Let’s talk about some universal lessons for managers of people, regardless of topic. First, managers must always remember that, for employees, perception truly is reality. And second, managers are the front line for shaping that perception through clear, precise, consistent and frequent communication. When the latter is lacking, the former is built on rumors, assumptions, biases and gossip. Wise managers are proactive managers, especially when it comes to communication.
How does this relate to compensation? PayScale recently surveyed 71,000 employees on pay perceptions and intent to stay. This chart just about says it all, but after the image are the key observations from the study (largely quoting from this Harvard Business Review article on the study):
- People are often wrong about how much they’re paid compared to the going market rate.
- Perceptions about pay play a significant role in an employee’s desire to leave your company… 60% of employees who perceived they were underpaid said they intended to leave, compared to only 39% of those who perceived they were overpaid.
- Transparent conversations about money can actually mitigate low pay. So, if an employer pays lower than the market average for a position, but communicates clearly about the reasons for the smaller paycheck, 82% of employees we surveyed still felt satisfied with their work. Conversely, we found overpaying employees in an effort to retain them without having this larger conversation about pay doesn’t ensure they are more satisfied.
- The higher the pay, the more important the conversation. The intent to leave tends to be more pronounced for professionals who are paid more than $85,000 per year.
- Women who are paid above the market average for their job are 18% more likely to believe they are underpaid than men in the same pay bracket.
Yes, fair and equitable pay matters. But if your front-line managers aren’t communicating to employees that their pay is, indeed, fair and equitable, then the battle is lost. I get it, I do. The communication aspect can be difficult. And not just because conversations about pay can be awkward. In today’s workplace, the vast majority of managers are “doer managers.” They have their own separate job responsibilities and projects to deliver in addition to managing their team. Time is limited and sometimes conversations fall by the wayside.
As compensation professionals or HR business partners, we must equip our managers with the information they need to have these detailed conversations. We need to make these conversations as easy as possible, because they must happen. On average, I’m sure the vast majority of the employees in your organizations are compensated equitably and fairly. Even if we can’t pay market rate, again, communicating why is to our advantage. People are willing to commit more as long as they understand the way. We need to make sure they know that, or we face the very real prospect of losing them.
I’ll conclude with this valuable piece of advice from PayScale:
“[Managers] need to remember that how their employees feel about compensation matters just as much as what they’re actually being paid.”
How does your organization prepare managers to handle discussions on fairness and equitability of pay? Do employees understand where their own pay falls in the market range?
As Globoforce’s Vice President of Client Strategy and Consulting, Derek Irvine is an internationally minded management professional with over 20 years of experience helping global companies set a higher ambition for global strategic employee recognition, leading workshops, strategy meetings and industry sessions around the world. He is the co-author of "The Power of Thanks" and his articles on fostering and managing a culture of appreciation through strategic recognition have been published in Businessweek, Workspan and HR Management. Derek splits his time between Dublin and Boston. Follow Derek on Twitter at @DerekIrvine.