Amid the many concerns for CFOs associated with the current economic and geopolitical realities, one thing they may be less worried about — at least for the moment — is labor turnover.
The average turnover rate for employers sank to 18% in 2024, according to a survey of 3,595 corporate officials, primarily in North America, by Payscale, a provider of compensation management services and software.
It represented a rather pronounced shift over a short period of time. The turnover rate was 26% in both 2022 and 2023, a record high in the 16 years Payscale has been conducting its annual report on compensation best practices. The report said the newer environment features “historically low hires and separations.”
Employees were particularly unlikely to leave their jobs when it was their own decision. The average voluntary turnover rate plummeted to 13%, according to the survey, which was conducted in November and December. That was down from 21% in 2023 and 26% in 2022.
Even though inflation moderated in 2024 and a recession was avoided, “both hirings and separations decreased, in what is being called the Great Stay,” Payscale said in its survey report.
While that was good news for companies, which generally prefer to keep turnover down, there can be a downside on the hiring front. The sluggish labor market dynamics “created a challenging experience for recruiters and job seekers, especially for knowledge-worker positions,” the report said.
Still, if that’s the new reality, it may be short-lived. Whereas last year a precarious economy presided over a stagnant labor market, that market is now poised to heat up “in a year of deepening political divide and widening wealth inequality,” potentially leading to a “wave of resignations,” Payscale speculated.
At the same time, if interest rates rise, layoffs increase or the economy slows, the labor market could continue to stagnate, according to the report.
That could allow companies to continue taking a more conservative approach to employee compensation, but it also could stir up employee frustration.
In fact, almost half (47%) of survey participants reported that their company is experiencing increased tension between providing fair pay for employees and optimizing compensation spend in the current market conditions. That rose to 58% among companies that didn’t achieve their 2024 revenue goals.
Perhaps that helps explain why most companies have not yet adopted cost-reduction strategies for compensation. For example, only 18% of those polled said their company has reduced pay increases, 15% are hiring less-experienced talent and 14% are reducing salary offers to new hires.
More draconian measures are even rarer: 9% of survey respondents have reduced benefits, 7% have lowered pay for current employees and 6% have canceled pay increases.
“One of the primary reasons organizations lose talent is unfair pay practices,” Payscale wrote. “When the [labor] market turns around, organizations that are not being proactive about fair pay may lose talent to competitors.
