Compensation & Benefits Review45(3) 171 –175© 2013 SAGE Pu.docx

Compensation & Benefits Review
45(3) 171 –175
© 2013 SAGE Publications
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DOI: 10.1177/0886368713494342
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Talent Management
Introduction
How can compensation and benefits managers and HR
professionals effectively and strategically manage
employee turnover and retention? That is the thrust of this
article. Retaining talent is important to managers in all
types of organizations. The costs associated with losing
employees and recruiting, selecting and training new
employees often exceed 100% of the annual compensa-
tion for the position.1 In addition to these direct financial
costs, losing employees can also lead to work disruptions,
loss of organizational memory along with tacit or strate-
gic knowledge, losses in productivity or customer ser-
vice, loss of mentors, diminished diversity and even
turnover contagion where other valued employees follow
the leavers out the door.2 Even when tough labor markets
prevent many employees from moving, there is the pos-
sibility of “pent-up” turnover. When job markets improve,
many employees may start looking for new alternatives.
Despite the importance of successfully managing turn-
over, many retention efforts are based on managerial gut

instinct rather than research evidence. In this article, we
synthesize the research on employee turnover into practi-
cal strategies for HR managers.
Compensation, Benefits and
Employee Retention
When we ask our clients why people quit jobs, pay is
almost always the first or second reason provided. Some
people do quit because they are unhappy with their pay.
Also true is that people often quit to take higher paying
jobs elsewhere. You already know that competing for top
talent on price alone (through compensation and benefits)
is a no-win proposition, and in the next section we will
provide several employee retention strategies beyond
compensation and benefits.
That said, however, there are ways to strategically
manage compensation and benefits that are consistent
with strategic employee retention management as well. In
this section, we discuss several aspects of compensation
and benefits in relation to their effects on employee turn-
over: (a) compensation structure, (b) compensation pro-
cedures, (c) types of compensation, (d) the perceived
fairness and equity in compensation and (e) linking com-
pensation and benefits vesting schedules to tenure
requirements.
•• Compensation structure, the amount of pay disper-
sion across organizational levels, matters in
employee turnover. Bloom and Michel3 have
shown that wide gaps between an organization’s
lowest paid and highest paid employees increase
the likelihood that managers and other employees
will voluntarily leave the organization.

494342CBRXXX10.1177/0886368713494342Compensation &
Benefits ReviewBryant and Allen
research-article2013
Corresponding Author:
Phil C. Bryant, Department of Management and Marketing,
Columbus
State University, 4225 University Avenue, Columbus, GA
31907, USA.
Email: [email protected]
Compensation, Benefits and Employee
Turnover: HR Strategies for Retaining
Top Talent
Phil C. Bryant, Assistant Professor of Management and
Marketing,
Columbus State University; and David G. Allen, Distinguished
Professor of
Management, University of Memphis
Abstract
Employee turnover is recognized as costly and disruptive. The
costs of employee turnover often exceed 100% of
the annual salary for the vacated position. Yet managers are
often unaware of the full range of tools and tactics
available for effectively managing employee turnover. Based on
award-winning research and professional experience,
the article offers managers several strategies for effectively
managing employee turnover. Strategies offered include
both compensation and benefits–based solutions and solutions
beyond compensation and benefits.
Keywords
turnover, retention, rewards, compensation, talent

at Northcentral University on July 1,
2015cbr.sagepub.comDownloaded from
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172 Compensation & Benefits Review 45(3)
•• Williams, Brower, Ford, Williams, and Carraher4
found that procedures such as determination and
administration of pay raises can affect employee
turnover through their perceptions of organiza-
tional support. Employees’ higher levels of satis-
faction with pay procedures are associated with
higher perceptions of organizational support, which
in turn reduces their likelihood to voluntarily leave.
•• Type of compensation also has an effect on
employee turnover. Beyond pay raises and cash
bonuses, Dunford, Oler, and Boudreau5 have
shown that stock options do have an effect on
executive turnover, and Sutton6 has shown that
companies with higher levels of insurance and
retirement benefits generally experience lower
levels of employee turnover.
•• Heshizer7 found that perceptions of pay fairness
and equity are significant in managing employee
commitment and turnover. Later research8 sup-
ported his findings in that reductions in turnover
were shown to be a result of compensation and
benefits systems that employees perceived as fair
in terms of equity theory.9
•• Finally, studies have shown that many different
vesting schedules for compensation and benefits

can be linked to tenure requirements to have a
positive effect on employee retention. Benefits
with relatively long-term vesting schedules such
as stock options, employee stock ownership plans
and retirement plans have been shown to effec-
tively manage employee turnover.10 The key is to
keep vesting schedules long enough to retain
employees for a reasonable period of time and
short enough to retain their motivational power.
Summary of Compensation, Benefits and
Employee Retention
Although competing on levels of compensation and
benefits alone may not be a strong strategic stance, there
are a few key takeaways regarding compensation and
benefits that can be managed to best retain top
employees.
•• Remember the importance of pay dispersion on
employee morale.
•• Clearly communicate standards and procedures
used for making pay decisions.
•• Go beyond pay raises and cash bonuses for a richer
retention management strategy.
•• Determine and administer compensation and ben-
efits fairly and equitably.
•• Provide benefits and compensation with reason-
ably long-term vesting schedules.
Employee Retention Strategies
Beyond Compensation and Benefits

As suggested in the following scenario,11 the bulk of the
research evidence suggests that pay may not be nearly as
important in managing employee turnover as many man-
agers believe. Imagine the following:
Benjamin is troubled. Generally speaking, he likes his
job, but lately he’s been feeling like his boss doesn’t
appreciate him, and he is worried about his opportunities
for advancement. So, he decides to start looking for
another job. He currently earns $40,000 per year; so his
job search targets only opportunities that make $40,000
or more. He would have to be extremely unhappy to con-
sider taking a pay cut. After a few months of searching,
Benjamin finds another opportunity that pays $48,000
per year. After weighing the pros and cons of staying and
leaving, he decides to take the new job. In the exit inter-
view, Benjamin says it is because he has found a new job
paying 20% more. Benjamin’s boss approaches the HR
manager. She says that a valued employee is leaving
because of his compensation; is there anything the orga-
nization can do? Now the HR manager is troubled. He
would like to keep Benjamin, and the company could
probably counteroffer a few thousand dollars. However,
Benjamin is already near the top of his pay grade, and the
organization is hesitant about setting a precedent encour-
aging employees to seek outside offers to leverage a
counteroffer. Maybe it is time for a new compensation
system. Before jumping to this conclusion, the HR man-
ager asks an insightful question: Is Benjamin really leav-
ing because of his pay?
Benjamin likely would never have been searching for
that higher paying job if he had felt his boss was looking
out for his best interests. Results of hundreds of studies of
predictors of individual turnover decisions12 demonstrate

that out of 35 predictors of individual turnover, level of
pay was tied for the 24th strongest relationship with turn-
over. Is pay satisfaction or dissatisfaction a better predic-
tor of turnover than level of pay? The evidence suggests
not. Out of the 35 predictors, pay satisfaction showed the
27th strongest relationship with turnover.
Despite the widespread belief that pay is an important
driver of turnover, pay level and pay satisfaction are rela-
tively weak predictors of individual turnover decisions.
Our research suggests three primary categories of predic-
tors that are more strongly related to turnover: (a) the
withdrawal process, (b) key job attitudes, and (c) the
work environment.
The predictors with the strongest relationships to turn-
over are those related to the withdrawal process, notably
turnover intentions and job search. Although some indi-
viduals may quit jobs quickly and impulsively, most go
through one or more steps of psychological or behavioral
Bryant and Allen 173
withdrawal first.13 For example, individuals may experi-
ence thoughts of quitting, search for alternatives, evaluate
possible alternatives against their current job, develop
intentions to quit and definitely plan to quit as soon as a
preferable opportunity presents itself.
Being aware of the significance of the withdrawal pro-

cess is important for managing retention for two reasons.
First, it allows managers to intervene in the withdrawal
process before it is too late. Discovering that a valued
employee is leaving after he or she has already decided to
leave is often too late. There are methods of measuring
withdrawal process variables that would enable managers
to take action before employees decide to quit. Second,
there is considerable research evidence about the drivers of
turnover intentions and job search, and this research is con-
sistent with the ultimate drivers of employee turnover.
Key job attitudes, notably job satisfaction and organi-
zational commitment, are also strong predictors of turn-
over and the withdrawal process. Job satisfaction is a
positive emotional state resulting from the subjective
appraisal of one’s job or job experiences.14 Organizational
commitment is the employee’s psychological attachment
to the organization.15 There are two key improvements
many organizations can make in how they assess job sat-
isfaction and organizational commitment: (a) be sure to
use well-developed measures with substantial validation
evidence and (b) measure more frequently and link indi-
vidual responses to important outcomes. Many organiza-
tions assess attitudes only once a year on anonymous
surveys with results analyzed only at the department or
business unit level. Although linkage research of this
nature has some value, more frequent assessment at the
individual level allows for more timely and targeted
interventions. This methodology requires building up
substantial trust in the workforce or working with outside
consultants to collect, analyze and interpret the data.
The next strongest class of turnover predictors includes
key variables related to the work environment, notably
aspects of leadership, work design and relationships with
others. There is considerable evidence to back the state-

