Poor perception shows organizations are underemphasizing pay-related communication.
Employee turnover is a serious problem for employers. It takes time, effort, and resources to train employees. And when a good employee leaves, it affects productivity and employee morale. The challenge of employee turnover has escalated as organizations try to recover from a tough year due to the COVID-19 pandemic. According to Microsoft’s studyOpens a new window , 40% of employees are planning to leave their employees this year. This means organizations need to be extremely thoughtful in their strategies and approach to employee experience to retain them. While work flexibility is the main reason cited for this talent erosion across studies, compensation, too, plays an important role. Further, employee perception about their compensation plays a role.
Payscale recently conducted a surveyOpens a new window  to understand how employees perceive their salaries compared to other employees and whether determining compensation in their organization is a transparent process. The study revealed some interesting insights. One major finding was that many employees felt they are paid below the market though they were actually paid above the market. The following are the findings in detail.
Also read: Compensation Strategy 2021: Salary Woes Likely to Continue, Reveals PayScale’s Survey
1. Employees Actually Do Not Know If Their Pay Is Fair
The study showed that a significant number of employees do not know if they are paid fairly, and most tend to believe that they are underpaid, even if they are paid at or above the market. About 57% of the people paid at the market believed they were underpaid, while 42% who were actually paid above the market felt they were paid less. About 72% who were paid below the market seemed to know they were underpaid. All people paid below the market or feel underpaid are at risk of churn.
Do people know if their pay is fair?
Source: Payscale fair compensation perception studyOpens a new window
Conversely, it can be said that for all the employees who believe they are underpaid, 51% are either paid at or above the market.
This means that while organizations are offering many people good compensation, they are doing a poor job communicating it to more than half the workforce. What it also shows is that pay-related communication is underemphasized in many organizations.
2. Employees Are More Likely To Leave If They Have Poor Perception
If people feel they are not paid well, they are more likely to leave the company. The study showed that those who felt they were underpaid comprised two-thirds of job seekers. It showed that people who were paid below the market are overall 49.7% more likely than those who think they are well paid to seek a new job in the next six months.
The study also showed that how one is actually paid compared to the market does not have a statistically significant impact on a person’s job-seeking behavior. Instead, it is the perception that will determine whether they may stay or look for a change.
Percent of people looking for a new job
Source: Payscale fair compensation perception studyOpens a new window
3. Pay Transparency Reduces the Intent To Leave
The study asked the respondents if they thought their organization was transparent about pay and compared it with their intent to leave. The results showed that transparency improved the intent to stay. When considered at a transparency level of 1-5, employees were more likely to leave a non-transparent organization. Employees who worked for a transparent organization are 65% less likely to leave compared to those of a non-transparent organization. It was also interesting to see that 78% of employees described their organization’s transparency as 3 or below on the scale.
Pay transparency across respondents
Source: Payscale fair compensation perception studyOpens a new window
At the same time, it is necessary to have a compensation strategy and pay structures before being transparent.
Also read: How Companies Can Support Better Pay and Development for Women
How Can Organizations Improve Pay Perception and Transparency?
Given that pay perception and transparency are important factors in employee retention, there are a few steps organizations take to improve them.
1. Increase base pay
One way to retain talent is to increase the base pay for employees, especially for people who are underpaid or when they believe they are underpaid. However, this is partially effective, as it should be accompanied by solid communication to explain the compensation in relation to the market data.
2. Be fair and equitable in pay practices
Being fair and equitable in their pay practices helps employees feel valued and engaged. Hence, organizations should provide how employees are evaluated and how pay raises, or other forms of financial rewards are earned. Further, it is important to ensure that the pay is equitable for the same work irrespective of gender, race, or other differences.
3. Run engagement surveys
One way to reduce employee churn is to run engagement surveys. These are opportunities to gather data on employee morale and issues they may be facing. These surveys can be made better or dedicated by asking questions about employee satisfaction with their compensation. In fact, this is a necessary component of a survey as engagement with everything else except compensation could still lead to churn.
4. Have open and honest conversations
Develop an organizational culture where employees can have an open and honest discussion about their compensation with their higher-ups and HR leaders. Studies show that a simple conversation can make a difference in an employee’s perception of their pay. AccordingOpens a new window  to Chris Martin, research manager, Syndio, “Being transparent about pay doesn’t necessarily mean revealing what all employees at the company make. Employees need to understand the process through which their salary range is determined and to believe that process is fair.â€
Further, we live in a digital age where information is available. Hence, if employers pay less, people will find out. Hence, it is necessary to be open about why employees are receiving the compensation they get.
5. Improve compensation maturity
Many organizations cannot achieve higher levels of pay transparency due to non-maturity in terms of compensation management, such as a lack of pay strategies and structures. Small organizations usually have low levels of mature compensation management capabilities. However, larger companies, too, may struggle with this, which could be due to several reasons. Hence, it is necessary for organizations to revisit compensation strategies and structure to improve transparency.
As employees look to move to greener pastures this year, it is imperative for organizations to take the necessary steps to retain their most skilled people. As such, besides the right culture, organizations should focus on compensation, its perception, and transparency. To improve perception and transparency, organizations should improve their pay strategies and structures, approach to compensation management, and pay packages.
What steps has your organization taken to create a positive pay perception among your employees? Share with us on LinkedInOpens a new window , FacebookOpens a new window , and TwitterOpens a new window .