Compensation tends to play a critical role in an organization’s ability to attract, motivate and retain key talent. As an employee, how much you earn, and whether you feel valued by your employer, can either boost or undermine your self-esteem.
Most HR and Comp teams are well aware of this reality and don’t make pay increase decisions lightly. Yet, as much as organizations want to believe that their rewards system is good and fair, we’ve found that workers feel very differently.
In PayScale’s new “Raise Anatomy” report, we found that most workers have little faith in their employer when it comes to the organization’s ability to make fair, equitable pay decisions. In fact, when workers ask for a raise and their employers say “no”, only 23 percent of these workers believed the justification their employer provided for denying them a raise.
When workers ask for a raise and their employers say “no”, only 23 percent of these workers believed the justification their employer provided for denying them a raise.
Furthermore, when workers are denied a raise and they don’t think their employer is telling them the truth, they’re likely to become disgruntled and to look for new jobs.
While these findings may not surprise you, we did find something unexpected: when it comes to creating a highly engaged workforce, having the trust of your employees carries far more weight than offering tangible rewards such as a pay raise.
The Details on the Study
We asked over 160,000 workers if they’ve ever asked for a raise from their current employer. Of total workers, 37 percent have asked for a raise at some point from their current employer. Of those who have asked, 70 percent got some pay increase, and 30 percent were denied.
We asked workers who were denied a raise the following question: “What was the primary rationale your employer provided for denying your request for a raise?” The options they could choose from are:
- Budgetary constraints
- I asked outside of the established time of year for raises
- I had not been in the role long enough
- My performance did not warrant the raise
- No rationale was provided
“Budgetary constraints” is the most common justification employers provided, according to surveyed workers (49 percent of workers checked this reason). Disturbingly, the next most common reason for denying a raise was no reason at all! A third of workers who were denied a raise reported that no rationale was provided.
Next, those who were denied a raise and said their employer had provided a rationale saw this prompt: “do you believe in the rationale provided by your employer?”
Of workers who answered this question, only 23 percent said that they believe their employers’ justification for denying a raise.
Why Workers Have Trouble Trusting Their Employers
One reason why workers have trouble trusting their employers is because employers aren’t sharing enough information for workers to feel “okay” with their situation.
When we looked at the data by the various justifications employers provided, we found that those who were given the justification “your performance did not merit the pay raise” are the least likely to think that “performance” is the legitimate reason (only 13 percent believe the rationale).
Those who were provided the reason “budgetary constraint” are also highly unlikely to believe that budget is the real reason (only 22 percent believe the rationale).
In these two scenarios, it’s likely that workers don’t see eye-to-eye with their employers because they don’t have the same set of information about pay or performance.
When a worker does not believe that their performance is the issue, it might be because their manager hasn’t set a clear standard on what good performance looks like. Or it might be because a manager hasn’t given the worker timely feedback to address a performance issue. A third possibility is that the manager is giving timely feedback, but the feedback wasn’t delivered in a way that the worker can hear it and act on it. In all these cases, the root cause is that workers and decision-makers aren’t operating from the same set of facts.
When an organization tells a worker that no budget is available for pay increases, a worker may be missing context. For example, a worker may not know that they’re already well paid for their skillset and their pay cannot be increased without the organization bumping them into the next pay grade. For instance, an individual who is already paid at the 95th percentile for their position probably shouldn’t get a base increase, unless they’re ready to be promoted to a new level.
Why Trust is Greater Than Gratification
As you might expect, we found that when workers don’t believe the rationale their employer provides for denying a raise, or aren’t provided with any rationale, they are more likely to plan to quit.
A full 72 percent of workers who don’t believe in the rationale and 71 percent of workers who were provided no rationale reported that they plan on seeking new jobs outside of their company in the next six months (vs. 50 percent of workers who asked for and received a raise.)
Additionally, when workers are denied raises, their level of satisfaction with their employer takes a hit: Just 29 percent of workers who did not believe the rationale provided and 27 percent of workers who were provided no rationale reported being highly satisfied with their employer (vs. 55 percent of workers who asked for and received a raise).
These findings confirm an insight about human nature that psychologists have known for a while: when we don’t achieve a desired outcome, we usually don’t think that we are the problem. We tend to go into denial mode, blame it on someone else (or an organization), or try to get out of the situation.
However, we found something else that took us by surprise: when workers actually trust their employer / manager (believe in the rationale provided), they can remain satisfied and stay committed to their employer despite the fact that they didn’t get the raise they asked for.
In the data, we saw that this group of “believers” report significantly higher rates of being satisfied with their employer and a lower likelihood of quitting. In fact, as long as workers believe the rationale, they’re similarly satisfied with their employer as workers who received a raise when they asked!
Consider this: 50 percent of workers who were denied a raise and believed the rationale provided report high satisfaction with their employer vs. 55 percent of those who asked for and received an increase of any amount. These “believers” are six percentage points more likely to report that they’re highly satisfied with their employer than the group who received a raise that’s less than they asked.
If You Want Your Employees to Trust You, Give Them More Information
This data suggests that communication is critically important when it comes to fostering trust. Our data shows that transparent communication around pay decisions can move the dial on employee engagement, regardless of how much or how little you spend on employees. Employees can handle bad news – and even use it as personal motivation to work harder – as long as it’s communicated in a way that feels genuine and reasonable.
To read about key findings in this study and get tips on how you can turn employee sentiment around though effective pay communication, check out the full report at www.payscale.com/data/employee-turnover-pay-raises
TELL US WHAT YOU THINK
What practices does your organization employ to ensure a fair and consistent performance management process? Share your experience with us below.
Be sure to check out the rest of the “Raise Anatomy” report as well!