ment that “people don’t leave companies; people leave
bosses.” The strength of the relationship an employee has
with his or her immediate supervisor is one of the most
consistent predictors of turnover. Research on leader–
member exchange16 notes that leaders often treat some
subordinates as part of their “in-group” with extensive trust
and access to resources and others as part of an “out-group”
with a more transactional relationship. Those in the in-
group are substantially less likely to leave. When leaders
are made aware of these important distinctions, they can
better manage their relationships with employees.
In terms of work design, role clarity and role conflict
are two of the most consistent predictors of turnover.
Role theory17 notes that individuals hold multiple roles
with expectations that influence behavior. When there is
a lack of clarity concerning role expectations or when
role expectations are in conflict with each other, individu-
als can experience stress, burnout and dissatisfaction and
are more likely to quit. Leaders need to ensure that expec-
tations are clearly communicated and supported. Another
element of work design that is directly relevant to manag-
ing employee turnover is the opportunity for advance-
ment.18 Individuals who believe that there are future
opportunities for growth and advancement are more
likely to stay—even if they are not completely satisfied
with their present circumstances. Organizations would
benefit from proactively managing career paths and
opportunities, and leaders need to communicate with
their employees about these opportunities.
Relationships with others in the workplace, beyond
supervisors, are also important for employee retention.19
Satisfaction with coworkers and work group cohesion are
two of the more consistent predictors of individual turn-

over decisions. Employees can become embedded in a
network of relationships at work that make it less likely
they will leave. Managers can create opportunities for
interaction and design work to foster cohesion. For exam-
ple, designing socialization tactics so that newcomers
interact with other new hires and have positive interac-
tions with experienced organizational members increases
the sense of being embedded in the organization, which,
in turn, increases retention.20
Summary of Employee Retention Strategies
In summary, extensive research evidence on individual
turnover decisions suggests several strategic insights
beyond compensation and benefits that can be instrumen-
tal in any organization’s employee retention management
efforts.
•• Pay level and pay satisfaction are relatively weak
predictors of individual turnover.
•• Indicators of the withdrawal process are the stron-
gest predictors of individual turnover decisions.
To manage employee turnover effectively, organi-
zations should consider assessing and managing
employee mobility, job search and turnover
intentions.
•• Job satisfaction and organizational commitment
are key attitudes and consistent predictors of indi-
vidual turnover decisions. Organizations should
consider assessing and managing both job satisfac-
tion and job commitment.
•• When assessing attitudes and withdrawal, organi-

zations should consider using well-developed
measures, measure more frequently than annually
and link individual responses to individual behav-
iors and outcomes.
•• The nature of the relationship with one’s immedi-
ate supervisor is a consistent predictor of individ-
ual turnover decisions. Organizations should
consider providing leadership training to all super-
visors and managers and should hold leaders
accountable for retention.
•• Employees with clear role expectations, minimal
role conflict, and opportunities for growth and
advancement are less likely to quit. Organizations
should consider training managers on the impor-
tance of providing clear role expectations, design
organizational processes to minimize role conflict
and develop and communicate career paths, espe-
cially to highly valued employees.
•• Employees linked by positive relationships with
others in the organization are less likely to quit.
Organizations and managers should consider
working to foster positive relationships among
coworkers, provide opportunities for interac-
tion and help newcomers form and develop

relationships.
It should be good news that pay is not the most important
driver of turnover. Revamping compensation systems,
paying considerably above market and throwing money
at valuable employees can be risky and expensive. Many
of the recommendations provided in this section are less
expensive to implement, more likely to have an impact
and thus likely to provide a greater return on investment.
Returning to the case of Benjamin at the start of this sec-
tion, it might have been more effective and less costly to
proactively communicate with Benjamin about future
opportunities than to try to come up with a counteroffer
or risk losing a valued employee.
Conclusion
Unmanaged employee turnover is costly to organiza-
tions, and smart managers know that competing to retain
top talent on price alone (higher pay and more benefits)
is a losing strategy. Fortunately, there are several
approaches managers can take to retain their top talent
that do not entail additional costs. Compensation and
benefits–related approaches include managing pay dis-
persion, using and communicating fair and equitable
standards and procedures for making compensation and
benefits decisions and having reasonably long vesting
periods for some benefits. Approaches to retaining top
talent that go beyond compensation and benefits include
knowing and assessing the indicators of the withdrawal
process, job satisfaction and organizational commit-
ment; managing employees’ relationships with their
immediate supervisors and others in the organization;
managing role expectations and role conflict and manag-
ing and clearly communicating opportunities for growth

and advancement with the organization.
Authors’ Note
Significant portions of this article are drawn with permission
from Allen, D. G., & Bryant, P. C. (2012). Managing employee
turnover: Dispelling myths and fostering evidence-based reten-
tion strategies. New York, NY: Business Expert Press.
Declaration of Conflicting Interests
The authors declared no potential conflicts of interest with
respect to the research, authorship, and/or publication of this
article.
Funding
The authors received no financial support for the research,
authorship, and/or publication of this article.
Notes
1. Cascio, W. F. (2006). Managing human resources:
Productivity, quality of work life, profits (7th ed.). Burr
Ridge, IL: Irwin/McGraw-Hill.
2. Allen, D. G., Bryant, P. C., & Vardaman, J. M. (2010).
Retaining talent: Replacing misconceptions with evidence-
based strategies. Academy of Management Perspectives,
24, 48-64.
3. Bloom, M., & Michel, J. G. (2002). The relationships
among organizational context, pay dispersion, and mana-
gerial turnover. Academy of Management Journal, 45,
33-42.

4. Williams, M. L., Brower, H. H., Ford, L. R., Williams,
L. J., & Carraher, S. M. (2008). A comprehensive model
and measure of compensation satisfaction. Journal
of Occupational and Organizational Psychology, 81,
639-668.
5. Dunford, B. B., Oler, D. K., & Boudreau, J. W. (2008).
Underwater stock options and voluntary executive turn-
over: A multidisciplinary perspective integrating behav-
ioral and economic theories. Personnel Psychology, 61,
687-726.
6. Sutton, N. (1985). Do employee benefits reduce labor turn-
over? Benefits Quarterly, 1, 16-22.
7. Heshizer, B. (1994). The impact of flexible benefits plans
on job satisfaction, organizational commitment, and turn-
over intentions. Benefits Quarterly, 10, 84-90.
8. Fay, C. H., & Thompson, M. A. (2001). Contextual deter-
minants of reward systems’ success: An exploratory study.
Human Resource Management, 40, 213-226.
9. Adams, J. S. (1966). Inequity in social exchange. Advances
in Experimental Social Psychology, 2, 267-299.
10. Heneman, R. L. (2007). Implementing total rewards
strategies: A guide to successfully planning and imple-
menting a total rewards system. Alexandria, VA: SHRM
Foundation.

11. Allen, D. G., & Bryant, P. C. (2012). Managing employee
turnover: Dispelling myths and fostering evidence-based
retention strategies. New York, NY: Business Expert
Press.
12. Allen et al. (2010).
13. Mobley, W. H. (1977). Intermediate linkages in the rela-
tionship between job satisfaction and employee turnover.
Journal of Applied Psychology, 62, 237-240.
14. Locke, E. A. (1976). The nature and causes of job satisfac-
tion. In M. D. Dunnette (Ed.), Handbook of industrial and
organizational psychology (pp. 1297-1349). Chicago, IL:
Rand-McNally.
15. Meyer, J. P., & Allen, N. J. (1991). A three-component con-
ceptualization of organizational commitment: Some meth-
odological considerations. Human Resource Management
Review, 1, 61-98.
16. Graen, G. B., & Uhl-Bien, M. (1995). The relationship-
based approach to leadership: Development of LMX
theory of leadership over 25 years: Applying a multi-
level, multi-domain perspective. Leadership Quarterly, 6,
219-247.
17. Biddle, B. J. (1986). Recent developments in role theory.
Annual Review of Sociology, 12, 67-92.
18. Allen, D. G., Shore, L. M., & Griffeth, R. W. (2003). The
role of perceived organizational support and supportive
human resource practices in the turnover process. Journal

of Management, 29, 99-118.
19. Mossholder, K. W., Settoon, R. P., & Henagan, S. C.
(2005). A relational perspective on turnover: Examining
structural, attitudinal, and behavioral predictors. Academy
of Management Journal, 48, 607-618.
20. Allen, D. G. (2006). Do organizational socialization tactics
influence newcomer embeddedness and turnover? Journal
Author Biographies
Phil C. Bryant (PhD, University of Memphis) is an assistant
professor of management at Columbus State University. His
primary research, teaching and consulting activities are concen-
trated in Talent Management and Entrepreneurship. His award-
winning writings have been published in the Academy of
Management Perspectives (2010) and the Academy of Strategic
Management Journal (2012). Bryant is coauthor of the 2012
book titled Managing Employee Turnover: Dispelling Myths
and Fostering Evidence-Based Retention Strategies, which is
based on the 2010 Academy of Management Perspectives article
“Retaining Talent.”
David G. Allen (PhD, Georgia State University) is
Distinguished
Professor of Management in the Fogelman College of Business
and Economics at the University of Memphis. His primary
research interests include the flow of people into and out of
organizations (e.g., retention/turnover, recruitment and talent
management). His research on these topics has been published
in Academy of Management Journal, Academy of Management
Perspectives, Human Relations, Human Resource Management,
Human Resource Management Review, Journal of Applied
Psychology, Journal of Management, Journal of Organizational

