Abstract: Travel and Tourism Industry is one of the fastest growing industry in the world contributing a colossal US $6 trillion dollars in 2011 and creating 5 million new jobs (Travel and Tourism Economic Impact Report, 2012). Hospitality sector is one of the main pillars of this industry in Kenya which has generally continued to experience phenomenal growth both in terms of revenues generated and infrastructure to support the industry. Its phenomenal growth has come along with fierce competition among the players in the industry for the limited human resource available. Increased ability to retain their current employees has therefore become a very important objective for most employers in this sector. This study seeked to identify the effects of the pay and work environment on the retention of employees in the Hotel Industry in Mombasa County. Findings revealed that pay had a weak influence on employee retention while work environment had the strongest influence which was significant at (p = .005) 2-tailed. While it was evident from the results that work environment plays a major role in employee retention, to remain competitive it was recommended that employers in the industry also need to re-evaluate the current weaknesses associated with pay.