Okay… so Harvard Business Review has a great article about compensation up here. In it, Dave Smith (Chief Product Officer at Payscale) points out that most people believe they are underpaid… and that even employees paid above market believe they’re underpaid more than a third of the time. Check out the below chart (from the article):

^So what we see here is that only people that are paid below market have an accurate handle on their compensation. But why is this important, you ask? From the piece:

…perceptions about pay play a significant role in an employee’s desire to leave your company. This may sound obvious, but our survey showed that “intent to leave” decreased in relation to how favorable an employee felt about their pay. For example, 60% of employees who perceived they were underpaid said they intended to leave, compared to only 39% of those who perceived they were overpaid. The bottom line is this: if you don’t communicate to your employees that they are being paid fairly compared to their talent market, they may leave.

and:

We also found that this type of communication becomes even more vital in any position that pays more than $85,000 per year — so the intent to leave tends to be more pronounced for professionals who are paid over this amount.

and finally:

…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.

^Okay, so we know three things:

1. If your employees don’t believe that they are paid fairly they will leave (and this is especially true of HCEs/your top performers).
2. Absent any communication to the contrary, most of your employees will believe they are underpaid even if they aren’t.
3. If you are transparent about the rationale behind your pay policies, most employees are okay with their comp even if they are under market.

Given the above, what’s the argument for shying away from pay transparency again? I have heard several, but think that ultimately communication around the value of a total comp package to employees has to be table stakes. Actually, I would take it a step further on focus on delivering total rewards statements. Companies should be communicating to their employees the total value of their comp packages – total cash, yes… but also retirement income, active healthcare, active welfare, and PTO. And I’m not saying that this means publishing all colleague salaries, supplementary executive benefits etc. But I do think having an honest conversation about how rich a package is relative to the market – and the rationale behind being under market if that’s the case – is likely to improve engagement outcomes as opposed to demoralizing talent as the conventional wisdom (favoring black box comp management) suggests.

…The flip side of this is that companies need to be mindful of how policies that disparately impact populations will be received when socialized, though. Do you have a separate PTO/leave/bonus/employer match policy for your key contributors/HCEs/highest performing BU? There may be good reasons for it… but – even assuming no legal/compliance issues – rolling out any enhancements to total rewards that only benefit a fraction of one’s population in a less than thoughtful way can do more to harm engagement than making no changes to a policy at all. If it doesn’t benefit everyone, it’s important to think through talking points prior to rollout.

Monday evening thought stream…

Best,

Rory