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3 Ways to Help Employees Understand Their Worth

Cornerstone Editors

How often do you talk about pay with your employees? It's likely only a few times a year: when they get a raise, bonus or promotion. And during those limited times you discuss pay, the context around the conversation often amounts to little more than, "You're doing a great job."

The lack of communication around compensation leads employees to make their own assumptions about their worth — and how their paychecks stack up to their peers. When they don't have proof otherwise, most people believe they're not paid fairly. A recent study from compensation software company PayScale found that among 71,000 people surveyed, an incredible 83 percent believed they were paid below market rate — even though 66 percent actually earned at or above market value.

Dave Smith, PayScale's chief product officer, explained the study's results in a Harvard Business Review article titled Most People Have No Idea Whether They're Paid Fairly. The misunderstanding can have serious implications for both workplace satisfaction and employee turnover, he writes, as "60 percent of employees who perceived they were underpaid said they intended to leave." However, the study also found that employer communication can make a big difference — even when employees are actually paid below market rate. An astonishing 82 percent of employees paid below market rate remained satisfied at their jobs when they received explanations from their employers.

Together, these findings underscore the importance of clear and honest communication with your employees about their compensation and their value within the company. How? We spoke with Derek Irvine, VP of client strategy and consulting at employee recognition firm Globoforce, and a contributor to the blog Compensation Café, for tips on effectively communicating value to your employees.

1. Recognize Their Achievements

Don't assume money is the best way to show employees how much they're valued within the company, and don't underestimate the power of public recognition for a job well done.

"Recognizing an employee's achievements has become increasingly important, not only in making them feel valuable, but in maintaining a motivated, loyal workforce," Irvine says. "By discussing performance on a regular basis and ensuring employees are not only recognized by their seniors, but also their peers, contributions are less likely to be overlooked and each individual can be rewarded fairly."

2. Annual Performance Reviews Aren't Enough

Clear and honest communication needs to happen year round, not just as part of an annual review. "Part of the problem with traditional discussions about pay and performance is their infrequency," Irvine says. "These discussions need to take place on a continuous basis so that feedback can be given — and acted upon — far quicker."

Managers should sit down and talk with employees about both positive and negative issues when they happen, so employees have a much better understanding of their performance and don't feel blindsided when it's pay raise season.

3. Always Pair Compensation With Explanation

When you are able to give employees a raise or bonus, make sure to explain why you're giving it. Otherwise, you lose the opportunity to earn the benefits you want in return, like boosts in employee morale, satisfaction and loyalty to the company.

"A large paycheck or bonus is always welcome, but if employees are unsure of the specific reasons for the increase, the cash will lack motivational impact," Irvine says. "Employees seek greater purpose and meaning in their job as a source of motivation. What people really want is to feel valued professionally, and for their good performance not to go unnoticed."

Photo: Shutterstock

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The Return of the Moderate Merit Budget – Wreaking Havoc on Pay for Performance

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