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Most People (Still) Have No Idea Whether They’re Paid Fairly

The vast majority of workers do not know how their pay compares to the market rate.

The U.S. national unemployment rate dipped to 4.1 percent in November, and the latest statistics for tech hubs, such as San Francisco and Austin, show much tighter labor market conditions. With so little slack in the workforce, companies will face challenges in recruiting and retaining top-tier talent – tasks which will be made more difficult by one crucial fact: most workers have no idea how their pay compares with the market rate.

From May 2015 to May 2017, PayScale asked roughly 930,000 people “How do you think your current pay compares to other employees like you?” Over two-thirds of respondents inaccurately reported their market position, with the vast majority placing themselves below their actual position in the market. In other words, large swaths of the working population incorrectly believe they are being underpaid.

Most notably, of the people who think that they are paid below market rate, 77 percent actually are paid at market rate, while an additional 12 percent are paid above market rate. That means that only 11 percent of people who said that they are underpaid actually are paid less than the median market rate for people with similar characteristics.

Do You Know What You're Worth?

There is some indication that workers are becoming better informed about their market position than when we first reported on this topic, but these statistics should still give employers pause. An employee’s perception of their pay has an impact on their job satisfaction and their intent to leave, and easing the confusion is likely to have a positive effect on employee turnover.

On Pay, Confusion Breeds Discontent

Seventy-five percent of employees who think that they are paid at or above the market rate report that they are satisfied with their job, while only 59 percent of workers who report that they are paid below the market rate say they are satisfied. Furthermore, employees who report that they are paid above market rate say they are “extremely satisfied” with their job at more than twice the rate of people who report that they are underpaid.

Similarly, 48 percent of people who report that they are paid at or above the market rate report that they intend to leave their job within 6 months, while 61 percent of those who say they are underpaid are planning to leave.

Pay Transparency is Key for Getting the Best and the Brightest

As the race for top-talent does not appear to be slowing any time soon–and indeed it may even be accelerating–employees’ perception of their compensation will become increasingly critical to companies’ recruitment and retention practices. Companies that communicate to their workforce how they determine pay and how their pay compares with the market as a whole are the companies that will be best prepared to navigate the increasingly competitive talent market—and the most likely to come out on top.

Methodology

Between May 2015 and May 2017, PayScale collected 930,560 surveys to compare employee perceived and actual pay levels.

Market Position

PayScale’s consumer survey asks people their current annual income and “How do you think your current pay compares to other employees like you”? We then compared their reported income level to what our model predicts it should be based on their job title, education level, years of experience, location, and other variables. If someone’s wage is less than or equal to 75 percent of their predicted median wage, they are considered to be paid below market rate. Likewise, if someone’s wage is greater than or equal to 1.25 percent of their predicted median wage, they are considered to be paid above the market rate.

Employee Experience

We asked respondents “How satisfied are you with your job” with respondents able to select, “Extremely satisfied”, “Fairly satisfied”, “A little satisfied”, “Dissatisfied”, and “I hate my job”. More than 45,000 had valid answers.

We also asked if respondents if they agreed with the statement, “In the next 6 months, I plan on actively seeking new jobs outside of my current company.” Answer options were “Yes” and “No”. We had over 200,000 valid responses.

For more on this topic, see our Employee Engagement Report.


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