According to a 2025 Gallup survey, almost half of employees are watching for or actively seeking a new job. And turnover isn’t just inconvenient — it’s expensive. Research from the Work Institute estimates the direct cost of employee turnover at around 33% of base salary, before you factor in things like knowledge gaps, disruption and damage to morale.
When attrition rises, many employers reach for an obvious fix: higher pay. But money alone rarely solves the problem, because pay is rarely the main reason people leave. In 2026, retention isn’t so much about how much you pay, but how you pay. Here’s how to use your compensation strategy to keep your best people, without increasing salaries.
First things first: why do people leave their jobs?
Let’s get one thing straight: if you’re not paying your employees fairly, you can forget about retaining them long-term. But that doesn’t mean you need to offer the highest salaries — or that higher pay is the answer to your retention woes.
Many companies treat retention as a bidding war, relying on counteroffers, retention bonuses and spot raises designed to “save” people at the last minute. But this reactive approach misses the real reasons people leave. According to the Work Institute’s 2025 Retention Report, the most common drivers are:
- Career development (18.9%)
- Health and family (12.4%)
- Work-life balance (11.9%)
- Management behaviour (9.7%)
Total rewards ranks fifth, cited by just 8.2% of respondents. Translation? Pay matters, but it’s rarely the deciding factor.
Why raising salaries isn’t enough to guarantee retention
Offering a raise to an employee you think is a flight risk seems like an obvious solution. But the impact of that increase will quickly fade. As our CEO Virgile notes in his newsletter, The Compversation, hedonic adaptation means that, while an employee will initially be happy with a raise, their feelings will soon return to the baseline.
In other words, salary increases create short-term satisfaction, but not long-term engagement. And even a big salary bump won’t fix deeper issues around growth, workload or management.
Reactive pay decisions can also create new problems, like driving internal inequity and pay compression, and rewarding those who threaten to leave (not top performers). They also make pay harder to justify — an essential consideration in the pay transparency era.
Mythbusting: the truth about compensation and retention
- Myth: Higher pay = higher retention
- Reality: Career growth and flexibility matter more
- Myth: Counteroffers solve attrition
- Reality: They reward the loudest, not the best
- Myth: Big raises motivate long-term
- Reality: Impact fades quickly (hedonic adaption)
- Myth: Paying above market guarantees loyalty
- Reality: Perceived fairness matters more
- Myth: Increasing pay is the best retention lever
- Reality: Structured, consistent processes drive retention
Salaries aside, what will actually retain talent in 2026?
Instead of raising salaries, employers that want to improve retention should focus on other aspects of the employee experience. For example:
- Career growth and development: According to LinkedIn Learning data, employees who make an internal move are 40% more likely to stay at the company for at least three years. .
- Flexibility and work-life balance: 83% of employees rank work-life balance and job security above salary, according to a Randstad Workmonitor survey.
- Recognition and psychological safety: Well-recognised employees are 45% less likely to leave within two years, according to Gallup research.
- Purpose and engagement: Also according to Gallup, employees with a strong sense of purpose are far less likely to look elsewhere.
Many of these drivers sit outside compensation. But pay is still one of the few levers HR teams can directly control — and when it feels inconsistent or unfair, employees start looking elsewhere.
How to use your compensation strategy to boost retention (without raising salaries)
Poorly designed pay systems erode trust — and push people out the door. In practice, this shows up as inconsistent raises, one-off exceptions, unclear criteria and managers making decisions in chaotic, unwieldy spreadsheets. Fixing these issues can improve retention without increasing payroll costs.
The goal is to make pay fair, explainable and aligned with your company’s culture and values. Below, we’ll show practical ways to use your compensation strategy to keep your best people — without increasing pay.
The Figures approach to retention-focused compensation
At Figures, we believe pay can improve retention when it is:
- Fair (free from bias, gaps and unexplained disparities)
- Consistent (decisions follow clear rules, not manager discretion)
- Performance-aligned (performance and progression directly influence pay outcomes)
- Structured (fixed, variable and long-term rewards are intentionally designed)
- Explainable (employees understand how pay is set and how to grow)
Equity and fairness
Employees want to know their pay is fair. In fact, fairness often matters more than the number on the payslip: research shows employees who perceive their pay as unfair are 45% more likely to look for a new job, regardless of how much they actually earn.
