Maintaining Engagement and Retention in a Shifting Market

Labour Market Context

Here's the dangerous assumption many talent leaders are making right now: with unemployment at 4.5% and external opportunities decreasing, retention will automatically improve. The logic seems sound, if people have fewer places to go, they'll stay put. But this reasoning ignores a critical psychological reality: feeling trapped and feeling committed are entirely different states, and the former can actually drive disengagement, reduced productivity, and eventual turnover when conditions improve.

The data tells a more complex story than simple supply and demand. While applications per job advertisement have reached record highs, indicating more competition for available roles, the RBA's Searchers Index shows that on-the-job searchers remain a significant component of the labour market. Your employees haven't stopped considering their options just because fewer external opportunities exist. Meanwhile, underemployment has risen sharply – people in your organisation may be among those wanting more hours, more challenge, or more purpose, even if they're not actively seeking to leave.

For full labour market context, see Australian Labour Market Update: Navigating Uncertainty in Late 2025. For workforce composition strategies that support retention, see Optimizing Workforce Composition and Flexibility.

The Trap of Complacency

The soft labour market creates a dangerous temptation to de-prioritise engagement and retention investments. Training budgets get cut because people aren't leaving anyway. Development programs are postponed because external opportunities are limited. Recognition and reward programs are dialed back because where are people going to go? Managers spend less time on one-on-ones and coaching because retention seems less urgent.

This short-term thinking creates long-term damage that won't become apparent until conditions shift and they will shift. Organisations are essentially taking out loans against future retention, enjoying current savings while accumulating debt that will come due with interest when the labour market tightens again.

Consider what happens psychologically to employees in a soft market who feel their organisation has stopped investing in them. They may not leave immediately because options are limited, but they begin what researchers call "psychological withdrawal" – reducing discretionary effort, doing the minimum required, disengaging from the mission and culture. When conditions improve and opportunities emerge, these psychologically withdrawn employees will be the first to leave, and often the best performers who have the most options.

Worse, the best talent never completely loses options regardless of overall market conditions. High performers in critical skills, rising leaders, and specialised experts remain attractive to competitors even when overall unemployment is elevated. If you assume all retention risk has decreased equally across your workforce, you're making a dangerous error. Your most valuable employees still need engagement, development, and recognition – perhaps more so because they're aware of their continued marketability.

Understanding Different Employee Segments

Not every employee experiences the current labour market the same way, and retention strategies must account for these differences.

High Performers in Scarce Skills

These employees continue to have external options despite broader unemployment increases. Technology specialists, risk management professionals, senior leaders with track records, and specialised industry experts all remain in demand. Competitors actively recruit them, often reaching out directly through LinkedIn and professional networks.

For this segment, your retention strategy should remain aggressive and proactive. Continue competitive compensation and advancement opportunities. Provide challenging work and high-visibility projects. Ensure direct access to senior leadership. Invest in their development even when it seems unnecessary because they're not leaving. Create retention incentives if appropriate for truly critical individuals. Most importantly, don't take them for granted just because overall hiring has gotten easier.

Mid-Career Professionals Feeling Stuck

These employees may have been considering external moves but now feel their options have narrowed. They're not unhappy enough to leave despite limited opportunities, but they're also not particularly engaged or committed. They show up, do their jobs adequately, but have mentally checked out from discretionary effort and cultural engagement.

This segment is particularly dangerous because their disengagement may not be obvious. They're not complaining loudly, not causing problems, not doing anything that triggers management attention. But they're also not innovating, not mentoring others, not going beyond requirements. When opportunities emerge, they'll leave quickly without warning.

For this segment, focus on creating internal movement and growth opportunities. Enable them to take on new challenges through project work, task forces, or rotational assignments. Provide skill development that makes them more valuable internally and externally, yes, this might help them leave, but it's more likely to engage them to stay. Create visibility to different parts of the organisation they might move into. Most importantly, help them see a future within the organisation beyond their current role.

For skills-based approaches to internal mobility, see Embracing Skills-Based Workforce Planning.

Entry-Level and Early Career Employees

These employees entered the workforce during tight labour market conditions and may have received more than they were objectively worth, rapid advancement, inflated titles, premium compensation. Now they're seeing peers struggling to find similar opportunities and may feel fortunate to have their positions.

However, don't assume their gratitude translates to commitment. Early career employees still crave development, feedback, and growth opportunities. They're building careers and need to feel they're progressing. If your organisation treats them as interchangeable and provides minimal development because "they should just be grateful to have jobs," you'll lose them eventually and damage your early career brand.

