Longevity Pay: The Key To Sustainable Workforce Stability

How long-term employees can reap the rewards of staying power

One effective strategy to address employee retention and long-term engagement is longevity pay, a compensation component designed to reward employees for their continued service. This article will explore the definition, benefits, and examples of longevity pay and provide cursory guidelines for its integration into organizational reward systems.

Defining Longevity Pay

Longevity pay is a compensation strategy that rewards employees based on their length of service with an organization. Unlike other incentives, which are typically forward-looking and motivate future behaviors, longevity pay serves as a retrospective reward, acknowledging an employee’s commitment and contributions over time. 

While commonly used in the public sector, including law enforcement and government agencies, longevity pay is also gaining traction in the private sector. Despite trends in cost saving, such as reducing payroll budgets and downsizing, longevity pay remains a valuable tool for minimizing turnover and enhancing an organization’s sustainability.

Longevity pay operates as a standalone component that acknowledges the value of loyalty and accumulated knowledge. It ensures that long-term employees receive compensation adjustments even when new hires enter with competitive salaries. Typically, the longer the service, the higher the longevity pay. Essentially, longevity pay recognizes past service, while incentives are intended to drive future performance or behavior.

A Strategy for Retention

In industries with high turnover rates, longevity pay serves as an effective tool to encourage long-term service and reduce hiring and training costs. Experienced employees bring valuable skills and institutional knowledge, often playing key roles in mentoring new hires and ensuring business continuity. 

According to Douglas F. Morgan in Foundations of Public Service ^[1], investing in longevity pay reduces turnover-related costs by nurturing long-term employee growth. Employees who stay with an organization longer tend to be more productive, better understand internal processes, and contribute to innovation and consistent outcomes. Retaining these experienced employees helps preserve critical knowledge. Organizations that depend heavily on technical expertise, customer relationships, regulatory insight, and proprietary knowledge should consider longevity pay as an investment. 

Longevity pay should complement merit-based rewards rather than replace them, creating a dual system that encourages both dedication and performance achievement.

Leveraging Survey Data 

Understanding the incentive rewards that are prevalent in the market, such as bonuses and other cash payouts, can help organizations design a reward system that recognizes employees for their loyalty.

Many salary survey reports include compensation data segmented by percentiles (e.g., 10th, 25th, median, 75th, and 90th) and analysis based on different levels of experience. These data cuts can help organizations see how pay typically evolves with increased experience, making it useful for setting longevity pay scales that reward long-term service. 

Looking at incentive data at specific years of experience, such as 5, 15, and 25 years, to gain insights on total incentive packages may provide a helpful reference, particularly examining the higher percentiles of relevant years of experience, where the higher percentiles represent the higher end of incentive payouts in the market. 

Planning and Tools

Calculating longevity pay depends on the specific plan structure that an organization adopts. Consider these examples: 
 

• Flat Rate: A one-time or recurring cash bonus or bump in base pay for hitting a tenure milestone (e.g., $1,000 bonus every 5 years). 
• Percentage: Percentage of an employee's base salary (e.g., if a company offers 2% for longevity pay, then a staff member earning $65,000 annually would receive an additional $1,300 after their first year of eligibility either as a bonus or bump in base pay).

Although longevity pay is typically structured and predetermined and would not typically represent a type of discretionary incentive, some compensation platforms include features that allow organizations to plan and apply one-time incentive payments. These tools can provide a straightforward way to apply various kinds of monetary payments that are not included in the base rate, with options to specify the amount, note the incentive type, and set the effective date for a specific employee.

Program Design

Developing a comprehensive longevity pay plan involves several key steps:  
 

• Eligibility: Determine which employees qualify for longevity pay (e.g., full-time permanent employees only vs. payout to both full-time and part-time employees, so long as they have remained employed by the organization continuously).

 

• Design: Define the service milestones (e.g., 5, 10, 15 years) that trigger longevity pay increases, such as specifying that the first payout is provided five years after the official hire date and the next increase will occur the following year upon the sixth year of service. In "Handbook of Human Resource Management in Government Second Edition" (pg. 763) ^[2], the author notes that, “Longevity pay is normally awarded after anywhere from five to twenty years of service.” It notes that many cities and states implement longevity plans, although the specifics of longevity plans vary widely and are decided internally. Here are some common increments: 
  • Offering some form of longevity pay at 5 years of service. For example, an employee who began working at a company in January 2021 would get a pay bump of a flat dollar amount or percentage increase that is separate from their cost-of-living adjustment and other bonus or incentive pay by January 2026. If their base pay is $65,000, and their bonus is $1,000, then a company might give an additional $100 as a longevity pay reward. Another common starting payout year is at the 10-year mark. 
  • Offering some increase to the longevity pay 5 years later. For example, the same hypothetical employee who receives $100 in longevity pay every January starting their fifth year of continued service would get an increase to their longevity pay payout up to $500 every January starting in January 2029 at their 10 years of service point with the organization. 

 

• Integration with Existing Compensation Plans: Align the longevity pay plan with the organization’s broader compensation strategy to ensure it complements other reward mechanisms, like merit increases and bonuses. Also, specify a program start date, such as only applying to employees who were hired on or after a certain date, as employees hired before that date might be receiving some other form of long-term reward. 

In Summary

By directly rewarding employee loyalty and experience, longevity pay helps maintain workforce stability, reduces turnover costs, and enhances the organization's ability to retain its most seasoned talent. For many organizations, implementing a longevity pay plan is an alternative to aggressive merit-based incentives, allowing them to remain competitive while preserving institutional knowledge and cultivating a culture of long-term commitment. Integrating longevity pay into compensation plans can lead to a more satisfied and motivated workforce, ultimately driving better business outcomes. 

Footnotes 
^[1] Condrey, Stephen E. Handbook of Human Resource Management in Government, Second Edition. Jossey-Bass, 2010. 
^[2] Morgan, Douglas F. Foundations of Public Service. Routledge, 2013. 

Adrienne Reese is a data-driven professional passionate about connecting insights with impactful user experiences. With a background spanning customer success, compensation data analysis, and technical onboarding, she currently supports product and customer teams at ERI Economic Research Institute as a Data Analyst.