Your employees might not be underpaid, but they’re probably under-informed.
In the 2015 Compensation Best Practices Report PayScale found that the number one reason most people left a company was compensation. The majority of respondents cited “seeking higher pay elsewhere” as their reason for leaving.
While there’s no shame in wanting a little more cash in your pockets, an interesting trend has emerged—people are equating wanting more money with assuming they’re underpaid.
However, a recent PayScale study found that only 45% of those who indicated they were underpaid were actually earning less than their peers in similar roles.
So why does everyone think they’re underpaid?
Word of mouth
Word of mouth is a powerful thing.
Think of how many times you’ve heard someone back up an opinion or statement with the words “I know because my friend is in that industry” or “My sister took a course on that in college”.
Real life stories impact us in a way that data can’t. The words of a few can take a stronghold on someone’s opinion.
If someone hears that a friend of a friend (you know the drill) is making more in a similar job at the company across the street, that person is not often stopping to ask what the distant acquaintance really does in their job, how much experience they have, or how long they’ve been at the organization—the supposedly lower paid person is already headed back to their desk to start looking for a new position.
The gender pay gap
PayScale data confirms that in an uncontrolled survey comparing average pay for all men against average pay for all women, indeed, women are earning about 25% less than men.
However, that gap decreases significantly, to 2.7%, when we control for compensable factors—meaning men and women in the same job, performing the same duties, with the same level of education and experience—have much more similar pay.
So where’s the disconnect? Simply put, men occupy a much larger percentage of higher paying jobs vs. women. While that’s an issue that we should definitely be talking about, without an understanding of the second half of this phenomena, it’s easy for an employee to see the first statistic and start thinking they might be underpaid too.
Lack of transparency
While word of mouth amongst coworkers and news articles about pay equality are likely to get employee’s wondering if they are underpaid—the primary culprit of pay misinformation is actually silence.
When polled, 63% of organization respondents indicated that their highest level of pay transparency is “employees see their pay on their check.”
Another PayScale study confirmed that 64% of individuals who are in fact paid at market, believe they are paid below market.
It is no surprise then, that employees who perceive their organization’s pay practice as fair and transparent have lower intent to leave and higher satisfaction—and those who don’t are headed for the door.
The solution is simple
To avoid misconceptions from your employees that they are underpaid, it’s time to let them know what your pay practices look like.
This doesn’t have to mean publishing salaries online or giving everyone a copy of their coworkers pay stub. What it does include is creating a dialogue between employees, managers, and compensation decision makers about your organizations pay philosophy and strategy.
This is where transparency and conversations about pay are essential. Make your pay policy the voice of truth.
Are you ready to the take the pay transparency challenge?
I love the above:
However, a recent PayScale study found that only 45% of those who indicated they were underpaid were actually earning less than their peers in similar roles.
She considers “only” 45% as “only.” I wonder if her pay was part of that 45% if she would consider that as “only.”
So over half were actually underpaid. And why would the other 45% percent accept an offer lower than they were already making? Additionally, the 45% help contribute to attrition rates which seems to be the only thing HR uses to determine if they should recommend compensation levels be adjusted. If nobody is leaving, why be competitive with market?
Good point Philip – for that 45% that are in fact underpaid, it’s definitely important for those folks to understand WHY. Are they new in the role and not yet at full proficiency? Does their employer consider them a low performer? Is that employer not up to speed with what the market is paying for this role? This is where pay communication comes in to play – having a understanding between employee & employer about how jobs are benchmarked and pay decisions are made is crucial.
Hi Travis – it is actually the 45% (a bit less than half) that are indeed underpaid in comparison to their peers in similar roles – and you are right on the mark that turnover would be a big concern for any organization dealing with underpayment. With companies that I’ve worked with here at PayScale, the drive to benchmark positions & do a market study is often based on multiple factors – wanting to identify over payment & underpayment to manage comp budget strategically, get a pulse on how the market is trending for future hires, and more. Thanks for… Read more »
Wrong, vast majority of people are underpaid as much wealth is transferred to offshore bank havens.
Comparative to the top 5%, the wage gap is increasing.
Corporate capitalism might fool you…but doesn’t fool this researcher in sustainable pay……..its my career and your figures are non-existent
Here’s some food for thought. According to payscale.com I am earning what the average person would earn in my field, with a degree and many years experience. However, If i cannot afford basic living such as shelter, transport and food then something is wrong. If I were to work overseas I would earn 100 times more for the same type of work, its just common for my country to exploit people and many businesses across the globe come here to hire and start franchises for that very reason. So you’re wrong and I’m underpaid because I cannot afford a roof… Read more »