Are You Paid Fairly? Why Data and Perception Don’t Always Match

The annual employee review is a sign of the New Year across workplaces in the U.S. For many companies and employees, this is the time to assess accomplishments and shortcomings, report business findings and calculate KPIs. Data plays an important role in determining the value employees bring to bear, and subsequently, whether or not a pay increase or bonus shall be rewarded moving into next year.

Knowing whether you’re paid fairly seems like a straightforward process. The data is literally at your fingertips in the 2019 Salary Guide—search by job title and view comparable levels of compensation for the area where you live to get a feel for what people like you earn annually. Hopefully you fall somewhere within the salary range for your title and city.

Having ample and easily accessible data about salary, title, and location does not necessarily dictate whether someone feels that they are paid fairly. After all, fairness is a subjective measure with many experiential components. Just because you fall somewhere in a broad range of salaries doesn’t necessarily mean you are paid what you are worth. There’s more to it, and there is data to back up this sentiment.

The Harvard Business Review published interesting statistical findings about the gap between employee pay and their perception of pay. The study polled 70,000 employees about whether they felt like their pay was on target with their role. It found that people who are compensated at or above market had the most skewed perceptions fairly. Here are some key findings:

• About two-thirds (64 percent) of people who are paid at market level actually believe that they are underpaid.
• More than third of people (35 percent) who are paid above market believe that they make below market value.
• If you’re paid under market value, then chances are you know it: 83 percent of statistically underpaid employees sensed they did not make fair earnings.

It’s important to note there may be several reasons as to why employees feel underpaid whether or not what they earn matches the salary the market commands. Chances are you have experienced some of these common situations during your career.

• You might be a salaried employee that’s classified as exempt from receiving overtime pay and you regularly log more than 40 hours a week.
• You may have accumulated roles and responsibilities beyond those initially in your job description without getting additional pay.
• Your job title no longer matches what you do for the company.
• If you have been at the same job and adding experience and efficiency without seeing a raise in compensation, you have added value for which you aren’t being paid.

Historically, companies' lack of transparency provokes feelings of untrustworthiness in their employees. For example, it’s not uncommon for companies to have rules against discussing levels of compensation among co-workers. David Burkus, a management professor at Oral Roberts University, contends that salary secrecy drives this perception of being underpaid and in some cases feelings of being discriminated against. He contends that when a company clearly communicates a well-designed pay structure to its employees, they are more likely to recognize what they earn as fair.

Burkus and other contemporary voices in employee relations recommend that to further perceptions of fair pay across a workforce, companies must use current job market data to structure pay scales. It’s also helpful for management to discuss career progress with employees on a regular basis. It’s a two-way conversation that establishes a shared vision about what advancement should look like. If done correctly, it should act as a roadmap that includes estimated timeless and targets for compensation.

For a blueprint, you might look at the performance management process at GE, which abandoned the 360-degree review process and adopted a more collaborative approach of goal setting. Also take a look at how Adobe transformed its culture by undertaking a more ongoing performance management process.

Employees and employers can improve by using data

The starting point for a business looking to improve fairness in how it pays its employees starts by conducting regular pay audits. The goal is for companies maintain to integrity in its compensatory practices from the top down. The audit process should have well-thought criteria for grounds of comparison. Usually legal counsel is required because state and federal employment laws come into play. Small and medium size businesses often bring in outside payroll specialists and HRIS project managers to extract meaningful takeaways and HR policies from the datasets.

If you’re an employee, it’s advisable to always negotiate a salary. If you do not, the negative implications snowball throughout your career. Economist Linda Babcock of Carnegie Mellon University tells her graduate students that failing to negotiate salary can cost $1 million to $1.5 million in lost earnings over the course of their career.

If you haven’t been negotiating salary, hope is not lost—but you need to start working the art of the ask if you want to feel fairly compensated. Asking a future or current employer for higher compensation can be intimidating, but knowing how to ask for a raise or a better offer is something you can and should prepare to do if you want to be paid fairly.