So, where to start? A pay equity analysis shows you exactly where gaps exist — which is the first step to closing them. This process starts with grouping comparable roles into a clear job architecture — so you’re actually comparing work of equal value. Then, you’ll run an analysis that helps you spot any pay discrepancies and understand what’s driving them.
Done manually, these audits are often slow and complex — but the right tools make the process far more manageable. With Figures, you can automatically flag pay gaps, investigate root causes and generate clear documentation to justify decisions. This allows you to fix structural issues before they become big problems — the sort that might drive employees away.
How to run a pay equity analysis in six steps
What does a pay equity analysis actually involve? Here’s a simple step-by-step approach:
- Assign clear project owners
- Define the scope and objectives
- Group roles by work of equal value
- Collect complete pay data (salary, variable, benefits)
- Analyse gaps and identify root causes
- Fix issues and document decisions
Want a deeper walkthrough (and how Figures can simplify the process)? Read our full guide to running an equal pay audit.
Consistency and explainability
With new regulations on the horizon, many companies are increasing pay transparency. But transparency without consistency doesn’t build trust — or improve retention. Before sharing numbers, focus on putting clear structures in place to make your pay explainable and consistent. For example, a simple, scalable salary band system helps you:
- Define pay ranges for each role, level and location
- Decide where each employee is placed within their pay range
This replaces ad-hoc decisions and manager discretion with clear rules everyone can follow. And when pay is consistent, it’s easier to explain to both regulators and to employees — which builds trust and improves retention.
Need help creating your salary bands? Head to our ultimate checklist for everything you need to get started — or simplify things by using Figures to build your structure in minutes.
Performance alignment
Using raises as a last-minute tactic to prevent attrition rarely works. That’s because it rewards the loudest complainers, not the strongest performers. And it could even encourage employees to threaten to leave just to get an increase.
Instead, make the link between pay and performance explicit with a structured, predictable review process. This means assessing everyone at the same time, using the same criteria, with clear rating scales and calibration to reduce manager bias.
Why? When raises follow a defined process, decisions feel fairer and less political. Tools like Figures standardise compensation reviews, centralise decisions, and draw a straight line between performance and pay. This helps employees clearly see how their work translates to compensation — giving them an incentive to stick around.
Effective pay mix
One of the biggest compensation-related drivers of retention is how your pay packages are structured. In other words, getting the right mix of fixed vs. variable pay. This is tricky: lean too heavily on base salary and you’re locked into permanently higher costs. Offer too much variable pay, and employees feel stressed and unstable. Neither option drives long-term loyalty.
Striking the right balance is key: fixed pay for security and predictability, variable pay to reward performance and shared success. Get it right, and you motivate people without locking yourself into ever-rising salaries — a smarter, more sustainable way to keep talent.
There’s no one right way, though: your structure should reflect your business model, culture and goals. Using market benchmarking data to inform your approach ensures it’s competitive and meets employee expectations.
Transparency and communication
Pay transparency is on the rise — but compliance with new regulations should be the baseline, not the end goal. As we’ve discussed before, simply publishing salary ranges isn’t enough — and transparency without context can create more confusion than clarity.
This approach also does little to improve retention, because employees don’t just want data — they want answers to questions like:
- Where am I placed within my pay range? Why?
- What would I need to do to reach the next level?
- What factors determine my pay?
- When and how is my pay reviewed?
Real transparency starts with clear salary bands, defined criteria and documented, defensible decisions. It also means training managers to have confident, empathetic conversations about pay and to clearly explain the logic behind pay decisions.
Tools like Figures help centralise pay data and standardise decisions, giving managers the facts they need to communicate clearly. That clarity helps employees understand the reasoning behind their pay. And when that reasoning is fair and consistent, they’re much less likely to want to jump ship.
Want more guidance on doing pay transparency the right way? Download our pay transparency checklist.
How using Figures can help you retain your best employees
In 2026, retention isn’t about paying more. It’s about making pay fair, consistent and easy to explain.
That requires structure: clear benchmarks, defined salary bands, predictable review cycles and regular pay equity checks. Without the right systems, those processes quickly become manual, inconsistent and hard to defend — eroding trust and pushing people out the door.
Figures brings everything together in one place: benchmarking, salary bands, structured reviews and continuous pay equity — all with clear documentation and audit trails. That means fewer ad-hoc decisions, fewer surprises, and pay processes employees can trust. The result? More engaged employees and improved retention.
Want to learn more? Book your demo to see Figures in action.
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