Conditions and perceptions

What employees think about compensation

Today, compensation has become more complex and more critical. Employees are reevaluating the entire nature of work — including the most essential reasons for holding a job. People want to feel valued — and therefore engaged and they want to be compensated fairly.

By far the most common reason employees leave a job is for better pay and compensation packages.

In the U.S, 63% of employees in a nationwide survey cited low pay as their top reason for leaving. A recent UK survey found that as resignations increase across a whole range of sectors, the biggest factor keeping employees in their roles is knowing they are earning a competitive salary.

Australia is presently seeing its highest rate of voluntary quits in 10 years, according to the Australian Bureau of Statistics (ABS). The rate of turnover hit 9.5% in February 2022, and that’s speculated to keep rising — reaching 15% in the months to come. The biggest factor in what prompts employees to leave is seeking an improvement in pay. In a tight talent market, with unemployment down at 3.9%, venturing into the job market isn’t seen as the challenge it once was. Landing a better salary situation is seen as an increasingly attainable goal.

But it’s not just about pay itself: feeling undervalued is close behind (57% cited it in the Pew study). That’s where multifaceted compensation packages play a critical role. Moreover, it’s also not just about cold numbers. It’s about sentiment around compensation as well.

The power of perceptions

Even a perceived sense of unfairness, inconsistency, or pay that’s simply too low can prompt an employee’s decision to look elsewhere. Here too, we’re seeing a reflection of the shift to digitalized HR, and the spectrum of its advantages as well as new complexities.

The number of employees who access online pay information has doubled in the past two years, with 50% of employees now talking about pay with others, according to 2021 research.

One problem is they may not understand — or accept — the criteria used in determining compensation. Further, they have far more access to information across the board, but without framing or context provided by their employer. And as transparency and digital access brings a new (and needed) openness to workplace culture, employees are going to be sharing and discussing compensation more than ever before.

A matter of trust

Employers can’t stop employees from discussing or sharing salary information — nor should they.

Employees have the legal right to do so, as clearly delineated by the National Labor Relations Board (NLRB). Further, the European Parliament voted to recommend mandating pay transparency for companies of more than 50 employees.; Asia Pacific employer policies on salary transparency are predicted to grow: Japan already has pay equity and salary disclosure regulations in place.

But controlling the narrative is another story. And as they watch the numbers, do they know what they see? Let’s take a closer look:

Younger employees are driving the trend. They’re the ones “rewriting the script” of how we consider and discuss pay — part of a culture of sharing information and being, in essence, consumers of employer brands and offerings rather than passive recipients. 42% of Gen Z and 40% of millennials say they have shared their salary information with a coworker or other professional contact.

42% of Gen Z and 40% of millennials say they have shared their salary information with a coworker or other professional contact.

Transparency matters But, there’s also a widening gap between employee preferences for information about pay information and an employer’s ability, willingness, or just a process to disclose it (intentional or not).

A full 63% of employees say they would prefer to work at a company that discloses pay information over a company that does not. But here’s the gap: only 19% of employees said that their company actually discloses salary ranges internally among all employees. That leaves a lot of the workforce in the dark.

That gap — between employee preference and employer policy or ability — is filled with countless opportunities for misunderstandings and lack of trust. Consider how many points there are on a compensation continuum: pay increases, rewards, incentives, adjustments. Without a clear understanding of the criteria and standards being used to determine those milestones, small as they are, there’s way too much room for speculation. And that, in turn, can engender mistrust, low morale, disengagement and retention. And, in fact, it already is.

A recent study of employee perceptions around fair pay found that:

Employees are 50% more likely to leave their present employer if they think they’re paid below market, even if in actuality they aren’t.

57% of employees who are paid at market rate nevertheless believe they are being underpaid.

42% of employees who are actually paid above market believe they are being underpaid.

Read the full study

Rising employee expectations

The bottom line is that employees have more expectations around compensation altogether, informed or not. While some organizations may have relied on old customs around compensation discussions, in which pay was considered a “confidential” and therefore undiscussed topic, those days are gone. And when employees are not satisfied with what they see, when they perceive unfairness around their compensation, negative sentiment can spread quickly.

As a critical for-instance, employees care about performance-based bonuses — and to retain top talent requires that companies have the flexibility to move beyond the usual half-yearly and yearly performance review to provide those spot bonuses for exceptional work — or that eleventh-hour push a team made to reach the finish line on a key project.

Any issue affecting morale and engagement is contagious today — and has consequences. 56% of U.S. workers said that other employees quitting their jobs prompted them to consider quitting as well. Given the prominence of compensation in terms of the top reasons to leave a position, not instituting a better compensation plan could result in increasing resignations.

The cost of undervaluing high performing employees

The role of compensation in shrinking workforces is particularly acute in high-value, high-stress sectors, such as healthcare — which can hardly afford to lose more people.

One telling instance: a recent study of nearly ten thousand nurses by the UK’s Royal College of Nursing. The researchers found that a full 57% of the nurses polled were either considering or actively planning to leave their jobs.

Their top reason? Feeling undervalued, as cited by 70% of those respondents.