Sixty-eight percent of employees who are paid fairly believe they’re paid below market, according to our 2025 Fair Pay Impact Report.
Even though pay is fairer than when we last produced this report in 2021, the perception gap has widened.
What’s causing this disconnect?
It’s simple really. Perceptions of fair pay aren’t influenced by compensation data. Instead, they’re felt by employees. Economic uncertainty, increased cost of living, and a general mistrust of employers have all contributed to deteriorating employee pay perceptions.
Closing the gap between reality and perception requires more than the right data. It demands better communication. To rebuild trust, organizations must be more transparent in how pay decisions are made and intentional in communicating this to employees.
But before diving into the solution, let’s more closely examine the problem.
Employees have no clue if their pay is fair
According to our research, employees simply don’t know if they’re paid fairly. Forty-seven percent of employees paid above market believe they’re paid below, while 63 percent of those paid at market think the same.
These numbers are higher than in 2021, when inflation was, in fact, surpassing wage growth and eroding employees’ purchasing power. Beginning in the middle of 2021, wage growth declined as prices crept up to more than 8 percent.
But employees were more satisfied with their pay during this time. Compared to the numbers above, only 42 percent of those paid above market and 57 paid at market believed they were unfairly compensated in 2021.
Following aggressive interest rate hikes, inflation came down considerably. Throughout 2024 and 2025, pay grew quicker than inflation.
If we look at cumulative wage growth and inflation from 2019, employees are actually better off now than in 2019.
Except, they don’t feel that way. Fair pay perceptions are confused by a misunderstanding of pay information. As media stories about inflation continue to circulate and tariffs threaten to drive prices up, some employees feel further behind regardless of their actual situation.
This confusion matters because perception drives intention: employees are more likely to jump ship if they feel unfairly compensated. According to our findings, 65 percent of job seekers have poor pay perceptions compared to just 35 percent who don’t.
Organizations should focus on pay transparency
Pay transparency can have a significant positive impact on attrition. Employees at organizations that prioritize pay transparency are much less likely to seek a new job compared to orgs with opaque pay practices.
Take a deep dive into the Fair Pay Impact Report
When employees understand how their compensation is determined and trust that pay decisions are fair and consistent, they’re significantly more likely to stay. Unfortunately, according to our report, employee perception of pay transparency has barely budged since 2021.
While pay transparency is important to retention efforts, it isn’t an all-or-nothing proposition. Instead, pay transparency exists on spectrum that starts with the “what” (here’s what you’re getting in your paycheck) and goes to the “whoa” (we’re going to publish the salaries of every employee for all to see).
Most organizations aren’t ready for the radical transparency of disclosing every employee’s salary. That's okay. We actually found that the highest level of transparency becomes detrimental to retention compared to Level 4. This makes sense. If your employees know how much others across your organization make, they might become disgruntled.
The sweet spot for pay transparency seems to be Level 4, where organizations explain the “why” behind pay decisions. Organizations that reach Level 4 on the Pay Transparency Spectrum have a workforce where employees are 60 percent less likely to seek a new job compared to Level 1.
Achieving this level of pay transparency requires the following:
- Start with a solid foundation. First, establish a compensation philosophy and strategy that reflects your organization’s goals. Next, use market data from diverse salary sources to your price jobs and build pay structures.
- Share your pay structures with employees. Let your workforce know how jobs are priced along with the compensable factors that determine pay (e.g. skills, experience, responsibilities). Provide visibility into salary ranges and individual employee’s range penetration.
The goal is not only to show employees their pay was fairly determined but also offer opportunities for growth. Additionally, you’ll want to present employees with total rewards statements, emphasizing the benefits and other perks beyond base salary they may take for granted.
- Involve people managers. Managers should be engaged throughout the entire process from writing job descriptions and advising on initial offers to having ongoing pay conversations with team members.
Every pay conversation should be focused on what an employee values most. While merit increases are the easiest way to acknowledge employees, don't dismiss other rewards such as flexible working arrangements and career development opportunities.
- Regularly review pay. Decide how often you want to review pay. For most jobs, one annual pay review might suffice, but you’ll want to run pay equity checks when onboarding new hires. For certain in-demand or hot jobs, you may want to reference market data more frequently.
- Secure buy-in from leadership. Pay transparency can’t be achieved without executive support. You’ll need budget flexibility to support retention efforts. More importantly, some executives may be accustomed to a culture where pay is a closely guarded secret.
Focus on the benefits: pay transparency strengthens employer-employee relationships and ultimately makes for a more productive and loyal workforce.
The reduction in employee job seeking makes a strong business case for organizations to adopt pay transparency.
It also strengthens an organization’s ability to compete for top talent in a market where job seekers increasingly expect salary details before submitting their resumes. Beyond retention, pay transparency drives operational efficiency by reducing the time HR spends fielding employee questions, while simultaneously improving performance by firmly cementing employee contributions to pay decisions.
Controlling the narrative
While employers must contend with pay misperceptions, they can significantly soften the blow by making compensation less of a mystery. When leaders trust their data and strategy, they should easily be able to explain how pay decisions are made.
Alternatively, when employees lack clarity into how their pay was determined, they inevitably fill the void with half-truths and subjective feelings. Bombarded with media messages about a cratering economy, employees feel lousy about their pay because no one has told them otherwise.
That’s where you come in. Armed with the data and ability to confidently communicate with your employees, you can defang pay misperceptions. Your workforce will have beliefs regarding whether they’re paid fairly. It’s your job to ensure that these beliefs are true.