Behavior, Organizational Research Methods, Personnel
Psychology and other outlets. He is coauthor of the 2012 book
titled Managing Employee Turnover: Dispelling Myths and
Fostering Evidence-Based Retention Strategies.
Persuasion (1 of 6)
Can you think of a recent time when someone or a group
persuaded you? Though persuasion involves being influenced by
others, being persuaded involves more than behaving as others
do or following the directives of others. Persuasion involves an
actual shift in your belief and attitude as a direct or indirect
result of a communication or message from another entity.
Persuasion involves "person" factors, such as personality and
cognition, and "situation" factors, such as the message and the
messenger. We will now address these factors.
As we watch television or use the Internet, note how advertisers
try to take advantage of our tendency to utilize potentially
persuasive "shortcuts" to make a decision. We are motivated to
make accurate decisions but often do not have the time or the
knowledge to do so; therefore, we tend to be easily persuaded
when people with credibility present that information to us,
even through a quick way such as an advertisement. If a person
who looks like a dentist touts the benefits of a specific
toothpaste—and backs up the toothpaste's strengths with
research or scientific images—we are more easily persuaded to
purchase that product.
Another "shortcut" when making a decision is relying on the
trustworthiness of the communicator of a message. This factor

has less to do with specialized knowledge or training than the
apparent honesty of the communicator. The more honest the
communicator appears, the more likely we are to be persuaded.
When we want to make an accurate decision—and quickly—
trustworthy communicators often influence us. For example, for
years Charter hospitals, specializing in offering mental-health
services, used the following slogan to close their television
advertisements: If you don't get help at Charter, get help
somewhere. This message persuaded viewers because it
appeared to be in the viewers' best interests rather than in the
hospital's best interests.
A characteristic that makes the messengers seem trustworthy is
if they present information in a straightforward way rather than
in an overly people-pleasing way. We tend to trust people when
they do not seem to be trying too hard to win us over. When
people are straightforward, they seem to have our best interests
at heart because they seem to convey what we really need to
know—facts.
While evaluating the persuasive power of a message, you should
pay attention to whether the message contains any "shortcuts,"
as described previously. If the message contains such shortcuts,
try and ascertain how many shortcuts there are. In effect, you
should evaluate whether the message contains knowledge or
expertise and whether or not it is likely to create a sense of trust
in the audience
Similarly, if you were advising people on how to be more
persuasive or convincing, consider the audience and what would
be relevant to them. For example, does the audience consist of
parents who are going to be concerned about issues that affect
their children?
In addition, in your consultant role, you could ensure that a
person conveys expertise. For example, when the person is
introduced to the audience, someone relevant to the scenario
could "prime" the audience with the person's credentials and
years of training in the currently relevant area.
Finally, in your consultant role, you could ensure that the

person conveys a trustworthy character. For example, the person
could mention disadvantages of the presented material while
outweighing these with important advantages. In addition to the
above theories, other theories of persuasion exist. Let's learn
about these theories next.
Elaboration Likelihood Model
The Elaboration Likelihood model asserts that you can either
peripherally or centrally process information that might change
your attitude.
When you process information centrally, it means you focus on
the content of a message, such as its logic, or lack thereof. For
instance, you read as much information as possible about the
product, candidate, or service before logically weighing its pros
and cons.
On the other hand, when you process information peripherally,
you attend to the information that is marginal to the content of
the message. Information gathered peripherally includes
information about the messenger or the length of the message.
It seems that when you have limited time and energy, you are
more likely to engage your peripheral-processing ability
because it does not involve focusing deeply on the information.
You require more mental energy and time to focus deeply on
any information.
Media and Information Processing
Television and Internet advertisers take advantage of your
peripheral-processing abilities to persuade you.
The advertisements on television and the Internet are flashy,
brief, and often have an attractive messenger. Television
advertisements are narrated in an appealing voice. If the
peripheral information, or the messenger, is attractive, you are
likely to make positive mental associations with the service or
product being advertised and be persuaded. Time is limited in
these formats; therefore, you are less likely to consider the
quality or soundness of the message.
When are you likely to engage your central-processing abilities
in examining a message?

We discussed that when time is limited, you are likely to
process information or messages peripherally.
In contrast, when you have time to examine a message closely,
you are more likely to engage your central-processing abilities.
In this mode, you are more likely to question and critically
evaluate the message for logic or relevance to yourself. As a
result, an advertisement in the print media—rather than relying
on superficial content—will often appeal to your central-
processing ability and seek to persuade you with logic and
expertise.
Consider how the target audience affects the advertiser's choice
of appealing to either the peripheral—or the central-processing
ability.
Think of an advertisement for toys. Are the target children
likely to logically weigh the pros and cons of a toy purchase?
This will probably not happen. Instead, the children will look at
who is in the advertisement. For example, Ronald McDonald,
Barney, or a star of the Harry Potter movies is a good choice of
actor. The children will focus on factors such as how attractive
the toy is and how bright and colorful it looks. On the other
hand, if you advertise a product in TIME magazine, who are
your readers likely to be? Most probably, they will be college-
educated professionals. As a result, you will want to provide
more text with information about the pros and cons of the
product or service. This is because readers can spend as much
time reviewing the advertisement as they need to, unlike the
advertisements conveyed via television, radio, or the Internet.
Post-Decisional Dissonance
Have you ever purchased something and later regretted making
the purchase? If so, you have experienced what social
psychologists term post-decisional dissonance or post-purchase
cognitive dissonance when the decision involves a purchase.
What did you do to alleviate the feeling that you made the
wrong decision?
A response to this internal dilemma of realizing you might have
made a bad decision is to convince yourself of the "positives" of

making this decision as against the "negatives." Imagine that
you impulsively purchased an expensive stereo whose price was
soon reduced. You could not return it for a refund because the
model was discontinued. In the days following your purchase,
you feel uneasy about the purchase, especially because you need
new tires for your car. You are likely to begin a mental list of
the pros to outweigh the cons of the decision. You might begin
to think about how having the stereo will allow you to listen to
music and help you unwind after a stressful day. You might
rationalize that after this purchase, you will not need to spend
an even greater sum of money on a comparable stereo in the
future because you now possess a high-quality one. You might
justify your decision by saying you can devote future funds to
other causes, such as a new laptop computer. You have
persuaded yourself of your wisdom in making the purchase and
have relieved your post-decisional dissonance simultaneously.
Though in the past, researchers focused on the characteristics of
the messenger and the message, the following factors can
influence persuasion:
· the expertise of the person delivering the message
· the quality of a written message
· the trustworthiness of the messenger
Researches now suggest that much of what influences
persuasion or attitudinal change is rooted in the person
receiving the message. Though how meaningful or relevant a
message is to you is positively related to the ability of the
message to persuade you, some personalities are more likely to
deliberately think through the content of a message, regardless
of its personal relevance
Conforming to Others (1 of 3)
Matt is a teenager who does not wish to consume alcohol.
However, he is currently at the start of his senior year in high
school, and he feels that he would be able to fit in with the

others if he does what they do—drink. As a result, during a
party, he gets himself a drink, takes a sip, is repelled by the
taste, but continues to hold the drink without sipping any more.
He feels that if he simply "plays the part," he can blend in with
the others. This action indicates conformity but only to a small
degree. Of course, if Matt continues to drink, he would
completely conform to the others.
What Is Conformity?
Conformity occurs when you change your behavior to match
that of others. Note that when conforming to others, you "go
along with" what others say or do, without anyone necessarily
asking or telling you to change your behavior.
Let's consider another example of conformity. Suppose, in class,
you are confused about something that the teacher describes,
but you look around and notice that no one else seems confused.
As a result, to avoid standing out, you choose not to question
your teacher—conforming to your classmates' behavior.
Why Do People Often Conform to Others?
People conform to others because they want to be accepted by
others and "fit in." When people fit in with others, things
become easy—people are able to get their work done and obtain
the social support they need.
Though individualistic cultures tout independence and
individual achievement, people in these cultures also want to fit
in with others. As a result, conformity occurs in minor and
major daily transactions in cultures throughout the world.
Compensation & Benefits Review
45(3) 171 –175
© 2013 SAGE Publications

Reprints and permissions:
sagepub.com/journalsPermissions.nav
DOI: 10.1177/0886368713494342
cbr.sagepub.com
Talent Management
Introduction
How can compensation and benefits managers and HR
professionals effectively and strategically manage
employee turnover and retention? That is the thrust of this
article. Retaining talent is important to managers in all
types of organizations. The costs associated with losing
employees and recruiting, selecting and training new
employees often exceed 100% of the annual compensa-
tion for the position.1 In addition to these direct financial
costs, losing employees can also lead to work disruptions,
loss of organizational memory along with tacit or strate-
gic knowledge, losses in productivity or customer ser-
vice, loss of mentors, diminished diversity and even
turnover contagion where other valued employees follow
the leavers out the door.2 Even when tough labor markets
prevent many employees from moving, there is the pos-
sibility of “pent-up” turnover. When job markets improve,
many employees may start looking for new alternatives.
Despite the importance of successfully managing turn-
over, many retention efforts are based on managerial gut
instinct rather than research evidence. In this article, we
synthesize the research on employee turnover into practi-
cal strategies for HR managers.
Compensation, Benefits and
Employee Retention

When we ask our clients why people quit jobs, pay is
almost always the first or second reason provided. Some
people do quit because they are unhappy with their pay.
Also true is that people often quit to take higher paying
jobs elsewhere. You already know that competing for top
talent on price alone (through compensation and benefits)
is a no-win proposition, and in the next section we will
provide several employee retention strategies beyond
compensation and benefits.
That said, however, there are ways to strategically
manage compensation and benefits that are consistent
with strategic employee retention management as well. In
this section, we discuss several aspects of compensation
and benefits in relation to their effects on employee turn-
over: (a) compensation structure, (b) compensation pro-
cedures, (c) types of compensation, (d) the perceived
fairness and equity in compensation and (e) linking com-
pensation and benefits vesting schedules to tenure
requirements.
•• Compensation structure, the amount of pay disper-
sion across organizational levels, matters in
employee turnover. Bloom and Michel3 have
shown that wide gaps between an organization’s
lowest paid and highest paid employees increase
the likelihood that managers and other employees
will voluntarily leave the organization.
494342CBRXXX10.1177/0886368713494342Compensation &
Benefits ReviewBryant and Allen
research-article2013
Corresponding Author:
Phil C. Bryant, Department of Management and Marketing,

