The better an organisation communicates with its employees, the more likely those employees will stay with the company and be satisfied at work, according to Dave Smith, chief product officer at compensation software company PayScale, writing in Harvard Business Review. A survey of 71,000 staff undertaken by PayScale suggests that open and honest discussion around pay is more important in securing employee engagement than career opportunities, employer appreciation and future enthusiasm for the organisation.
What’s most striking for Smith is that employees’ perceptions on pay do not often reflect the reality, particularly when they are comparing reward to the market rate; a ‘whopping’ two-thirds of employees who are paid the market rate believe they are underpaid, the survey finds. Pay is critical in an employee’s intention to leave the employer, not surprisingly; 60% of those perceiving they are underpaid intend to leave, compared with only 39% who perceive they are overpaid.
Transparent discussions about pay can mitigate a position where an employee is paid below the market rate; 82% of employees paid below the market rate are satisfied with their work in organisations where managers communicate clearly about the reasons for the pay position. Conversely, paying above the market rate in an effort to retain employees, but without having a discussion about pay, does not guarantee engagement or satisfaction.
Smith concludes:
‘Clearly, having transparent and honest conversations with employees is a no-cost way to improve engagement. But for many businesses, it represents a challenge because it means adopting a whole new mindset around pay. Employers today should arm managers with accurate market data reflecting talent markets to base the conversation in fact. These discussions should not only show employees how their pay was determined, but also how pay relates to performance or responsibility, and what it takes for an employee to get to the next pay grade. Finally, they need to remember that how their employees feel about compensation matters just as much as what they’re actually being paid. When it comes to having a more engaged workforce, you can’t assume that an employee’s perception about pay matches reality.’