For employees, good performance entails certain implicit assumptions. If you put in the work, produce great results, and remain reliable, then sooner or later the pay will match up with your performance. However, in many organizations, there exists another hidden truth that is rarely acknowledged by employees.
Some employees who are known for their good performance may be shocked to find out they are being paid lower salaries compared to other colleagues with similar or even worse performance levels. Oftentimes, the shock comes unexpectedly when discussing the situation, finding information through documentation or any other form of unintentional discovery. Not only is the discrepancy difficult to accept, but the fact that pay and performance operate independently.
Studies have highlighted pay transparency, an organization's structure, and decision-making as factors that influence fairness perceptions among workers.
Moreover, in some companies, performance appraisal and compensation management take place separately from each other. For instance, an employee receives good evaluations, high ratings, and even new responsibilities, but does not receive adequate financial rewards compared to other employees.
As a consequence, the situation becomes personal for the employee because he/she sees a correlation between performance and fair treatment.
According to the study conducted at Harvard Business School, the absence of public knowledge about salaries may lead managers to apply subjective evaluations instead of using clear standards while calculating bonuses or raises. Negotiating abilities, corporate politics, or personal manager preferences could affect the process as much as objective work performance.
Furthermore, opaque pay structures and lack of pay transparency may lead to circumstances wherein workers believe their remuneration is not commensurate with their job performance, a pattern also discussed in research published in the Harvard Business School and the National Center for Biotechnology Information.
It means that employees can achieve impressive results but still get stuck in slow-moving and inconsistent compensation systems.
From the employees' perspective, this discrepancy is hard to understand. Acknowledging achievements without proper compensation ultimately leads to empty recognition.
Based on findings from studies posted by the National Center for Biotechnology Information, people who experience pay inequities often feel dissatisfied with their jobs, lose motivation, and show diminished organizational loyalty. Inequity can instill emotional stress that will eventually influence the employee's approach to work.
The effects of such perceptions on mental well-being tend to be long-term rather than short-term. At first, individuals may still maintain high productivity levels while privately wondering whether what they do makes any difference. Eventually, their frustration may lead them to become disengaged, bitter, or even emotionally drained.
Furthermore, the literature also indicates that perceptions of workplace injustice can increase anxiety and contribute to psychosomatic symptoms. This occurs when employees feel that their hard work does not receive the same recognition as that of their colleagues. Workplace dissatisfaction begins to interfere with their physical and emotional well-being beyond their working hours.
The results from National Center for Biotechnology Information studies suggest that workplace inequity is also capable of extending beyond the workplace by interfering with proper sleep and restoration. Worrying thoughts related to the issues of unfair treatment do not stop affecting the employees once their shift is over; instead, they struggle to detach from work-related tension.
Insufficient rest leads to a range of other outcomes – tiredness, distraction, and emotional stress, all of which can negatively affect one’s performance and well-being.
Therefore, talking about pay is more significant for an employee than many companies realize. It is not just the actual amount of money they receive that matters, but rather what it implies regarding the recognition they deserve.
Harvard Business School notes that individuals who are aware of the processes involved in the decision-making regarding compensation are less likely to have suspicions about any discrimination involved. Pay transparency provides employees with guidelines for evaluating their compensation progress.
Without pay transparency, the information gap is filled with speculations and rumors that may be harmful in the workplace. The problem worsens when high-performing employees feel they work harder than they are compensated.
According to research published via the National Center for Biotechnology Information, the underpayment of workers might result in decreased discretionary effort, emotional detachment, or exploration of other possibilities. In the long run, such behaviors might result in increased turnover rates and deteriorating relationships among team members.
The problem goes much deeper than just the issue of payment.
People want to know that their efforts are rewarded fairly and equally. Failing to explain how pay decisions are made, even in the case of highly effective organizations, might cause them to lose what matters to them the most.
Some employees who are known for their good performance may be shocked to find out they are being paid lower salaries compared to other colleagues with similar or even worse performance levels. Oftentimes, the shock comes unexpectedly when discussing the situation, finding information through documentation or any other form of unintentional discovery. Not only is the discrepancy difficult to accept, but the fact that pay and performance operate independently.
Studies have highlighted pay transparency, an organization's structure, and decision-making as factors that influence fairness perceptions among workers.