Columbus
State University, 4225 University Avenue, Columbus, GA
31907, USA.
Email: [email protected]
Compensation, Benefits and Employee
Turnover: HR Strategies for Retaining
Top Talent
Phil C. Bryant, Assistant Professor of Management and
Marketing,
Columbus State University; and David G. Allen, Distinguished
Professor of
Management, University of Memphis
Abstract
Employee turnover is recognized as costly and disruptive. The
costs of employee turnover often exceed 100% of
the annual salary for the vacated position. Yet managers are
often unaware of the full range of tools and tactics
available for effectively managing employee turnover. Based on
award-winning research and professional experience,
the article offers managers several strategies for effectively
managing employee turnover. Strategies offered include
both compensation and benefits–based solutions and solutions
beyond compensation and benefits.
Keywords
turnover, retention, rewards, compensation, talent

•• Williams, Brower, Ford, Williams, and Carraher4
found that procedures such as determination and
administration of pay raises can affect employee
turnover through their perceptions of organiza-
tional support. Employees’ higher levels of satis-
faction with pay procedures are associated with
higher perceptions of organizational support, which
in turn reduces their likelihood to voluntarily leave.
•• Type of compensation also has an effect on
employee turnover. Beyond pay raises and cash
bonuses, Dunford, Oler, and Boudreau5 have
shown that stock options do have an effect on
executive turnover, and Sutton6 has shown that
companies with higher levels of insurance and
retirement benefits generally experience lower
levels of employee turnover.
•• Heshizer7 found that perceptions of pay fairness
and equity are significant in managing employee
commitment and turnover. Later research8 sup-
ported his findings in that reductions in turnover
were shown to be a result of compensation and
benefits systems that employees perceived as fair
in terms of equity theory.9
•• Finally, studies have shown that many different
vesting schedules for compensation and benefits
can be linked to tenure requirements to have a
positive effect on employee retention. Benefits
with relatively long-term vesting schedules such
as stock options, employee stock ownership plans
and retirement plans have been shown to effec-
tively manage employee turnover.10 The key is to
keep vesting schedules long enough to retain

employees for a reasonable period of time and
short enough to retain their motivational power.
Summary of Compensation, Benefits and
Employee Retention
Although competing on levels of compensation and
benefits alone may not be a strong strategic stance, there
are a few key takeaways regarding compensation and
benefits that can be managed to best retain top
employees.
•• Remember the importance of pay dispersion on
employee morale.
•• Clearly communicate standards and procedures
used for making pay decisions.
•• Go beyond pay raises and cash bonuses for a richer
retention management strategy.
•• Determine and administer compensation and ben-
efits fairly and equitably.
•• Provide benefits and compensation with reason-
ably long-term vesting schedules.
Employee Retention Strategies
As suggested in the following scenario,11 the bulk of the
research evidence suggests that pay may not be nearly as
important in managing employee turnover as many man-
agers believe. Imagine the following:
Benjamin is troubled. Generally speaking, he likes his

job, but lately he’s been feeling like his boss doesn’t
appreciate him, and he is worried about his opportunities
for advancement. So, he decides to start looking for
another job. He currently earns $40,000 per year; so his
job search targets only opportunities that make $40,000
or more. He would have to be extremely unhappy to con-
sider taking a pay cut. After a few months of searching,
Benjamin finds another opportunity that pays $48,000
per year. After weighing the pros and cons of staying and
leaving, he decides to take the new job. In the exit inter-
view, Benjamin says it is because he has found a new job
paying 20% more. Benjamin’s boss approaches the HR
manager. She says that a valued employee is leaving
because of his compensation; is there anything the orga-
nization can do? Now the HR manager is troubled. He
would like to keep Benjamin, and the company could
probably counteroffer a few thousand dollars. However,
Benjamin is already near the top of his pay grade, and the
organization is hesitant about setting a precedent encour-
aging employees to seek outside offers to leverage a
counteroffer. Maybe it is time for a new compensation
system. Before jumping to this conclusion, the HR man-
ager asks an insightful question: Is Benjamin really leav-
ing because of his pay?
Benjamin likely would never have been searching for
that higher paying job if he had felt his boss was looking
out for his best interests. Results of hundreds of studies of
predictors of individual turnover decisions12 demonstrate
that out of 35 predictors of individual turnover, level of
pay was tied for the 24th strongest relationship with turn-
over. Is pay satisfaction or dissatisfaction a better predic-
tor of turnover than level of pay? The evidence suggests
not. Out of the 35 predictors, pay satisfaction showed the
27th strongest relationship with turnover.

Despite the widespread belief that pay is an important
driver of turnover, pay level and pay satisfaction are rela-
tively weak predictors of individual turnover decisions.
Our research suggests three primary categories of predic-
tors that are more strongly related to turnover: (a) the
withdrawal process, (b) key job attitudes, and (c) the
work environment.
The predictors with the strongest relationships to turn-
over are those related to the withdrawal process, notably
turnover intentions and job search. Although some indi-
viduals may quit jobs quickly and impulsively, most go
through one or more steps of psychological or behavioral
withdrawal first.13 For example, individuals may experi-
ence thoughts of quitting, search for alternatives, evaluate
possible alternatives against their current job, develop
intentions to quit and definitely plan to quit as soon as a
preferable opportunity presents itself.
Being aware of the significance of the withdrawal pro-
cess is important for managing retention for two reasons.
First, it allows managers to intervene in the withdrawal
process before it is too late. Discovering that a valued
employee is leaving after he or she has already decided to
leave is often too late. There are methods of measuring
withdrawal process variables that would enable managers
to take action before employees decide to quit. Second,

there is considerable research evidence about the drivers of
turnover intentions and job search, and this research is con-
sistent with the ultimate drivers of employee turnover.
Key job attitudes, notably job satisfaction and organi-
zational commitment, are also strong predictors of turn-
over and the withdrawal process. Job satisfaction is a
positive emotional state resulting from the subjective
appraisal of one’s job or job experiences.14 Organizational
commitment is the employee’s psychological attachment
to the organization.15 There are two key improvements
many organizations can make in how they assess job sat-
isfaction and organizational commitment: (a) be sure to
use well-developed measures with substantial validation
evidence and (b) measure more frequently and link indi-
vidual responses to important outcomes. Many organiza-
tions assess attitudes only once a year on anonymous
surveys with results analyzed only at the department or
business unit level. Although linkage research of this
nature has some value, more frequent assessment at the
individual level allows for more timely and targeted
interventions. This methodology requires building up
substantial trust in the workforce or working with outside
consultants to collect, analyze and interpret the data.
The next strongest class of turnover predictors includes
key variables related to the work environment, notably
aspects of leadership, work design and relationships with
others. There is considerable evidence to back the state-
ment that “people don’t leave companies; people leave
bosses.” The strength of the relationship an employee has
with his or her immediate supervisor is one of the most
consistent predictors of turnover. Research on leader–
member exchange16 notes that leaders often treat some
subordinates as part of their “in-group” with extensive trust
and access to resources and others as part of an “out-group”

with a more transactional relationship. Those in the in-
group are substantially less likely to leave. When leaders
are made aware of these important distinctions, they can
better manage their relationships with employees.
In terms of work design, role clarity and role conflict
are two of the most consistent predictors of turnover.
Role theory17 notes that individuals hold multiple roles
with expectations that influence behavior. When there is
a lack of clarity concerning role expectations or when
role expectations are in conflict with each other, individu-
als can experience stress, burnout and dissatisfaction and
are more likely to quit. Leaders need to ensure that expec-
tations are clearly communicated and supported. Another
element of work design that is directly relevant to manag-
ing employee turnover is the opportunity for advance-
ment.18 Individuals who believe that there are future
opportunities for growth and advancement are more
likely to stay—even if they are not completely satisfied
with their present circumstances. Organizations would
benefit from proactively managing career paths and
opportunities, and leaders need to communicate with
their employees about these opportunities.
Relationships with others in the workplace, beyond
supervisors, are also important for employee retention.19
Satisfaction with coworkers and work group cohesion are
two of the more consistent predictors of individual turn-
over decisions. Employees can become embedded in a
network of relationships at work that make it less likely
they will leave. Managers can create opportunities for
interaction and design work to foster cohesion. For exam-
ple, designing socialization tactics so that newcomers
interact with other new hires and have positive interac-
tions with experienced organizational members increases

the sense of being embedded in the organization, which,
in turn, increases retention.20
Summary of Employee Retention Strategies
In summary, extensive research evidence on individual
turnover decisions suggests several strategic insights
beyond compensation and benefits that can be instrumen-
tal in any organization’s employee retention management
efforts.
•• Pay level and pay satisfaction are relatively weak
predictors of individual turnover.
•• Indicators of the withdrawal process are the stron-
gest predictors of individual turnover decisions.
To manage employee turnover effectively, organi-
zations should consider assessing and managing
employee mobility, job search and turnover
intentions.
•• Job satisfaction and organizational commitment
are key attitudes and consistent predictors of indi-
vidual turnover decisions. Organizations should
consider assessing and managing both job satisfac-
tion and job commitment.
•• When assessing attitudes and withdrawal, organi-
zations should consider using well-developed
measures, measure more frequently than annually

