Unexplained Pay Gaps Predict Employee Turnover

Correlation

Link Between Unexplained Pay and Turnover

The Research

Why do people quit? Often, it's not the low pay; it's the *unfair* pay. The Harvard study on pay disparity validated its "Unexplained Pay" metric by correlating it with employee turnover. Firms with high "Unexplained Pay Ratios" (where the CEO makes more than their performance justifies) experienced significantly higher rates of employee turnover and lower scores on "Best Places to Work" lists. This confirms that the "Fairness Gap" is a leading indicator of talent drain, which subsequently drags down financial performance.

https://www.hbs.edu/faculty/Pages/item.aspx?num=52970
Key Finding

High unexplained pay disparity is a statistically significant predictor of future employee turnover.

The Archalos Thesis

We view turnover as a "Silent Liability." It doesn't appear on the balance sheet, but it drains cash flow through recruiting fees, training costs, and lost productivity. We scrutinize the "Unexplained Pay Gap" as a proxy for this risk. If a CEO is looting the company while employees are underpaid, we know the talent exit is coming. We sell before the employees leave.

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