For this segment, invest in structured development programs, mentoring, and career pathing. Provide regular feedback and coaching. Create community among early career cohorts. Set realistic expectations about progression timing while showing clear pathways. Use this period to develop talent you'll need as more experienced workers retire rather than simply extracting labor cheaply.

Workers in Declining Roles or Industries

These employees may work in functions or roles where demand is declining, jobs being automated, skills becoming obsolete, or business areas being deprioritised. They can see the writing on the wall and feel uncertain about their futures, even if not facing immediate job loss.

For this segment, provide transparency about what's changing and why rather than pretending everything is fine. Offer reskilling and transition support to help them move into more sustainable roles, either internally or externally. Treat them with dignity and respect even if their current roles are disappearing. Your handling of this segment sends powerful signals to your entire workforce about organisational values and whether people are truly valued or just resources to be utilised when useful and discarded when not.

Proactive Retention Strategies for Uncertain Times

Continue Investing in Employee Experience

The fundamentals of employee experience remain critical regardless of external labour market conditions. In fact, they may matter more when people feel stuck because internal experience becomes their primary source of work satisfaction.

Maintain focus on culture, values, and purpose. These intrinsic motivators drive commitment even when external opportunities are limited. People who feel connected to organisational purpose, aligned with values, and part of a positive culture are more likely to stay and contribute discretely even when they could potentially leave. Organisations that let culture deteriorate during soft markets find it extremely difficult to rebuild when conditions tighten.

Ensure manager quality and supportive leadership. The adage "people leave managers, not companies" remains true regardless of labour market conditions. In fact, it may be more true when external options are limited because people feel trapped with bad managers. Invest in manager development, provide coaching and support, hold managers accountable for engagement and retention in their teams, and address poor managers who damage culture and drive people away.

Provide clear communication about organisational direction. Uncertainty breeds anxiety and disengagement. When people don't understand where the organisation is heading, what's changing and why, or how they fit into future plans, they become anxious and start looking for stability elsewhere, or they stay but disengage psychologically. Regular, transparent communication from leadership about strategy, changes, and rationale helps people feel included and informed.

Recognise and reward contributions meaningfully. Recognition doesn't require expensive programs, it requires noticing and acknowledging contributions in ways that matter to individuals. Public recognition in team meetings, private thank you notes from leaders, small celebrations of achievements, and opportunities to present work to senior audiences all provide psychological rewards that drive engagement at minimal cost.

Create community and connection among employees. Particularly for distributed or remote workers, intentional community-building prevents isolation and disconnection. Social events, affinity groups, team-building activities, and collaboration forums create relationships that bind people to organisations beyond transactional employment relationships.

Preserve Development Opportunities

Development and growth remain among the top drivers of employee engagement and retention across demographic groups and market conditions. Organisations that cut development investments during soft markets often regret it when conditions change.

Maintain internal mobility programs and career pathways. When external opportunities are limited, internal movement becomes even more important for retention. Employees who can see paths to different roles, growing responsibility, and new challenges within the organisation are much more likely to stay engaged than those who see only their current role with no progression. Create transparency about open positions, make internal applications genuinely welcome rather than just procedurally allowed, and celebrate internal movement as success rather than treating it as betrayal by hiring managers.

Continue investing in learning and development. Development opportunities signal that the organisation values employees' growth and sees them as long-term investments rather than short-term resources. This is true even if some developed employees eventually leave – the signal sent to remaining employees matters enormously. Cut development budgets and you signal that people are costs to minimise rather than assets to develop.

Provide challenging assignments and opportunities. Development doesn't always require formal programs or training budgets. Stretch assignments, project leadership, cross-functional collaboration, and problem-solving opportunities all develop capabilities while keeping people engaged. When employees are bored and underchallenged, they disengage regardless of external opportunities.

Support career progression even when external moves are less common. Just because people aren't leaving doesn't mean they don't want to progress. Find ways to create advancement even with limited position openings, expanded scope, leadership responsibilities, expertise development, or lateral moves that build capabilities. Progression doesn't always mean promotion, but it does require movement and growth.

Offer mentoring and coaching to support development. These personal relationships provide development support while creating connections that drive retention. Mentors and coaches help people navigate challenges, develop skills, and see possibilities they might not recognise alone.

