THE EFFECT OF STRATEGIC PAY SYSTEMS AND FINANCIAL INCENTIVES ON EMPLOYEE ENGAGEMENT AND RETENTION: A LITERATURE REVIEW

Abstrak

Background: Effective human resource management, particularly employee retention, strategic compensation systems, and performance-based incentives, has become a major organizational challenge in an era of global competition. Objective: This article aims to review and synthesize the literature on the effects of strategic pay systems and financial incentives on employee engagement and employee retention during 2022-2024. Method: The literature search was conducted in the Scopus and Google Scholar databases using the keywords "employee retention," "strategic compensation," "financial incentives," "performance-based pay," and "employee engagement." A total of 18 articles were included after the selection process using the PRISMA framework. Findings: The review identified three main themes: (1) compensation strategies and their effects on employee retention, (2) financial incentive systems and their influence on motivation and engagement, and (3) the integration of strategic pay planning into modern human resource management. Conclusion: Strategically designed performance-based pay systems were found to increase employee engagement and reduce employee turnover. Research gaps were identified in the contexts of developing countries and micro, small, and medium-sized enterprises (MSMEs).