Using our heads to solve your Reward challenges.
Who in HR or Reward does not dread the email about someone planning to leave for a pay rise?
On the one hand, employee turnover is a normal and often healthy part of organisational life—especially when people move on for positive, developmental reasons. But losing great people over a small, unmet pay increase request?
That's where many organisations unintentionally incur one of the most expensive and avoidable costs in their people strategy. It costs time and money to replace employees. It puts strain on the remaining employees who have to cover their tasks while recruitment is ongoing. It may well lead to further losses if it takes time to find the right candidate and that strain makes heading for the door too look like the best option for them.
Even after finding the right candidate, it takes time for them to come up to speed and understand the organisation and the way it does things. It's an expensive time when nothing goes quite the way it should.
At Reward Heads, we're not advocating that every pay request should be approved. Pay equity, internal relativities and budget constraints matter.
However, when a role is materially below market rate, or when the individual is one of those true “unicorns”—high performers who are difficult and costly to replace—it's worth pausing to assess the full picture.
Because when you factor in recruitment, training, lost productivity and cultural impact, the real cost of saying “no” can significantly outweigh the cost of a small adjustment.
Before we look at the true cost of turnover, let's make sure that we know how much it would cost to bring in someone new just in terms of base pay. As we will see below, there are many other costs, but seeking purely to answer the question “are we paying this employee fairly?”
We would start by finding a robust benchmark in the market based on the organisation's reward principles e.g. if they are a median payer
Then be clear whether this role needs to be paid differently for some reason e.g. this is business critical and so we would want to be upper quartile in the market
And then consider the individual - if we create a pay range for the role, where would this individual sit on expertise? There is little point saying that we can replace someone for £x where the new hire is entry and the existing person is an expert, that is not comparing apples with apples.
This is where we find clients need support - to fairly level roles and match them in the external market, create robust pay ranges and even more robust processes for assessing where someone should sit in the pay range - reward principles, policy and framework.
So now we know what we should be paying the person requesting the pay rise. We may be pretty much there or need to take action. But what if it looks like the right amount for the role, should we be considering wider costs and implications.
Here is some food for thought. It is worth saying that the numbers will vary hugely based on role, organisation, specialism and so on, but are a good start point to work out what this would look like in your organisation.
Understanding the Real Cost of Turnover
In the UK, replacing an employee typically costs 20% (sometimes up to 100%) of their annual salary, depending on role type and seniority. For many organisations, this equates to £10,000-£30,000 per leaver, with costs rising sharply for specialist, senior or hard-to-fill positions.
1. Direct Financial Costs
The numbers stack up quickly:
These figures are rarely budgeted for, yet they hit the bottom line every time a preventable resignation occurs.
2. The Productivity Penalty
Turnover doesn't just cost money—it costs momentum.
This productivity dip is a large-but often invisible-component of the true turnover cost.
3. Cultural and Retention Ripple Effects
When someone leaves because their pay didn't keep pace with the market, the impact rarely stops with them.
Once that domino effect begins, retention becomes exponentially more difficult—and expensive.
Pay Rise vs. Replacement: The Business Case
When comparing a modest pay rise against the full replacement cost, the business case for retention becomes clear:
When the alternative is a £30k turnover cost, declining a £2k market adjustment begins to look less like fiscal discipline and more like financial shortsightedness - but it must be done fairly and in line with the organisation's reward principles so that it is not 'he who shouts loudest'
The Bottom Line
For high-performing employees, a targeted, market-aligned pay increase is not an expense it's a retention investment. A relatively small adjustment today can protect your business from tens of thousands of pounds in avoidable costs tomorrow.
For organisations willing to look beyond the surface, the smart strategy is clear: Retain your talent. Protect your culture. Invest wisely in the people who drive your success.
Reward Heads does a lot of work in this arena – ensuring our clients have robust frameworks and policies with benchmarked pay ranges and relevant benefits. Please reach out for our help on rewardsolutions@rewardheads.co.ukor to any of the team directly.