Differentiate Your Approach

One-size-fits-all retention approaches waste resources on those who aren't flight risks while under-investing in those who might leave. Segment your workforce and apply differentiated retention strategies based on both value to the organisation and external market attractiveness.

Top performers in scarce skill areas require premium retention investment – they still have options and you cannot afford to lose them. Be proactive rather than reactive. Don't wait for resignation letters to make retention offers or provide opportunities that should have been offered earlier.

High-potential employees remain attractive to competitors who are always looking for rising talent. Even in soft markets, competitors recruiting for critical leadership pipeline positions target high-potential employees at other organisations. Ensure they have clear development pathways, visibility to senior leaders, and advancement opportunities that keep them engaged.

Workers in declining industries or roles may actually need different retention approaches, helping them transition to more sustainable work, either internally or externally, rather than trying to keep them in roles that will eventually disappear. Ethical treatment of these employees, even if they eventually leave, sends powerful signals to your entire workforce.

Critical specialised experts whose loss would significantly impact operations, even if they're not high performers by traditional metrics, deserve retention attention. The person who's the only one who understands your legacy system, maintains relationships with key clients, or has deep institutional knowledge may not be your highest performer but their loss would be acutely felt.

For most other employees, standard but high-quality employee experience and development programs provide appropriate retention investment without over-investing in those unlikely to leave under any circumstances.

Lead with Purpose and Energy

Research suggests encouraging leaders to "manage their energy rather than their task – a practice adopted by companies like Spotify, to foster engagement and resilience during periods of change."

This approach recognises that sustainable performance comes from managing energy and well-being rather than simply grinding through task lists. Leaders who are exhausted, burned out, and running on fumes cannot inspire and engage their teams regardless of labour market conditions.

Focus on sustainable work practices that prevent burnout. This means reasonable workloads, adequate rest and recovery time, clear boundaries between work and personal time, and support for well-being. Leaders who model these practices give permission to their teams to also maintain sustainability.

Prioritise leader well-being as a foundation for team engagement. Organisations that don't invest in leader well-being essentially expect leaders to pour from empty cups. Provide coaching, peer support, executive leadership development that includes well-being components, and time for leaders to actually lead rather than just execute tasks.

Emphasize prioritisation and focus rather than endless task completion. The list of possible tasks is infinite, the challenge is identifying the few things that matter most and focusing energy there. Leaders who help teams prioritise and say no to lower-value work enable focus and effectiveness rather than diffusion and exhaustion.

Find meaning and purpose in work beyond transactions. Even relatively mundane work can be connected to larger purpose and meaning. Leaders who help teams understand how their work contributes to customer value, organisational mission, or societal benefit create engagement beyond paychecks.

Build resilience for ongoing change. Change is the constant, and leaders who help teams build capacity to handle change, uncertainty, and ambiguity enable sustained performance. This includes acknowledging difficulty rather than pretending everything is fine, providing support and resources, celebrating small wins during difficult periods, and maintaining hope and optimism without toxic positivity.

For capability development in leaders, see Investing in Critical Capabilities for the Future.

Reengineering Compensation Strategies

With wage growth moderating, advertised salaries increased 3.5% year-on-year as of September 2025, there's an opportunity to rebalance compensation approaches that may have gotten distorted during the talent shortage.

Address the Legacy of Panic Hiring

The tight labour market led many organisations to make ad-hoc, above-market salary offers to secure talent. This created internal equity problems where new hires earned significantly more than longer-tenured employees doing similar work. Compression between new hires and incumbents damaged morale and created retention risk among existing employees who felt undervalued. Unsustainable salary trajectories were established that would compound over time through annual increases. Inconsistent pay practices emerged as different managers negotiated differently depending on desperation.

Use the current environment to reestablish internal equity and address compression issues head-on. This isn't easy or comfortable, but necessary. Conduct systematic pay equity analysis to identify problems. Develop remediation plans that may require investment to bring underpaid existing employees up to appropriate levels. Communicate transparently about what you're doing and why rather than making quiet adjustments people notice but don't understand. Return to structured, data-driven compensation decisions rather than panic-driven offers.

The investment required to address internal equity and compression may seem expensive, but it's far less costly than the retention problems, engagement damage, and legal risks that result from ignoring these issues.

Optimise Total Rewards Messaging

With salary growth moderating, emphasize total rewards more effectively. Many employees don't fully understand or appreciate the complete value of their compensation package beyond base salary.

