• Workers believe they are underpaid

It’s a crazy labor market. Wages are increasing, job openings are exceeding candidate applications, and employees everywhere are quitting. Organizations are scrambling to figure out retention strategies that will actually work. PayScale recently released a fair pay impact report analyzing whether employees know if they are fairly paid and the impact their perception has on job-seeking behavior. 

The results don’t look good for employers. In fact, the analysis shows that most employees have no idea whether or not they are fairly paid. In the current hot job market, employees who assume the worst about their pay are shown to be 50 percent more likely to seek a new job. However, PayScale’s research does signal something employers can do to increase employee retention in a volatile market: pay communications. Pay communications are a cost-free tactic open to all employers and have been demonstrated to deter job-seeking behavior, with a high degree of pay transparency being the most effective at building trust and increasing retention. 

Most employees believe they are paid below market . . . even when they aren’t 

More than half of employees (51 percent) believe they are underpaid when they are actually paid at market or above market rates according to analysis of PayScale’s crowdsourced salary data. 

Specifically, PayScale’s fair pay impact report shows that employees really have no idea if they are paid fairly. A whopping 86 percent of employees surveyed believe they are paid at market or below market when they are actually paid above market rates. Meanwhile, 28 percent of underpaid employees believe they are being compensated fairly . . . until they find out otherwise. 

The perception of unfair pay impacts intent to leave 

PayScale’s analysis also shows that employees who believe they are underpaid are 49.7 percent more likely to look for another job. Overall, employees who believe they are underpaid represent almost two-thirds of people (65.8 percent) who fill out salary profiles on Payscale’s website. Collectively, Payscale’s research on the impact of fair pay perceptions shows that pay communications are woefully underutilized, a fact which should concern most organizations. 

Pay can be intensely personal. Without a frank conversation with their manager about how their pay is determined, employees are apt to assume not only that they are underpaid when they aren’t, but also ascribe negative intentions to their employers for why they are underpaid. Some will assume that their employer is intentionally trying to take advantage of them when they know that most people with their job are paid more at other organizations. 

When left unaddressed, these assumptions fester and lead employees to seek job opportunities where they believe the pay is better and processes are more transparent. 

Pay transparency correlates to less of a chance employees will look for other jobs 

The truth is that most employers do attempt to pay employees fairly and competitively. According to PayScale’s Compensation Best Practices Report, over 80 percent of employers say that they pay employees equitably based on salary data to keep employees engaged. Less than 8 percent of employers admit to trying to pay employees as little as possible to save on payroll costs. 

Unfortunately, organizations do a poor job of communicating their pay practices and intentions to the workforce. Nearly half of employers never share pay ranges with employees or don’t have them to begin with. Only around a third of organizations (33 percent) are a level 3 or higher on the pay transparency spectrum, meaning they share at least pay ranges with employees in one-on-one conversations at some point in the hiring or pay increase cycle. 

PayScale’s research shows a strong correlation between pay transparency and employees looking for work elsewhere. That’s why employers really need to up their game when it comes to communicating about pay. PayScale’s analysis shows that perception of fair pay from pay communications has more impact on deterring job-seeking than actual market penetration. 

In its online survey, PayScale asked employees to rate their organization’s pay transparency on a scale of 1 to 5. Employees who felt their organization was a “1” were 183 percent more likely to seek a new job compared to those who felt their organization was a “5”. Meanwhile, employees who described their organization’s transparency around pay as either a “4” or a “5” were at least 65 percent less likely to be seeking a new job. 

In other words, even a modicum of pay transparency is good for business but a concerted effort to improve compensation strategy and pay communications can have a really noticeable impact on employee morale and retention. 

There are a lot of reasons to be worried about the job market right now. Organizations are struggling to get job applicants. They are also experiencing higher-than-average turnover. Wages are rising and so are expectations for better employment experiences and benefits. Together, this is creating a lot of anxiety about the future of the workforce and the ability to attract and hold onto the talent necessary to grow a business. As a result, compensation strategy has become more important than ever, but no compensation strategy is complete without pay communications. 

You have to explain to workers how they are valued, where the data informing their salary comes from, and what they can do to increase their earning potential. Communicating doesn’t cost anything and a little bit goes a long way. It could make the difference between your employees believe their pay is fair and sticking it out with your organization or assuming they are underpaid and going elsewhere. 


Amy Stewart is a senior content marketer and analyst who authors research reports for PayScale on a variety of topics related to salary data, compensation management, pay equity, and talent acquisition and retention. 

This article was written by Amy Stewart from Fast Company and was legally licensed through the Industry Dive publisher network. Please direct all licensing questions to legal@industrydive.com.