Maybe the most surprising fact in PayScale and Equilar’s new report on CEO pay is that most workers are fine with how much money their CEO is making. Seventy-nine percent of respondents who knew the CEO’s pay said they approved of it.
Of course, most CEOs aren’t leading Fortune-500 companies. While the CEO of an average company makes four times as much as the average American worker, very few are making 300 times that of their median employee. (Six, in fact, according to PayScale’s data. But plenty of others on the list make, say, 50 times as much as their typical worker.)
Still, you might expect workers to be less blasé about the top exec’s salary, given that wages have stagnated for the majority of workers since the Great Recession. PayScale’s Real Wage Index, which measures the buying power of U.S. workers’ earnings with inflation taken into account, shows that the value of employees’ pay has declined 7.4 percent since 2006.
Why aren’t workers more concerned? In part, it’s probably because CEO pay has been climbing for a while. The EPI released a report last year showing that CEO pay has grown 90 times faster than worker pay over the past 35-plus years.
If you’re a manager, however, and not the chief executive or an individual contributor, your concern is probably how to make sure people feel that they’re paid fairly.
Transparent conversations about money can actually mitigate low pay. - Dave Smith, CPO @payscale
Transparency Helps Make Up for Low Pay
Ideally, of course, your company pays market value for its employees’ services, and has a compensation plan that drives better business results. But unless you’re leading HR or have the ear of someone important, there’s only so much you can do to influence those decisions.
What you might be able to do is to convince the decision-makers to be more transparent about their compensation philosophy.
Last year, PayScale surveyed 71,000 workers to determine the relationship between pay and employee engagement.
“The study results revealed that one of the top predictors of employee sentiment, including ‘satisfaction’ and ‘intent to leave,’ was a company’s ability to communicate clearly about compensation,” wrote PayScale Chief Product Officer Dave Smith at Harvard Business Review, at the time of the study. “In fact, open and honest discussion around pay was found to be more important than typical measures of employee engagement, such as career advancement opportunities, employer appreciation and future enthusiasm for the company.”
Communicating effectively with employees about pay helps when they’re being compensated equal to or better than market rate, for obvious reasons. But it also helps when they’re underpaid.
“We discovered that transparent conversations about money can actually mitigate low pay,” Smith wrote. “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.”
On the other hand, paying workers more didn’t necessarily increase job satisfaction. The data showed that workers were more satisfied when they were paid market rates, but understood how salary was determined, than when they were overpaid.
In short, if you want happy, engaged, productive team members, your best bet is to communicate with them. When everyone understands why they’re being paid as they are, they’re more likely to trust that they’re being paid fairly, and be satisfied.
Want to find out if you’re being paid fairly? Take PayScale’s Salary Survey and review your free salary report.
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