Quantify the full value of benefits, retirement contributions, and other programs. Create total compensation statements that show base salary plus the value of health insurance, retirement contributions, paid time off, professional development, and other benefits. Many employees underestimate these values significantly, particularly younger workers who haven't had to pay for their own health insurance.

Highlight flexibility, remote work options, and work-life balance. These have significant value to many employees but are often presented as perks rather than compensation. The time saved by not commuting, flexibility to manage personal responsibilities, ability to work from anywhere, these all have real economic value and life quality value.

Emphasize development opportunities and career growth potential. The long-term financial value of skill development, career advancement, and increased marketability often exceeds annual salary differences. Help employees understand that investing in their development provides returns over decades, not just immediate paychecks.

Communicate the stability and security of employment. In uncertain times, employment stability has psychological and financial value. While never guaranteed, organisations with strong financial positions, sustainable business models, and histories of supporting employees through difficulty offer something that can partially offset slightly lower salaries.

Leverage upcoming tax cuts in take-home pay discussions. The first marginal rate decreasing from 16% to 14% from July 2026 represents real increases in take-home pay for many employees. While this isn't compensation you're providing directly, it affects the actual spending power and should be incorporated into total rewards conversations.

Strategic Positioning by Role Segment

Not all roles require the same competitive positioning in the market. A more sophisticated approach targets compensation investment where it matters most.

Lead the market for genuine scarcity skills and critical capabilities. These roles where you must win talent competitions warrant premium positioning. Identify them carefully and pay competitively or above market, accepting higher costs as strategic investment.

Match the market for important but available capabilities. Most professional roles fall into this category, important to operations but not scarce or uniquely critical. Competitive market-rate pay is sufficient to attract and retain quality talent without premium investment.

Lag the market where quality talent is abundant and roles are less critical. Administrative support, entry-level positions in abundant fields, and roles where many qualified candidates exist don't require premium pay to secure quality talent. Paying moderately below market in these categories allows reinvestment in higher-priority segments.

This targeted approach is more cost-effective than across-the-board competitive positioning and aligns pay investment with strategic importance and market reality.

Link Pay to Performance

With more stable employment conditions, strengthen pay-for-performance linkages that may have weakened during talent scarcity when retention concerns dominated.

Ensure meaningful differentiation between high and low performers. If everyone receives similar salary increases and bonuses regardless of performance, you've eliminated the link between pay and performance. High performers notice and feel undervalued while low performers face no consequence. Differentiation doesn't require huge spreads, even 2-3% difference in increases feels meaningful when consistently applied.

Use variable compensation for roles with measurable impact. Sales roles naturally tie to variable pay, but many other roles have measurable outcomes that could incorporate variable elements. Customer service quality, operational efficiency, project completion, innovation metrics, identifying measurable outcomes and tying compensation to them drives performance.

Create clear line-of-sight between individual contributions and rewards. Employees should understand what drives their compensation, what they can do to increase it, and how their contributions translate to rewards. Transparency about performance expectations, measurement, and reward linkage drives clarity and motivation.

Address underperformance that may have been tolerated during talent scarcity. When you couldn't afford to lose bodies, even poor performers were often tolerated. Now you can be more selective about who remains. Either develop underperformers into acceptable contributors through clear expectations, support, and accountability, or make the difficult decision to part ways. Retaining underperformers damages morale among strong contributors and sets low standards.

Practical Implementation Roadmap

Immediate Actions (Next 30 Days)

Conduct Retention Risk Assessment

Identify employees at highest risk of departure using multiple data sources, performance ratings, tenure, time since last promotion, salary relative to market, engagement survey responses, manager intelligence, and external market demand for their skills. Segment by risk level and value to organisation. Prioritise retention efforts on high-value, high-risk employees rather than spreading attention equally.

Audit Current Engagement Investments

Review what you're currently spending on engagement, development, recognition, and retention. Identify any cuts made because "people aren't leaving anyway." Assess whether these cuts are short-term savings that will create long-term costs. Determine what investments should be restored or maintained.

Review Manager Capability

Assess manager quality systematically through employee feedback, skip-level conversations, and observation. Identify managers who are driving disengagement or retention risk. Provide coaching and support to help them improve. Make difficult decisions about managers who cannot or will not improve, they're too expensive to keep regardless of their technical capabilities.