and link individual responses to individual behav-
iors and outcomes.
•• The nature of the relationship with one’s immedi-
ate supervisor is a consistent predictor of individ-
ual turnover decisions. Organizations should
consider providing leadership training to all super-
visors and managers and should hold leaders
accountable for retention.
•• Employees with clear role expectations, minimal
role conflict, and opportunities for growth and
advancement are less likely to quit. Organizations
should consider training managers on the impor-
tance of providing clear role expectations, design
organizational processes to minimize role conflict
and develop and communicate career paths, espe-
cially to highly valued employees.
•• Employees linked by positive relationships with
others in the organization are less likely to quit.
Organizations and managers should consider
working to foster positive relationships among
coworkers, provide opportunities for interac-
tion and help newcomers form and develop
relationships.
It should be good news that pay is not the most important
driver of turnover. Revamping compensation systems,
paying considerably above market and throwing money
at valuable employees can be risky and expensive. Many
of the recommendations provided in this section are less

expensive to implement, more likely to have an impact
and thus likely to provide a greater return on investment.
Returning to the case of Benjamin at the start of this sec-
tion, it might have been more effective and less costly to
proactively communicate with Benjamin about future
opportunities than to try to come up with a counteroffer
or risk losing a valued employee.
Conclusion
Unmanaged employee turnover is costly to organiza-
tions, and smart managers know that competing to retain
top talent on price alone (higher pay and more benefits)
is a losing strategy. Fortunately, there are several
approaches managers can take to retain their top talent
that do not entail additional costs. Compensation and
benefits–related approaches include managing pay dis-
persion, using and communicating fair and equitable
standards and procedures for making compensation and
benefits decisions and having reasonably long vesting
periods for some benefits. Approaches to retaining top
talent that go beyond compensation and benefits include
knowing and assessing the indicators of the withdrawal
process, job satisfaction and organizational commit-
ment; managing employees’ relationships with their
immediate supervisors and others in the organization;
managing role expectations and role conflict and manag-
ing and clearly communicating opportunities for growth
and advancement with the organization.
Authors’ Note
Significant portions of this article are drawn with permission
from Allen, D. G., & Bryant, P. C. (2012). Managing employee
turnover: Dispelling myths and fostering evidence-based reten-

tion strategies. New York, NY: Business Expert Press.
Declaration of Conflicting Interests
The authors declared no potential conflicts of interest with
respect to the research, authorship, and/or publication of this
article.
Funding
The authors received no financial support for the research,
authorship, and/or publication of this article.
Notes
1. Cascio, W. F. (2006). Managing human resources:
Productivity, quality of work life, profits (7th ed.). Burr
Ridge, IL: Irwin/McGraw-Hill.
2. Allen, D. G., Bryant, P. C., & Vardaman, J. M. (2010).
Retaining talent: Replacing misconceptions with evidence-
based strategies. Academy of Management Perspectives,
24, 48-64.
3. Bloom, M., & Michel, J. G. (2002). The relationships
among organizational context, pay dispersion, and mana-
gerial turnover. Academy of Management Journal, 45,
33-42.
4. Williams, M. L., Brower, H. H., Ford, L. R., Williams,
L. J., & Carraher, S. M. (2008). A comprehensive model
and measure of compensation satisfaction. Journal
of Occupational and Organizational Psychology, 81,
639-668.
5. Dunford, B. B., Oler, D. K., & Boudreau, J. W. (2008).

Underwater stock options and voluntary executive turn-
over: A multidisciplinary perspective integrating behav-
ioral and economic theories. Personnel Psychology, 61,
687-726.
6. Sutton, N. (1985). Do employee benefits reduce labor turn-
over? Benefits Quarterly, 1, 16-22.
7. Heshizer, B. (1994). The impact of flexible benefits plans
on job satisfaction, organizational commitment, and turn-
over intentions. Benefits Quarterly, 10, 84-90.
8. Fay, C. H., & Thompson, M. A. (2001). Contextual deter-
minants of reward systems’ success: An exploratory study.
Human Resource Management, 40, 213-226.
9. Adams, J. S. (1966). Inequity in social exchange. Advances
in Experimental Social Psychology, 2, 267-299.
10. Heneman, R. L. (2007). Implementing total rewards
strategies: A guide to successfully planning and imple-
menting a total rewards system. Alexandria, VA: SHRM
Foundation.
11. Allen, D. G., & Bryant, P. C. (2012). Managing employee
turnover: Dispelling myths and fostering evidence-based
retention strategies. New York, NY: Business Expert
Press.

12. Allen et al. (2010).
13. Mobley, W. H. (1977). Intermediate linkages in the rela-
tionship between job satisfaction and employee turnover.
Journal of Applied Psychology, 62, 237-240.
14. Locke, E. A. (1976). The nature and causes of job satisfac-
tion. In M. D. Dunnette (Ed.), Handbook of industrial and
organizational psychology (pp. 1297-1349). Chicago, IL:
Rand-McNally.
15. Meyer, J. P., & Allen, N. J. (1991). A three-component con-
ceptualization of organizational commitment: Some meth-
odological considerations. Human Resource Management
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16. Graen, G. B., & Uhl-Bien, M. (1995). The relationship-
based approach to leadership: Development of LMX
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level, multi-domain perspective. Leadership Quarterly, 6,
219-247.
17. Biddle, B. J. (1986). Recent developments in role theory.
Annual Review of Sociology, 12, 67-92.
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role of perceived organizational support and supportive
human resource practices in the turnover process. Journal
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(2005). A relational perspective on turnover: Examining
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20. Allen, D. G. (2006). Do organizational socialization tactics
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Author Biographies
Phil C. Bryant (PhD, University of Memphis) is an assistant
professor of management at Columbus State University. His
primary research, teaching and consulting activities are concen-
trated in Talent Management and Entrepreneurship. His award-
winning writings have been published in the Academy of
Management Perspectives (2010) and the Academy of Strategic
Management Journal (2012). Bryant is coauthor of the 2012
book titled Managing Employee Turnover: Dispelling Myths
and Fostering Evidence-Based Retention Strategies, which is
based on the 2010 Academy of Management Perspectives article
“Retaining Talent.”
David G. Allen (PhD, Georgia State University) is
Distinguished
Professor of Management in the Fogelman College of Business
and Economics at the University of Memphis. His primary
research interests include the flow of people into and out of
organizations (e.g., retention/turnover, recruitment and talent
management). His research on these topics has been published
in Academy of Management Journal, Academy of Management
Perspectives, Human Relations, Human Resource Management,
Human Resource Management Review, Journal of Applied
Psychology, Journal of Management, Journal of Organizational
Behavior, Organizational Research Methods, Personnel
Psychology and other outlets. He is coauthor of the 2012 book
titled Managing Employee Turnover: Dispelling Myths and
Fostering Evidence-Based Retention Strategies.

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Report Information from ProQuest
July 02 2015 00:24
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02 July 2015 ProQuest
Table of contents
1. Performance pay and employee
turnover..................................................................................
.................. 1
02 July 2015 ii ProQuest
Document 1 of 1
Performance pay and employee turnover
Author: O'Halloran, Patrick L
ProQuest document link
Abstract: Purpose - The purpose of this paper is to explore how
various performance related pay (PRP)

schemes influence employee turnover. It also tests whether
profit sharing has a differential impact on turnover
in comparison to other forms of PRP.
Design/methodology/approach - Utilizing a nationally
representative
longitudinal dataset of individuals, analysis begins with a
parsimonious specification of the determinants of
turnover and then progressively adds various sets of controls
known to influence turnover decisions to observe
how their inclusion influences PRP coefficients. Estimations
employ both standard probits and panel data
models. Findings - Empirical evidence reveals a negative
relationship between an aggregate measure of PRP
and turnover. Disaggregating performance pay measures by type
reveals a robust negative relationship
between profit sharing and turnover. Although one would expect
the influence of other PRP schemes to mimic
that of profit sharing, evidence suggests otherwise. Research
limitations/implications - Data lack information on
how much earnings are based on PRP. Consequently, estimates
may be biased when combining those who
receive little earnings from PRP with those who receive
substantial amounts of PRP into a single PRP measure.
Practical implications - Although PRP schemes are often
introduced to improve incentives and productivity,
profit sharing based on firm profitability may allow labor costs
to vary with firm profits hence enhancing retention
and reducing the incidence of unemployment during recession.
Originality/value - This paper adds to the
literature and fulfils an identified need to study how other types
of PRP besides profit sharing influence turnover.
Links: Check Article Linker for full-text, Click here to request
the full text article
Full text: I. Introduction
Despite vast literatures on both employee turnover and the many

impacts of performance related pay (PRP),
very few studies explicitly investigate how employee turnover
is affected by other PRP schemes besides profit
sharing. Prior research suggests that workers receiving
individual PRP and profit sharing are more satisfied with
their jobs ([33] Heywood and Wei, 2006; [28] Green and
Heywood, 2008; [37] Kruse et al. , 2010) than those
receiving pay based on traditional time-rates, even after
accounting for the higher pay levels associated with
PRP. Moreover, it seems clear that there exists positive
selection on PRP whereby workers who are relatively
less risk averse, more confident and more able receive a return
or rent on these characteristics in PRP jobs that
they cannot obtain in a standard time-rate job ([15] Curme and
Stefanec, 2007). Consequently, if PRP workers
are more satisfied with their jobs, they may experience lower
turnover than traditional time-rate workers ([16]
Clark et al. , 1998) making a result thought limited to workers
on profit sharing apply more broadly to all workers
receiving PRP. Furthermore, prior studies find mixed support
for [51] Weitzman's (1985) hypothesis that stock
options and profit sharing enhance job security by allowing
marginal labor costs to vary with profitability ([38]
Kruse, 1993; [37] Kruse et al. , 2010). Also, comparing turnover
propensities between PRP and time-rate
workers provides further evidence as to which of the two broad
models of PRP may be most applicable; the
classic agency theory or the sorting theory of [40] Lazear (1981,
1983). According to classic agency theory,
PRP workers are fully compensated for the inherent higher risks
associated with PRP, leaving them indifferent
between PRP jobs and standard time-rate jobs, implying no
difference in turnover. Alternatively, according to
the sorting theory, PRP tends to attract the less risk averse and
more able, who receive a rent they would not
obtain in a time-rate position, implying lower turnover among

PRP workers.
Research presented herein estimates the impact various forms of
PRP has on US employee turnover including
02 July 2015 Page 1 of 15 ProQuest
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both quits and layoffs (those who report job termination due to
firing, layoff, or plant closing), by analyzing data
from six waves of the National Longitudinal Survey of Youth
1979 (NLSY79). Although there is an abundance of
research on how profit sharing affects job turnover, very little
research focuses on how other PRP schemes
such as piece rates or bonuses influence job turnover.

