Underpaying looks like savings on the payroll. It shows up as losses everywhere else.

The payroll looks healthy. You held salaries steady this year, skipped the review because margins were tight, and assumed the team understood. Then your best accountant resigns for a job that pays more. Two months later the replacement is still learning your systems, the rest of the team is covering the gap, and a client has started asking who is handling their account.

Nobody sends you an invoice for any of that. It simply leaks out of the business in hiring fees, lost output, slower delivery and tired people. This article shows how to put a number on that leak, what the research says about why pay matters, why Nigerian employers face extra pressure in 2026, and how to fix pay without wrecking your budget. One caution up front: higher pay is not a cure for everything. But it is a floor you cannot ignore.

What One Resignation Really Costs

Gallup estimates that replacing one employee costs between one-half and two times that person's annual salary, and calls this a conservative figure. For a 100-person organisation with an average salary of $50,000, Gallup puts the yearly cost of turnover and replacement at roughly $660,000 to $2.6 million (Gallup).

That range covers more than recruitment adverts and agency fees. It includes interview time, onboarding and training, mistakes made while a newcomer learns, and the output you lose until they are fully productive. Most of these costs never appear as a line in the budget, which is why underpaying feels cheaper than it is.

Here is the same logic in naira. This is an illustration, not a survey result. Imagine a team of 20 people, each earning ₦150,000 a month (₦1.8 million a year):

Cost of one departure: between ₦900,000 (half a year's salary) and ₦3.6 million (two years' salary).

Cost of five departures a year: between ₦4.5 million and ₦18 million.

Cost of a 10% raise for all 20 people: ₦3.6 million a year.

In this example, the raise pays for itself if it prevents just two departures at a replacement cost of one times salary. Gallup's figures come from US data, so your own ratios will differ by role and industry, but the principle holds: the cheapest salary is often the one you never lose.

Pay Is One of the Top Reasons People Leave

A Pew Research Center survey of US workers who quit a job in 2021 found that 63% cited low pay, 63% cited no opportunities for advancement, and 57% said they felt disrespected at work (Pew Research Center). Pay, progression and respect travel together, and weak pay is often read as a sign of the other two.

The more useful finding for employers is that many exits are avoidable. In Gallup's research, 52% of voluntarily exiting employees said their manager or organisation could have done something to prevent them from leaving, and 51% said nobody had talked with them about their job satisfaction or future in the three months before they left (Gallup). Low pay is rarely a surprise. Silence about it is what turns a grievance into a resignation.

The Costs You Do Not See on the Payroll

The replacement bill is only the visible part. Underpaying creates several quieter losses:

Overloaded colleagues. When someone leaves, their work lands on people who are already underpaid. That raises the risk of the next resignation.

Disengagement. Staff who feel underpaid may stay but give less. Gallup's 2026 report found that global employee engagement fell to 20% in 2025, and it estimates that low engagement costs the world economy about $10 trillion in lost productivity, or 9% of global GDP (Gallup). Pay is not the only driver of engagement, but it is hard to build enthusiasm on a salary people resent.

Lost relationships and knowledge. Clients, suppliers and processes tend to live in one person's head. When they leave, some of that goes with them.

A weaker reputation. Job seekers compare notes, and a name for low pay makes every future hire slower and more expensive. Our guide on employer branding for Nigerian SMEs explains why reputation is a real hiring advantage.

Why Nigerian Employers Face Extra Pressure in 2026

Prices keep rising, so frozen salaries shrink. Nigeria's headline inflation eased to 15.39% in August 2026, down from 23.14% a year earlier (Nairametrics). Slower inflation is still inflation. By simple arithmetic, a salary left unchanged for twelve months at that rate buys about 13% less than it did a year ago, even though the figure on the payslip has not moved.

The pay floor is under review. The national minimum wage was set at ₦70,000 in July 2024, and the next statutory review is due in 2027 (BusinessDay). In June 2026 the President's Chief of Staff said the figure must be honestly reassessed against today's realities (AllAfrica). When the floor rises, expectations rise all the way up the pay ladder. That is reasoning rather than a statistic, but employers who wait for the law to move first usually move late.

