Think Your Employees Are Paid Fairly? Most of Them Disagree

March 1, 2016, 8:22 PM UTC
Illustration by Ryan Etter—Getty Images/Ikon Images

Every year, compensation firm PayScale does a massive survey on companies’ pay practices. But it’s not often that the researchers uncover as many huge gaps in perception as they did in this year’s report.

For one thing, employee engagement—that elusive enthusiasm about work that keeps people from quitting—“remains more of a buzzword” than a reality, the study says, largely because of “a vast chasm” between what management thinks is happening and what most workers believe.

Consider: About 73% of managers and executives say that employees at their companies are “paid fairly,” meaning competitively with the marketplace and in line with what they contribute. The most profitable companies’ leaders are even more confident, at almost 83%. Yet barely more than one in three (36%) of employees at the same companies agree that they’re paid what they’re worth.

That’s not all. Asked whether employees are “valued at work,” 78% of 6,012 North American executives and managers said yes. Fewer than half (45%) of employees agreed. And about twice as many managers (40%) as employees (21%) said their companies are “transparent about pay.”

None of this would be such a big deal if holding on to key talent weren’t among managers’ biggest worries — or if feeling underpaid weren’t one of the top three reasons the study found that people quit their jobs. Yet it seems that, except in information technology, “retention concerns aren’t translating into raises.” A tiny 8.2% of employers said they planned to use pay hikes to hold on to key talent.

“Of course, pay is only one element of why people decide to leave or stay,” notes Tim Low, a PayScale senior vice president. “But there is a disconnect there. Employers are reluctant to use money to solve the retention issue.”

The reasons aren’t hard to guess. For one thing, offering one person a big salary boost or a retention bonus to entice him or her to stick around sets a precedent for other employees’ expecting the same (or better), and compensation budgets can only stretch so far.

So, how can you keep employees who feel undervalued from heading for the exits? What it might take, according to Low, isn’t necessarily more money. It’s more — and clearer — talk about money. “We often tell our clients that they don’t need to spend more,” he says. “They just need to communicate better about why people make what they make.”

The PayScale study notes the rise of pay for performance in the past couple of years, but Low thinks “one reason incentive pay doesn’t work as well as it should is that there isn’t enough explanation about how it works, and how pay decisions are made.” As a result, the PayScale report says, 64% of employees say they earn “below average” compared to others in similar jobs.

That’s usually a false belief (and not only because it’s mathematically impossible for 64% to be below average). But “not every company is prepared to embrace transparency,” the study notes—largely because only 17% of executives say they are “very confident” in managers’ ability to have difficult conversations with their team members about pay.

The irony there is that, in a separate PayScale survey of 71,000 employees, 82% of them said they would be “satisfied with below-market pay,” as long as their employer gave a convincing explanation for it. “The moral of the story is, don’t assume more money is the answer,” Low suggests. “Try more communication first.”

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