Specifically, the empirical analysis focuses on whether
workers receiving PRP, both aggregated and disaggregated by
type, experience differing rates of turnover than
those paid time-rates. Critically, few studies explicitly explore
how other types of PRP besides profit sharing
influence job turnover.
There are several different PRP schemes. PRP can be based on
individual performance as is typical with piece
rates and commissions or based on collective performance as is
typical with profit sharing and stock options.
Furthermore, PRP can be based on subjective measures of effort
such as how hard one appears to be working,
or based on objective measures of effort such as the number and
quality of units produced. Given the varied
incentives provided from different PRP schemes, one would
expect each to affect employee turnover differently.
Empirical analysis of the nationally representative sample
reveals that those who receive any form of PRP
experience lower rates of job turnover than those who do not
receive any PRP, even after controlling for many
commonly known determinants of turnover. Most importantly,
when PRP is disaggregated by type, significant
differences emerge. Workers who receive pay in the form of
stock options and profit sharing experience
significantly lower rates of turnover than those who do not,
supporting the Weitzman hypothesis. Conversely,
there are no significant differences in turnover between non-
PRP workers and those receiving piece rates,
commissions, and tips. Also, there is weak evidence that those
who receive bonuses experience fewer layoffs.
Consequently, the lower turnover rates observed using the
aggregated PRP measure are mainly driven by
stock options and profit sharing, suggesting that those forms of
PRP may be unique. Splitting turnover into quits
and layoffs reveals that workers participating in profit-sharing

plans are significantly less likely to experience a
layoff or quit while workers receiving stock options are
significantly less likely to quit. Findings also corroborate
those of [2] Azfar and Danninger (2001) and [29] Green and
Heywood (2010), who theorize that profit sharing
allows for increased expected returns on firm-specific human
capital investments such as on-the-job training
due to higher expected tenure. Although PRP schemes are
typically introduced to increase worker productivity,
employers utilizing profit sharing or stock option schemes may
experience lower labor force turnover.
The paper proceeds as follows: Section II will provide
background on the relationship between PRP, job
satisfaction, and turnover; Section III will review the data and
provide rationales for covariate selection; Section
IV will summarize the empirical results; and Section V offers
conclusions.
II. Past research
A. The relationship between PRP, job satisfaction and turnover
There are two broad models of PRP. The classic agency model
of PRP presumes that firms pay workers just
enough to compensate them for the greater variability in pay
that is associated with PRP jobs, as well as
rewarding greater effort typically put forth in PRP jobs. This
model implies that, since workers are fully
compensated for the greater risk and effort PRP entails, workers
retain the same level of utility that they would
have had in a standard time-rate position. Consequently,
according to agency theory, job satisfaction would be
no different in a PRP job as opposed to a time-rate job. Hence,
one would expect similar rates of job turnover
between PRP workers and time-rate workers.
Alternatively, [40] Lazear (1981, 1983) argues that firms face a
zero profit constraint and workers sort to capture
rents they would not be able to obtain in a standard time-rate
position. These rents arise because PRP is

thought to attract those workers who are less risk averse and
more able, and who will be more satisfied in jobs
where their additional effort is commensurately rewarded. If
workers cannot obtain similar rents in a time-rate
position, one would expect to observe lower rates of turnover in
jobs associated with PRP. Recent research by
[14] Cornelissen et al. (2011) make it clear that while the
Lazear theory of PRP implies rents, other models such
as the classic agency model do not. Accordingly, this paper
provides further evidence as to which theory is most
appropriate in modeling workers' reactions to PRP. If PRP is
associated with lower turnover, the Lazear sorting
model would better depict how PRP influences workers. If PRP
is not associated with lower turnover, the classic
agency theory of worker response to PRP would appear a better
depiction of reality.
A growing body of literature finds that PRP tends to increase
overall job satisfaction. [33] Heywood and Wei
(2006) find that both individual performance pay and profit
sharing are positively related to job satisfaction while
[28] Green and Heywood (2008) find that PRP workers are more
satisfied with their jobs, pay level, job security
and hours than non-PRP workers. These findings support the
theory that PRP allows workers to more freely
optimize on various dimensions without crowding out intrinsic
motivation, thereby generating positive rents for
workers unavailable in non-PRP jobs. Furthermore, [12] Brown
and Sessions (2006) argue that workers prefer
work environments where their earnings equal their marginal
revenue product, which they find improves
optimism concerning future employment relationships.

Additionally, both [25] Goddard (2001) and [4] Bauer
(2004) find that PRP schemes are often part of a larger package
of human resource management practices that
are known to improve job satisfaction. Critically, prior evidence
demonstrates that less satisfied workers typically
experience more job turnover than more satisfied workers ([21]
Freeman, 1978; [1] Akerlof et al. , 1988; [16]
Clark et al. , 1998; [23] Garboua et al. , 2007). Therefore,
presuming more satisfied workers are less likely to
experience turnover, one would expect to observe a negative
relationship between PRP and job turnover.
It is also well known that introducing PRP schemes causes large
amounts of self-selection to occur, whereby
workers preferring PRP schemes self-select into jobs that offer
PRP schemes. [50] Sliwka and Grund (2006)
find the higher inherent risk associated with PRP schemes
attract a disproportionate number of less risk-averse
workers who are more satisfied accepting greater pay variability
in return for higher pay levels. Many studies
identify a positive correlation between PRP and earnings ([45]
Pencavel, 1972; [49] Seiler, 1984; [10] Brown,
1990; [20] Ewing, 1996; [8] Booth and Frank, 1999; [44]
Parent, 1999). Indeed, [51] Weitzman (1985) and [38]
Kruse (1993) argue that PRP schemes such as profit sharing and
stock options may result in a decreased
probability of layoffs, since firms are able to decrease payments
when profitability is lower. Consequently, the
increased job security associated with PRP based on firm
performance may result in greater job satisfaction,
especially satisfaction with job security previously observed by
[28] Green and Heywood (2008).
However, much research focuses on how PRP decreases job
satisfaction. In particular, [3] Baker (1992) finds
that PRP fails to increase job satisfaction when performance
measures are overly subjective and when
evaluations are poorly tied to actual performance. Also, PRP

decreases job satisfaction if used solely to
intensify low skilled or menial workers' effort. This is
especially true when increased efforts are not rewarded
with higher earnings due to ratcheting or when the PRP scheme
does not permit greater flexibility to optimize
([42] McCausland et al. , 2005). In these situations, workers
will be less satisfied under the PRP scheme, since
they exert more effort without commensurate rewards.
Furthermore, when PRP is sensitive to external
phenomenon beyond the worker's control, job satisfaction
declines because of uncontrollable pay variability
([43] Milgrom and Roberts, 1992). Additionally, [34] Kennedy
(1995) finds PRP typically increases pay
dispersion, creating a disincentive to workers receiving less
than their peers, reducing satisfaction with pay ([11]
Brown, 2001). Psychological studies also reveal that PRP is a
form of extrinsic motivation which may crowd out
intrinsic motivation to perform well, resulting in lower
satisfaction among PRP workers ([22] Frey, 1997; [36]
Kreps, 1997; [5] Benabou and Tirole, 2003). Therefore,
presuming less satisfied workers are more likely to
experience job turnover, one would expect to observe a positive
relationship between PRP and turnover.
Consequently, whether PRP increases or diminishes satisfaction
is theoretically ambiguous. Therefore,
assuming that job satisfaction influences turnover, PRP could be
associated with either higher or lower turnover.
Observing lower turnover among those working in PRP jobs
would tend to support the sorting hypothesis, while
observing no difference in turnover or higher turnover would
tend to support classic agency theory.
B. The effect of specific PRP plans on turnover

Different PRP schemes likely impart contrasting incentives and
hence may result in dissimilar impacts on
satisfaction and turnover. Unsurprisingly, prior findings reveal
a mixed picture concerning the relationship
between various PRP schemes and turnover. Prior evidence
reveals that piece rates and commissions are
associated with higher turnover ([39] Lazear, 1986; [26]
Golden, 1986; [24] Geddes and Heywood, 2003), while
bonuses are typically associated with lower turnover ([32]
Hashimoto, 1979; [6] Blakemore et al. , 1987; [31]
Guthrie, 2000). In particular, [32] Hashimoto (1979) provides
evidence that flexible bonus payments enhance
investments in on-the-job training, which is known to reduce
turnover. [6] Blakemore et al. (1987) observe lower
turnover among those paid a two-part compensation scheme
composed of fixed pay plus flexible bonuses.
Additionally, [31] Guthrie (2000), drawing on organizational
economics literature, shows that firms using skill-
based pay systems such as bonuses improve employee retention.
Prior evidence reveals that PRP based on firm profitability is
negatively associated with turnover. [35] Klein and
Hall (1988) and [47] Saneyoshi (2001) observe that
participation in Employee Stock Ownership Plans (ESOP)
reduce turnover. Saneyoshi observes that ESOP workers are 71
percent more likely to stay with their current
employer than those without any ESOP. [2] Azfar and
Danninger (2001) find that profit-sharing plans are
negatively associated with quits and layoffs, using a subset of
the data analyzed below. Furthermore, they
observe increased skill accumulation among profit sharing
workers since they receive more intensive on-the-job
training, leading to higher future wage growth. Analyzing UK
data, [28] Green and Heywood (2008) find that
profit sharing increases the incidence of on-the-job training
which is known to reduce turnover ([46] Royalty,