Skilled people can leave the country. A Bloomberg report on Nigerian banks described employee flight, driven by better pay and benefits abroad, as raising training costs for the sector (Bloomberg via BNN). A Duplo survey of 593 finance professionals reported that 22.8% had migrated abroad over five years, and its salary report pointed to stagnant pay and little inflation-adjusted growth (IT Edge News). A peer-reviewed chapter published in July 2026 describes the outflow as affecting healthcare, IT, engineering and academia (IntechOpen).

The balance of power has shifted. One Nigerian HR consultant told Leadership newspaper that japa has moved the labour market from employer-centric to employee-focused (Leadership). Candidates also know it. Our article on the fastest way to double your salary tells them that changing employers often beats waiting for a raise.

When Paying More Is Not Enough

A fair article has to say this clearly: raising salaries will not fix a badly run company. MyJobMag's playbook on japa-driven attrition warns that assuming salary alone drives people out is one of the biggest mistakes employers make. It also notes that no Nigerian organisation can consistently outbid employers in London or Toronto, and that a talented person with a bad manager will eventually leave whatever they are paid (TechEconomy). Gallup's research points the same way: managers account for about 70% of the variance in team engagement (Lewis Silkin summary of Gallup's 2024 report).

The right reading is that pay sets the baseline and everything else builds on it. If pay is clearly unfair, nothing else you offer will be believed. If pay is fair, culture, management and growth can do the retention work.

How to Fix Pay Without Wrecking Your Budget

You do not need to raise everyone's salary by 30% tomorrow. A smarter approach works in steps:

Calculate your own turnover cost. List who left in the past 12 months, their salaries, and a conservative replacement cost for each, even at the low end of Gallup's range. Many owners are shocked by the total.

Benchmark honestly. Compare your pay for each role with what competitors actually offer, not with what you paid when the person joined. Review the roles you struggle to fill or keep first.

Differentiate instead of spreading the budget thin. A Mercer survey of more than 1,000 US employers found that 83% allocate increases uniformly without regard to individual performance, while only 15% differentiate strategically (CFO.com). Put more of your limited budget behind critical roles and strong performers.

Link reviews to inflation. MyJobMag's playbook recommends inflation-linked salary reviews and benefits that address real pressures such as healthcare, housing support, education assistance and emergency financial help (TechEconomy). A predictable review date is itself a retention tool.

Be open about pay. Clear ranges and criteria reduce the suspicion that fuels resignations. Our piece on salary transparency laws explains why openness is becoming the norm.

Use non-cash value where cash is tight. For small businesses, ownership can be part of the answer. See equity compensation for small business employers. Respect for time off matters too, as we explain in why "we're a family" is a red flag.

Talk to people before they resign. Hold regular conversations about pay, workload and growth. Given Gallup's finding that half of leavers had no such conversation, this costs almost nothing and catches problems early.

Build your pipeline. Even well-paid teams lose people. Plan ahead with NYSC and university talent pipelines, and when a role does open, post a job on MyJobAlly with a clear salary range to attract serious candidates.

The Bottom Line

Low salaries rarely look expensive, because the cost arrives as scattered losses: a recruitment fee here, a missed deadline there, a client who drifts away, a team that slowly stops trying. Added together, they often exceed the raise you were trying to avoid. You do not have to match the highest bidder. You do have to know what underpaying costs you, pay fairly for the roles that matter most, and talk to your people before they decide for you.

This article draws on research and commentary from Gallup, Pew Research Center, Mercer (via CFO.com), Bloomberg, the National Bureau of Statistics (via Nairametrics), Nigerian press reports and MyJobMag's HR playbook, current as of October 2026. Gallup's replacement-cost range and the Pew and Mercer figures come from US studies, and Nigerian costs will vary by role and industry. The naira example is an illustration, not survey data. Much of the evidence on pay and retention is survey-based or correlational rather than controlled research. This article is general information, not HR or legal advice.