Salaries and attrition

AK Menon has an interesting post on current state of salaries in India. What was most interesting is his view:

The sector that gave the highest raises (financial sector) and the one that gave the lowest pay hikes(BPO)witnessed the highest attrition rates!

Which again reiterates that while salaries seem to be one of the most used tools to increase employee tenure in an organization, it basically does the following two things:

1. It helps in attracting talent. Let's face it, a salary is one of the easiest things to understand when a person is evaluating a job offer. While organizational levels and culture are things are what an employee discovers when he or she accepts the offer (regrettably! ), a well communicated salary plan will help the person make up the mind soon.
2. Salaries are also what cause attrition. External equity (whether two jobs across two different companies pay similarly) or internal equity (whether two people doing similar jobs are paid similarly) have both got to be maintained. It's a tough job in industries where salary bands are constantly moving and specially for functions and skills (like HR and Finance) that are transferable across industries.

So in a lot of ways salaries are hygiene factors and often attrition can be reduced by having great managers. These great managers have to be supported by an organizational culture that is focussed on developing people while also holding them responsible for performance.