Is it Worth it to Win the Talent War? Using Turnover Research to Evaluate the Utility of Performance-Based Pay

Evidence from executive surveys and the business press suggests that while “winning the talent war,” the attraction and retention of key talent, is increasingly pivotal to organization success, it is an area of poor perceived performance. This paper shows how the Boudreau & Berger (1985) staffing utility framework can be used by industrial/organizational psychologists and other HR professionals to integrate turnover and compensation research to address this issue. Using published research based on a large petrochemical organization, we used this model to estimate the financial implications of how incentive pay programs affect the turnover patterns of employees of various performance levels. The demonstration highlights the importance of an integrated approach to employee selection, retention and compensation, and reveals the key role of performance variability in the decision to use incentive pay to enhance talent retention. Furthermore, our method should provide a structure for organizations to assess the profitability of company-specific performance-based pay policies.

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