Short-Term Actions (Next 90 Days)

Enhance Internal Mobility

If you don't have strong internal mobility programs, create them. Make internal opportunities visible through job boards or talent marketplaces. Train managers to support rather than block internal movement. Celebrate internal moves as success rather than loss. Create pathways for employees to explore opportunities without risking current roles. Measure and reward managers for developing people who move internally rather than penalising them for "losing" employees.

Reestablish Pay Equity

Conduct systematic pay equity analysis across role families, identifying compression and inequity. Develop remediation plan that may require significant investment. Prioritise highest-value employees and most egregious inequities. Communicate plan transparently to affected employees. Implement over 6-12 months if budget doesn't allow immediate correction.

Launch Energy Management Program

Introduce energy management concepts and practices to leaders. Provide training on sustainable work practices. Create peer support groups for leaders to share challenges and strategies. Model energy management at senior levels rather than glorifying overwork. Measure and address workload issues systematically. Establish boundaries and expectations about always-on culture.

Develop Segment-Specific Retention Plans

For each key employee segment identified in retention risk assessment, develop specific retention strategies appropriate to their needs and risk level. Assign responsibility and accountability for execution. Allocate resources appropriate to risk and value. Monitor effectiveness and adjust based on results.

Medium-Term Actions (Next 6-12 Months)

Build Retention Analytics Capability

Move beyond reactive retention to predictive approaches. Develop models that predict flight risk before employees resign. Incorporate multiple data sources, HRIS, engagement surveys, performance management, external market data. Create early warning systems that prompt proactive intervention. Measure retention program effectiveness systematically. Refine approaches based on what works.

Institutionalise Development Culture

Make development expectations clear in job descriptions and performance management. Train managers to be developers of talent, not just task managers. Create development planning processes that every employee goes through. Provide resources, tools, and time for development. Measure development activity and outcomes. Reward managers for developing people who advance internally.

Transform Recognition Practices

Move from ad-hoc recognition to systematic approaches that ensure consistent acknowledgment. Train managers in effective recognition practices. Create peer-to-peer recognition mechanisms. Celebrate contributions in ways that matter to individuals. Measure recognition frequency and employee perception of being valued. Address teams or areas where recognition is lacking.

Optimise Total Rewards

Create comprehensive total compensation statements for all employees. Develop communication strategies that help employees understand and value full package. Adjust components based on what employees actually value through surveys or choice programs where possible. Benchmark total rewards, not just salary, against market. Make adjustments to optimise value relative to cost.

Measuring Success: Key Metrics

Retention Metrics

• Overall turnover rate and trends
• Regrettable vs. non-regrettable turnover
• Turnover by employee segment (performance, potential, criticality)
• Turnover by tenure, role, demographic factors
• Cost of turnover (replacement, lost productivity, knowledge loss)

Engagement Metrics

• Employee engagement survey scores and trends
• Participation in development programs
• Internal mobility rates
• Manager effectiveness scores
• Recognition frequency and quality

• Productivity per employee or team
• Quality metrics relevant to your business
• Innovation metrics (ideas generated, implemented)
• Discretionary effort indicators
• Performance rating distribution

Compensation Metrics

• Internal pay equity measures (compression ratios, pay consistency)
• External competitiveness by role family
• Pay-for-performance differentiation
• Total compensation understanding (survey-based)
• Offer acceptance rates including compensation factors

Leading Indicators

• Flight risk scores from predictive models
• Engagement survey trends (particularly items predicting turnover)
• Exit interview themes and patterns
• Manager quality trends
• Development participation

Conclusion: Engagement and Retention as Strategic Advantage

The assumption that retention automatically improves in a soft labour market is dangerously wrong. While external opportunities may decrease, psychological commitment doesn't automatically increase, in fact, employees may disengage when they feel stuck. Organisations that de-prioritise engagement and retention during soft markets pay heavy prices when conditions eventually shift.

The organisations that emerge strongest will be those that maintain investment in employee experience, development, and engagement regardless of external conditions. They'll treat retention as strategic advantage rather than tactical response to immediate market conditions. They'll differentiate their approaches by employee segment rather than applying one-size-fits-all programs. And they'll link compensation to performance while addressing equity issues created during the talent shortage.

However, engagement and retention strategies work best when coupled with modern approaches to talent management that look beyond traditional credentials and career paths. Our next article, Embracing Skills-Based Workforce Planning, explores how skills-based approaches enable more effective hiring, development, internal mobility, and career management – all of which contribute to engagement and retention while accessing broader talent pools.

The future of talent management is skills-based, and organisations that make this transition will have significant advantages in both engagement and capability.