When strong performance does not translate into higher pay
On paper, merit-based organizations compensate employees based on their contributions and achievements. However, in reality, the process is much more complex. For example, according to the Harvard Business School, most companies have low levels of pay transparency. As a result, employees cannot be aware of salary scales, factors influencing the decision about compensation, and the general principles of making such decisions.Moreover, in some companies, performance appraisal and compensation management take place separately from each other. For instance, an employee receives good evaluations, high ratings, and even new responsibilities, but does not receive adequate financial rewards compared to other employees.
As a consequence, the situation becomes personal for the employee because he/she sees a correlation between performance and fair treatment.
Why companies maintain opaque pay systems
Companies often justify the need for secrecy by claiming flexibility, bargaining power, and budgeting. However, secrecy provides opportunities for inconsistencies as well.According to the study conducted at Harvard Business School, the absence of public knowledge about salaries may lead managers to apply subjective evaluations instead of using clear standards while calculating bonuses or raises. Negotiating abilities, corporate politics, or personal manager preferences could affect the process as much as objective work performance.
Furthermore, opaque pay structures and lack of pay transparency may lead to circumstances wherein workers believe their remuneration is not commensurate with their job performance, a pattern also discussed in research published in the Harvard Business School and the National Center for Biotechnology Information.
It means that employees can achieve impressive results but still get stuck in slow-moving and inconsistent compensation systems.
From the employees' perspective, this discrepancy is hard to understand. Acknowledging achievements without proper compensation ultimately leads to empty recognition.
Image Credit: Gemini| A high-performing office employee looking stressed while comparing salary documents, coworkers in the background
The emotional toll of perceived unfairness
In addition to influencing financial satisfaction, pay inequities also affect how individuals view their importance in their organizations.Based on findings from studies posted by the National Center for Biotechnology Information, people who experience pay inequities often feel dissatisfied with their jobs, lose motivation, and show diminished organizational loyalty. Inequity can instill emotional stress that will eventually influence the employee's approach to work.
The effects of such perceptions on mental well-being tend to be long-term rather than short-term. At first, individuals may still maintain high productivity levels while privately wondering whether what they do makes any difference. Eventually, their frustration may lead them to become disengaged, bitter, or even emotionally drained.
Furthermore, the literature also indicates that perceptions of workplace injustice can increase anxiety and contribute to psychosomatic symptoms. This occurs when employees feel that their hard work does not receive the same recognition as that of their colleagues. Workplace dissatisfaction begins to interfere with their physical and emotional well-being beyond their working hours.
How compensation stress affects life beyond work
However, the impact of inequality in the workplace does not necessarily stay within the working environment.The results from National Center for Biotechnology Information studies suggest that workplace inequity is also capable of extending beyond the workplace by interfering with proper sleep and restoration. Worrying thoughts related to the issues of unfair treatment do not stop affecting the employees once their shift is over; instead, they struggle to detach from work-related tension.
Insufficient rest leads to a range of other outcomes – tiredness, distraction, and emotional stress, all of which can negatively affect one’s performance and well-being.
Therefore, talking about pay is more significant for an employee than many companies realize. It is not just the actual amount of money they receive that matters, but rather what it implies regarding the recognition they deserve.
Why transparency changes employee perception
Even though pay transparency will not solve the issue of inequity, research indicates that it may help in minimizing misunderstandings and suspicion.Harvard Business School notes that individuals who are aware of the processes involved in the decision-making regarding compensation are less likely to have suspicions about any discrimination involved. Pay transparency provides employees with guidelines for evaluating their compensation progress.
Without pay transparency, the information gap is filled with speculations and rumors that may be harmful in the workplace. The problem worsens when high-performing employees feel they work harder than they are compensated.
The broader organizational cost
Organizational culture will change when the link between performance and pay stops being perceived by the employees.According to research published via the National Center for Biotechnology Information, the underpayment of workers might result in decreased discretionary effort, emotional detachment, or exploration of other possibilities. In the long run, such behaviors might result in increased turnover rates and deteriorating relationships among team members.
The problem goes much deeper than just the issue of payment.
People want to know that their efforts are rewarded fairly and equally. Failing to explain how pay decisions are made, even in the case of highly effective organizations, might cause them to lose what matters to them the most.