1996). Others also identify a negative relation between various
PRP schemes and turnover. [13] Chelius and
Smith (1990) provide suggestive evidence that profit sharing
reduces the incidence of layoffs in the face of
decreased product demand. Furthermore, [48] Scoppa (2003)
theorizes that firms employ PRP when the costs
associated with turnover are high and fixed pay when the costs
associated with turnover are low. [17] Dale-
Olsen (2004) finds evidence in Norway of a negative
association between turnover costs and the use of
alternative forms of remuneration such as fringe benefits. He
finds that fringe benefits have a stronger negative
impact on turnover than what would be indicated by the fringe
benefit's monetary value, supporting the idea that
fringe benefits have an independent influence on turnover. In
sum, literature reveals a strong negative
relationship between aggregate measures of PRP and turnover,
lower turnover among those receiving stock
options, profit sharing and bonuses, and higher turnover among
those receiving piece rates and commissions.
The analysis below will attempt to add to this literature by
further exploring which PRP schemes most
significantly influence turnover.
III. Data and the determinants of labor market turnover
The NLSY79 contains information on both worker turnover and
PRP as well other information on workers' job
market experiences. Analysis will focus on a nationally
representative sample of 6,111 men and women who
were between the ages of 14-22 years old as of their initial
interview in 1979. These individuals were
interviewed annually up to 1994 and biennially thereafter. The
NLSY79 includes information on respondents'
labor force experiences and attachment, demographics, earnings
and investments in both education and
training, as well as information on job satisfaction. Only six
waves contain PRP data: 1988, 1989, and 1990, as

well as 1996, 1998, and 2000. Although data provides
information on up to five jobs per respondent, focus will
be on each respondent's main CPS job. Weights are not
employed when reporting means or performing
estimations since elimination of the supplemental over-samples
of poor, Hispanic, black and military personnel
result in a nationally representative cross-section. However,
sample size decreases due to attrition, missing
data and the elimination of those who report being self-
employed or in the active military. Those in the active
military are eliminated since turnover decisions are likely much
different than in the civilian sector, while the self-
employed are eliminated since "job turnover" likely has a much
different meaning. Lastly, dropping observations
with missing data leaves an unbalanced panel of 17,114
observations across 4,925 individuals.
The NLSY asks respondents the following question: "The
earnings on some jobs are based all or in part on how
a person performs the job. On this card are some examples of
earnings that are based on job performance.
Please tell me if any of the earnings on your job are/were based
on any of these types of compensation." for the
years 1988-1990 and, "On this card are some examples of
earnings that are based on job performance. Please
tell me if any of the earnings on your job are/were based on any
of these types of compensation." for the years
1996-2000. Possible responses were piece rates, commissions,
bonuses, stock options, tips and "other".
Furthermore, the survey collected information on participation
in profit sharing and pension plans. PRP workers
are those who receive any earnings in the form of piece rates,

commissions, bonuses, stock options, tips, profit
sharing and "other" forms of PRP.
Although respondents were asked about participation in various
payment schemes, no information was
collected about how much of their earnings were based on these
schemes. Earnings could be entirely based on
PRP or only marginally affected by PRP. Another problematic
issue is what constitutes "other" forms of PRP.
Fully 2.4 percent of the sample employed in analysis report
receiving "other" forms of PRP. Although it is
impossible to interpret what these "other" types of PRP entail,
they will be included when constructing the
aggregated PRP variable and also included as a separate PRP
scheme in the disaggregated estimations. Given
these restrictions, it is impossible determine to what extent
earnings are PRP based. The lack of more detailed
PRP information limits the ability to effectively assess the
relation between job turnover and PRP. This becomes
even more problematic if some jobs entail combinations of PRP
schemes. Restrictions aside, one can arguably
use the incidence of PRP to examine the relationship between
PRP and other labor market outcomes.
The survey also asks respondents why their job terminated[1] .
The survey asks respondents "which of the
reasons on this card best describes why you happened to leave
this job?" Listed reasons include layoffs, plant
closing, end of temporary/seasonal job, firing, program ending,
quitting for family reasons, quitting to find or take
another job, and quitting for other reasons. From these
questions, the aggregate indicator of turnover equals
one if the respondent reported a quit or layoff for any reason,
zero otherwise. Analogously, indicator variables
for quits and layoffs are created to distinguish between reasons
for turnover. Layoffs are equal to one if the
respondent reports a layoffs, plant closing, end of
temporary/seasonal job, firing, or program ending.

Many other individual and firm level characteristics are
available in the NLSY79 and are summarized by
payment scheme in Table I [Figure omitted. See Article Image.].
Since PRP is known to attract more educated
and able workers, measures of human capital and ability are
included as controls. Education is measured as the
highest grade completed as of May 1 of each survey year.
Ability is proxied by each individual's percentile score
on the Armed Forces Qualification Test. As Table I [Figure
omitted. See Article Image.] displays, educational
levels and ability are slightly higher among PRP workers,
except among those receiving piece rates and tips.
Given the close relationship between earnings, satisfaction and
turnover, analysis will include an earnings
measure created by taking the logarithm of the individual's real
wage. The real wage is obtained by dividing the
individual's nominal hourly rate of pay by the respondent's
regions' Consumer Price Index - All Urban
Consumers using 1982-1984 as the base period. Furthermore,
because on-the-job training and turnover are
strongly negatively correlated ([46] Royalty, 1996), an indicator
in the estimations denoting whether the
respondent received any form of on-the-job training since their
last interview is included.
Female workers often experience higher turnover than males for
reasons such as childbirth and rearing ([26],
[27] Golden 1986, 1990). Within the sample, 16 percent of
those who report leaving an employer quit for
pregnancy or family reasons. Hence it seems essential to control
for the influence gender and family status
have on turnover. Besides an indicator for gender, six other
indicator variables are created to represent an
individual's current family situation. These six indicators
include:
unmarried without children;
unmarried with children under six years of age;

unmarried with children six years of age or older;
married without children;
married with children under six years of age; and
married with children six years of age or over.
Furthermore, since larger establishments are more likely to
make use of PRP schemes ([10] Brown, 1990) and
have lower turnover ([19] Evan and MacPhearson, 1996), four
firm size indicators are included. A firm is
categorized as small if it employs less than ten workers,
medium if it employs between ten and 49 employees,
large if it employs between 50 and 200 employees, and very
large if it employs more than 200 workers[2] .
Respondents are also asked:
How (do/did) you feel about (the job you have now/your most
recent job)? (Do/Did) you like it very much, like it
fairly well, dislike it somewhat, or dislike it very much?
Since job satisfaction is known to influence turnover decisions,
four different indicators to control for global job
satisfaction are created from the four possible responses above.
Within the sample, 7 percent of those who
report liking their job very much experience turnover while
those who report disliking their job very much have a
turnover rate of 28 percent. Also, quits are more numerous than
layoffs among workers who report disliking their
job very much.
Firms with internal labor markets typically experience lower
turnover. This is because an alternative external
wage offer is typically lower than the internal wage offer since
the worker has accumulated firm specific
knowledge that would not affect pay levels elsewhere. Also,
fringe benefits such as insurance or pensions

typically lower turnover. Consequently, to proxy for the
presence of an internal labor market, I create an
indicator that equals one if a position change within an
employer was a promotion, zero otherwise. The fringe
benefit indicator takes a value equal to one if the individual
receives either employer provided insurance
(medical, dental, and life), maternity leave, firm sponsored
training and education, or employer-provided child
care, and zero if they receive none of these benefits.
Also, the nature of production critically determines whether
various PRP schemes are practicable. Much of the
prior literature points to the fact that PRP jobs are not available
in every occupation or industry. [18] Elliott and
Murphy (1986) observed that workers may not have the option
to choose whether to obtain a PRP job. For
example, they find that manual workers are much more likely to
be paid based on some performance measure
in comparison to non-manual workers. Similarly, [44] Parent
(1999) observes that PRP in the form of piece rates
are concentrated in particular occupations such as sales and
operative occupations, while bonuses tend to be
more evenly spread across occupations. This is due to the nature
of the job and the difficulty involved in
structuring the PRP scheme in situations where effort or output
are extremely difficult or impossible to measure.
Consequently, to proxy for the nature of production, I include
occupational/industrial indicators at the one-digit
level. Estimations also include an indicator for union affiliation,
as well as a count variable for the unemployment
rate for the worker's current residence[3] . Additionally, since it
is well known that older, more experienced
workers are much less likely to experience job turnover, we
include a measure of the respondent's age. Lastly,
estimations also include the respondent's tenure in weeks with a
particular employer, average hours per week
worked, urban status, number of jobs held, and indicators for

each year of the panel.
Table I [Figure omitted. See Article Image.] displays summary
statistics combining all six years of data in which
PRP questions were administered. Absent controls, PRP workers
experience statistically significant lower mean
levels of job turnover in the form of quits and layoffs than
workers who do not receive any PRP. Among PRP
workers, an average of 6.6 percent report job turnover over the
period considered, while the average turnover
rate of those who do not receive any PRP is 10.5 percent.
Furthermore, F -tests for the difference in the means
are statistically significant. PRP workers experience on average
1.7 percent fewer layoffs and 2.2 percent fewer
quits than non-PRP workers. Differentiating between PRP
schemes reveals that layoffs and quits are much
lower for workers receiving stock options, profit sharing,
bonuses, commissions, and those covered by multiple
PRP schemes. Comparing means, piece rate workers are no
different in terms of turnover rates than workers
not receiving PRP, while tip workers have higher rates of
turnover than non-PRP workers.
The statistics in Table I [Figure omitted. See Article Image.] are
roughly consistent with those reported by [9]
Bonars and Moore's (1995) analyze of PRP within the 1988-
1990 waves of the NLSY79. Confirming their
observations, PRP workers receive higher wages and have
higher levels of education in comparison to non-
PRP workers. Additionally, piece rate, commission and tip
workers have shorter average tenures, while all other
PRP workers have longer average tenures. However, contrary to
their findings, Table I [Figure omitted. See

