the vesting schedule or current value of the equity they already hold, or the benefits they can already access. 

"If someone's only weighing base salary against a competing offer, we've failed to communicate the rest of it – the equity vesting next year, generous PTO, the flexwork allowance or growth budget," Gina says. "It's a communications job as much as a comp one.”

Ultimately, the right lever to pull depends on the outcome of your investigation.

A well-performing employee who is still bought into the role and the company, but just sees their pay creeping behind the market or peers? Then it’s a salary adjustment – or a total rewards adjustment if other components of their package are more important to them.

Someone who is set on making a move but is in the middle of a big important project? Then a retention bonus with a requirement for them to stay until the end of that project will do it. 

A high performer who was invested in driving company success, but is starting to seek that challenge elsewhere? An equity refresh might be enough to keep the upside in play.

An employee who is showing all the signs of being fully checked out of the role and doesn’t have much business risk attached to them leaving? Then you might take no action at all.

Whatever lever you pull, Henriette reminds that you can never make an employee’s compensation adjustment in isolation. 

"When you make a retention adjustment, you can't just look at that one person," Henriette advises. "If the market has moved for them, the question is: are there others in exactly the same position where the risk just isn’t visible yet? If yes and you don't address it, you may have added a new internal pay equity problem on top of the old one."

The rest of the retention toolkit

As we’ve seen, comp is one lever. But what about when the investigation shows that it isn’t the root cause? 

• Promotions. Gina and Henriette both agree that career progression carries the most weight – and that it comes down to having strong frameworks in place for job levels and promotion criteria. "In an environment where pay isn't really changing that much year-to-year, promotions become increasingly important," says Henriette, "it's often the only way pay actually changes." Clear criteria also protect against the kind of pressure-driven promotions Gina described earlier.
• Ongoing career development and feedback. Progression isn't only about the next promotion, though. A high performer who has just received a pay rise will already be asking what comes next, so the development conversation needs to keep going after the review cycle closes – what they want to learn, and what the next level looks like for them. It doesn't always take a promotion to answer that: a stretch project, a secondment to another team, or more exposure to senior leaders can all give someone the challenge they're looking for. The same goes for feedback. If a manager saves it for the annual review, the employee who hears they're falling short has no time to act on it, and the one who's doing well has gone months without hearing it. 
• Manager relationship. Fractured relationships with a manager or team members can be a huge attrition driver – investing in real management training on areas like how to build trust, regular check-ins, or how to give feedback can help to improve dynamics and prevent this risk.
• Recognition programmes. Recognition is often seen as a nice-to-have, but it’s what makes employees feel valued, and that builds loyalty. "It's the personal acknowledgment," Gina says. "Our spot-award framework is built around exactly that – a manager has to name what was exceptional and why it mattered."
• Flexible working. Hybrid and remote arrangements, and control over schedule, now consistently show up as a top retention driver. Offering increased flexibility or additional time off can be more appealing to some employees than increased pay.
• Sustainable workload. For long-tenured, strong-performing employees, the scope of a role can creep upwards without being ready for promotion to the next level – so it’s always worth reflecting on role scope, responsibilities, and capacity alongside promotion readiness. If burnout is a flagged concern, wellbeing support can also be valuable.
• Purpose and culture. People who understand where the company's headed, the purpose of the company, and how their work fits into that, tend to invest more in staying, so it might be that actions can be taken to improve clarity and communication on this.

Ultimately, there's no single right lever – what works depends on what the individual in front of you needs, which is why this so rarely sits with reward alone. 

Getting it right takes the manager, the wider HR team, and reward working from the same information and diagnosis.

It’s also important to think beyond individual cases – continually improving processes and communication as part of a wider employee retention strategy.

Where a retention issue keeps recurring, look at the underlying foundations and frameworks rather than solving it person by person. 

"Build your frameworks before you need them – design them while things are calm, not under pressure," Gina says. "Decisions you make reactively are almost always less consistent, less fair, and harder to defend than the ones you designed in advance."

And, to wrap up, it’s worth noting that not every retention risk is fixable. "Sometimes the honest answer is there isn't a lever that works," Henriette says, "and the most useful thing you can do is aim for a good exit."

FAQs

How does compensation affect employee retention?

Compensation affects retention when salary falls behind the market, drifts internally between comparable employees, or leaves someone feeling under-recognised for their contribution. In Ravio's 2025 Compensation Trends survey, 61% of People and Compensation professionals cited uncompetitive pay as a retention challenge. Ravio's guide to identifying pay-related retention risk walks through how to check whether it's actually the driver for a specific employee.

What is an acceptable employee retention rate?

There's no universal benchmark, since it varies by industry, function, and company stage – but as a reference point, Ravio's data shows average attrition across European tech sitting at 17.4%, with figures as low as 12% for Engineering and as high as 21% for Operations. Ravio's retention trends data breaks this down further by country and funding stage.

What are the top 5 employee retention strategies?

Career progression, recognition, flexible working, sustainable workload, and the manager relationship are five of the most effective levers. Ravio's own research found that 82% of Reward and People Leaders cite unclear career progression as a top retention challenge, ahead of compensation at 61% – see Ravio's retention trends data for the full breakdown.

How does reward work as a retention strategy?

Reward works best as one part of a wider retention strategy, not the default fix – a pay rise, bonus, or equity refresh only retains someone when compensation is genuinely the issue. Ravio, a real-time compensation benchmarking and total rewards platform, helps Reward teams diagnose that before deciding: see Ravio's guide to spotting pay-related retention risk.

What is an employee retention bonus?

An employee retention bonus is a one-off payment offered to encourage someone to stay for a defined period, often tied to a specific event like a merger, critical project, or handover. Unlike a salary increase, it doesn't raise ongoing base pay, and works best when paired with a plan to resolve the underlying risk, not just delay it. 

What is the best way to retain employees?

The most effective approach is diagnosing what's actually driving an employee's risk of leaving – manager relationship, career growth, role fit, falling-behind market pay, internal pay equity issues – before deciding on a fix. Ravio's retention trends data shows that attrition varies significantly by function, market, and company stage, which is why a single universal strategy rarely works.

Does pay fix retention?

Sometimes – but only when pay is truly the issue and everything else about the role is fine. If the concern is sitting on top of something else, like a difficult manager relationship or a role someone has outgrown, a pay rise tends to buy time rather than genuine commitment.