Money isn't the biggest reason people leave their jobs. But it's still No. 3, after advancement and work-life balance. And a lot of companies--a quarter, according to a survey by staffing firm Robert Half--lose key employees to better pay at other companies.
You could get into a wage war, but that probably wouldn't do any good because, perversely enough, employees don't have a sense of whether they're well paid, and that's a problem. HR software company PayScale asked 71,000 people how their compensation compared to market rates for positions like theirs. Here are some of the results:
- Among people paid below market rates, 83 percent knew it
- But 64 percent of people receiving market rates thought they were underpaid
- For people receiving more than market rates, 35 percent thought they were underpaid and another 45 percent thought they were only getting the market rate
So, a walloping huge percentage of people either assume that they're paid less than they should be or don't appreciate just how much they are making. Of the people who think they're paid too little, 60 percent are ready to up and leave for a better paying position. And yet, 82 percent of employees were satisfied with making less than market rates if the employer explained why.
Businesses are all-too-often terrible about communicating with employees, other than saying what they want from them. That's an ineffective and self-defeating approach. People need to make a living and want to make money, but, as you've probably read many times before, they also want to be treated with some regard and respect.
In this case, it means talking to employees about compensation. As Harvard Business School professor V. G. Narayanan told the Harvard Business Review, companies should have regular conversations with employees that are separate from performance evaluations. But, in addition to Narayanan's suggestion of an initial discussion of compensation and bonus plans, followed by check-ins about perceived performance, be sure to put the whole thing into context.
Talk about how someone's pay matches the market expectations in your industry for that type of job. If you pay below market rate, explain why. It might be a systemic issue ("We're still ramping up and have to conserve cash, but the founders and management are taking low paychecks as well"). It could be specific, such as an employee not having the experience yet and needing more training, but showing great promise. And if you pay more than market rate, let people know that as well, whether, again, for systemic or specific reasons.
In short, just talk to employees as though they were people, which they are. Think about how you'd like to be treated, and make sure they have the information (backed up by some third-party source, not just your assertion of what market rates are) so they can be more at peace.