Article Image.] reveals that PRP workers have longer tenures
than non-PRP workers. This is likely due to their
exclusion of group-based PRP plans from their measure of
performance pay.
Furthermore, summary statistics reveal that PRP workers are
more satisfied, receive more promotions, are
more likely to be employed in larger establishments, and are
more likely to receive fringe benefits than non-PRP
workers. Turnover rates are highest among piece rate workers
and lowest among workers receiving stock
options, followed by multiple schemes, profit sharing and
bonuses. Among those who receive any PRP, 26.4
percent report receiving more than one type of PRP. Among
those who receive multiple types of PRP, the most
common forms are profit sharing and bonuses with many fewer
workers receiving tips piece rates or multiple
forms of PRP. Within the sample 80 percent receive profit
sharing and some other form of PRP while 72 percent
receive bonuses and some other form of PRP. Among the
various forms of PRP, stock options and bonuses
have the highest correlation coefficient at 0.25, followed by
stock options and bonuses at 0.14, and profit
sharing and bonuses at 0.12.
As one would expect, the vast majority of piece rate workers are
found in craft and operative occupations.
Commissions are most prevalent in sales occupations. Tips are
concentrated in service occupations while
bonuses and stock options are prevalent among managerial
occupations. Profit sharing appears to be spread
evenly over professional, managerial, and clerical workers.
Workers receiving multiple forms of PRP appear to
be most prevalent among professional, managerial, sales and
clerical occupations. Furthermore, summary
statistics reveal women are less likely to be paid PRP and are
less likely to receive bonuses, commissions and
stock options as well receiving multiple forms of PRP in

comparison to men. With regard to firm size, piece rates
are most prevalent among the largest employers, while tips and
commissions are more common among smaller
firms. Also, bonuses are more predominant among the largest
employers. Additionally, summary statistics show
that unionized employees are most likely to be paid either piece
rates or profit sharing. Over time, the incidence
of PRP among this cohort increased from 14 percent in 1988 to
a high of 18 percent in 1990, then fell back
down to 15 percent in 2000. Within the different PRP schemes,
the percent receiving stock options increased
from 7 percent in 1988 to 29 percent in 1996 before tapering off
slightly in 2000.
IV. Empirical results
Analysis begins with a parsimonious specification of employee
turnover and progressively adds various sets of
controls known to influence turnover to observe how their
inclusion influences the PRP coefficients. The base
specification includes controls for the presence of PRP, plus
basic demographics such as race, gender, human
capital and ability, as well as industry and occupation.
Specification 2 adds non-compensation variables known
to influence turnover including employer size, usual hours of
work per week, tenure and its square, union
affiliation (whether member or covered), age, urban status,
number of jobs ever held, the local unemployment
rate and family status indicators. Specification 3 adds
compensation variables such as the log hourly real wage,
as well as indicators for fringe benefits and promotions. Lastly,
measures of global job satisfaction are included
in Specification 4. Adding additional controls reduces size and
significance of the PRP coefficient but increases
the goodness of fit. Results of probit estimations on turnover,
quits and layoffs are presented in Tables II-IV
[Figure omitted. See Article Image.][4] .
Table II [Figure omitted. See Article Image.] presents probit

results where the dependent variable is the turnover
indicator and the independent variable of interest is the
aggregate measure of PRP. The parsimonious
specification presented in Table II [Figure omitted. See Article
Image.], Specification 1, reveals that PRP
workers are 3.9 percent less likely to experience turnover than
non-PRP workers. Most of the covariates
included in this specification appear as expected. Females and
nonwhites have greater turnover, while those
who accumulate more human capital in the form of education
and on-the-job training experience less turnover.
Workers in professional, managerial, clerical and craft
occupations experience lower turnover, as do those
working in manufacturing, transportation, finance, professional
services and public administration industries.
Table II [Figure omitted. See Article Image.], Specification 2
adds non-compensation related variables known to
influence turnover. Adding these non-compensation variables
reduces the PRP coefficient from 3.9 to 2.7
percent. Once non-compensation variables are controlled for,
the size and significance of several variables in
Specification 1 are reduced. Inclusion of firm size reveals that
workers at smaller employers have higher
turnover rates, while being covered by a collective bargaining
contract reduces turnover. As expected, higher
unemployment rates are associated with higher turnover.
Unmarried and married workers with young children
are more likely to experience turnover, while parents with older
children and those without children are less
likely to experience turnover.
Adding the log hourly real wage, fringe benefits, and

promotions further reduces the PRP coefficient reported in
Table II [Figure omitted. See Article Image.], Specification 3,
from 2.7 to 1.5 percent. The large reduction in the
PRP coefficient between Specifications 2 and 3 is likely due to
the large impact compensation has on job
satisfaction and turnover. Adding the compensation variables
turns many of the previously significant covariates
insignificant. For example, coefficients for professional and
managerial occupation fall to insignificance between
2 and 3. A likely explanation is that professional and
managerial professions pay relatively more than other
occupations. Once controls for compensation are added, the
coefficients for managerial and professional
occupations become insignificant. The same types of
interactions also cause other coefficients to become
insignificant due to the high correlation between pay and other
aspects of job quality. However, the PRP
coefficient remains statistically significant. As shown in Table
II [Figure omitted. See Article Image.]
Specification 3, a higher log real wage is associated with lower
turnover, while the presence of other fringe
benefits or a recent promotion reduces the probability of
turnover.
Lastly, adding job satisfaction controls causes the PRP
coefficient to fall from 1.5 to 1.3 percent, as displayed in
Table II [Figure omitted. See Article Image.], Specification 4.
Those that state that they either dislike their job
somewhat or very much have higher rates of turnover.
Consequently, initial estimations reveal that PRP
generally reduces turnover, despite the inclusion of many
known major determinants of turnover. Moreover,
female workers remain more likely to experience turnover as do
those at larger employers and those caring for
young children. Workers who receive on-the-job training, work
in public administration, or do not have young
children are less likely to experience turnover. Also, the

compensatory variables remain negatively significant,
but at slightly reduced magnitudes.
Does the aggregated PRP measure have a different impact on
quits than layoffs? Table III [Figure omitted. See
Article Image.] separates turnover into quits and layoffs while
including identical controls as those presented in
Table II [Figure omitted. See Article Image.][5] . As previously
observed, adding additional sets of variables
known to influence turnover reduces the PRP coefficient on
both quits and layoffs. Adding non-compensation
and compensation-related variables in Table III [Figure omitted.
See Article Image.] Specifications 1-3 reduce
the PRP coefficient on quits from 2.1 to 0.7 percent. However,
adding job satisfaction variables reduces the
PRP coefficient to insignificance as shown in Specification 4
for quits. With regards to layoffs, the PRP
coefficient falls from 1.5 percent in Specification 1 to 0.6
percent in Specification 4. Nonetheless, the PRP
coefficient remains negatively significant even after inclusion
of measures of job satisfaction, as well as non-
pecuniary and pecuniary aspects of the job. Consequently,
estimations support the hypothesis that PRP
participation results in reduced turnover, especially layoffs.
However, the observed negative correlation between
PRP and turnover does not provide any evidence concerning
which specific PRP schemes matter most in
influencing turnover decisions.
Including indicators for the various PRP schemes as well as an
indicator for participation in multiple PRP
schemes reveal that profit sharing tends to reduce turnover,
especially quits. Table IV [Figure omitted. See

Article Image.] displays the effect of the different PRP schemes
on turnover when all PRP schemes are added
into the specification together[6] . Profit sharing and stock
options significantly reduce turnover, even after
inclusion of all available controls in Specification 4. Bonuses
initially reduce turnover, but this falls to
insignificance with inclusion of the compensatory covariates.
Moreover, piece rates, commissions, tips, and
"other" forms of PRP have no significant impact on turnover.
Also, the coefficient for multiple PRP plans is
insignificant. Thus, except for profit sharing and stock options,
there may be correlated omitted variables that,
when included, cause the negative correlation between the other
PRP schemes and turnover to vanish.
Separating turnover into quits and layoffs reveal a slightly
different pattern where stock options no longer
appear to significantly influence quits. However, profit sharing
remains negatively significant, suggesting it has
an influence distinct from the other PRP schemes. Additionally,
bonuses have a slight negative impact on
layoffs which fails to vanish in the full specification. Moreover,
including profit sharing alone in Specification 4
without the other PRP variables reveals that profit sharing
significantly reduces the probability of both quits and
layoffs, while stock options have a weak negative impact on
layoffs. All other PRP coefficients remain
insignificantly different from zero when added separately into
the fullest specification. Consequently, the profit
sharing result is unlikely to be due to multi-collinearity;
however, the other results could be insignificant due to
multi-collinearity. If one expected the profit sharing result to
arise out of multi-collinearity, one would expect the
profit sharing result to be significant when included with the
other PRP schemes, but insignificant when included
individually. Whether included individually or together with the
other PRP schemes, the level of significance and

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