Employees increasingly believe they’re underpaid. Even when they aren’t.
According to PayScale’s latest Fair Pay Impact Report, 68% of employees who think they’re paid below market are actually being paid fairly. Some are even paid above market.
Despite widespread pay transparency legislation and efforts to improve compensation structures, more than two-thirds of employees still perceive they’re underpaid. And that perception is costing employers talent.
Employee retention is really important in markets like this. Hiring ebbs and flows, but turnover is always expensive. It costs time, money, and momentum to lose a strong employee. And you may not have much of any to spare right now.
Perception vs. Reality
This isn’t just a “grass is greener” mindset. It’s a serious disconnect – and a warning sign.
PayScale found that employees who believe they’re underpaid are 45% more likely to seek a new job in the next six months. Not because they are underpaid, but because they think they are.
So what gives?
Despite progress in legislation and internal efforts, perceptions of pay transparency haven’t improved. In fact, employee ratings of transparency have stayed flat over the past few years. Which suggests the message isn’t landing. Or isn’t even being sent.
Misinformation Is Winning
Salary estimates on job boards, Reddit threads, LinkedIn posts, office gossip – pay misinformation is everywhere. And without strong internal communication about how compensation works, that noise fills the void.
The result? Employees assume the worst.
Transparency = Retention
The good news? Pay transparency works. Employees are more likely to stay when they believe their company is open about how pay decisions are made. That means explaining:
- How salary bands are set
- What factors impact individual compensation
- What the path to a raise or promotion looks like
When you demystify the process, you don’t just quiet the noise, you build trust. You build loyalty.
And it helps with hiring too. Clear, upfront compensation conversations help candidates understand the full range and what it takes to reach the top.
What Employers Can Do Right Now
- Audit your pay communications, not just your pay. Are you explaining why compensation decisions are made? Don’t assume your team understands the system just because it exists.
- Train your managers. They’re your front line. Equip them to handle pay conversations with clarity and consistency.
- Close the loop. If you’ve rolled out new policies, revisit them. Are they sitting in HR documents no one reads?
- Monitor sentiment. Don’t wait for exit interviews to learn someone felt undervalued.
You can’t retain great people if they don’t believe they’re being paid fairly — even if they are. That gap between perception and reality is more than frustrating. It’s costly.
Transparency isn’t just compliance. It’s culture. It’s leadership. It’s how you build the kind of workplace people want to stay in, and grow with.