Perception Is Everything: The Path to Pay Confidence

Your employees’ views on the fairness of their pay may stem from much more than the number they see on their paychecks.

According to a 2025 Fair Pay Impact Report by compensation software and data company Payscale, 68% of surveyed workers believe they’re underpaid — even when they’re paid at or above market rates. Among workers paid directly at the market rate, 63% think they’re paid below market; but even among employees making above market, 47% have the same belief. Payscale analyzed data from more than 325,000 respondents in an online salary survey taken between Jan. 1, 2021, and Jan. 1, 2025.

“Fair pay isn’t just about what you pay; it’s about how you communicate and the perceptions of what you pay,” said Ruth Thomas, the chief compensation strategist at Payscale. “Employees want clarity, not just numbers. They want to know how their pay is determined, how they can grow it, and whether the process is consistent and fair. The perception of fair pay will come down to whether employees understand how their pay is set.”

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What’s Behind the Disconnect

According to Payscale, due to rising wages and advancing pay transparency legislation, compensation is actually fairer than it was four years ago, when the company last conducted its research. Despite these improvements, employees think their pay has worsened — Payscale’s new report found the percentage of workers paid at or above market who believe their pay is unfair is 17% higher than it was in 2021.

Pay transparency scrutiny may be part of the reason why more workers are thinking more about fair pay, said Thomas. In addition, she said general financial anxiety (driven by factors such as the continually increasing cost of living and the impact of tariffs on the economy) may influence employees’ view.

Hearing about coworkers’ salaries, seeing pay ranges for their role online or finding a job posting — even for a different position and employer — can all impact workers’ perceptions of their pay, added Sal DiFonzo, the managing director of compensation and rewards consulting at consulting firm Gallagher, and a member of WorldatWork’s Compensation Advisory Council.

“It’s not surprising that employee perceptions may not match reality,” said Gail Greenfield, the executive vice president of pay equity and total rewards strategy and solutions at Trusaic, a pay equity and regulatory compliance software company. “Despite recent improvements in pay transparency, reliable and accurate pay information is still limited, resulting in perceptions of pay based on information that paints an incomplete picture. Moreover, there is a natural tendency for people to compare themselves to others who appear to be in a more favorable situation than themselves, leading to perceptions of falling short relative to others. I suspect that social media has worsened this tendency.”

“Employees want clarity, not just numbers. They want to know how their pay is determined, how they can grow it, and whether the process is consistent and fair.”
— Ruth Thomas, chief compensation strategist, Payscale

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Pay Misconceptions Has Risks

Employees who believe their pay is unfair — regardless of where it actually falls — are 45% more likely to look for a new job, according to the Payscale report.

“People don’t leave an organization because of the actual amount they’re paid; they leave an organization based on their perception of whether their pay is fair or not,” Thomas said.

She described a fair pay equation: Fair pay = trust = engagement = positive business outcomes. When that equation is broken, Thomas said employees start to feel undervalued, which erodes trust, leading to a damaged employer brand, reduced worker engagement and diminished retention. That risk is highlighted by Payscale’s finding that, among workers actively seeking jobs, 65% have misperceptions about their pay.

In addition to seeking other opportunities, these employees may become disengaged from their work and begin doing only the bare minimum in their roles (also known as “quiet quitting”), DiFonzo said.

“The risk to employers is having an unproductive, unmotivated staff,” he explained. “Negative attitudes can spread and affect teamwork. The work relationship can become transactional and even toxic.”

How Employers Can Change the Perception

The first step in turning the tide is to assess your current pay levels against reliable market data to ensure you actually are paying fairly, Thomas said.

DiFonzo noted the following processes should all be in place:

• Having a regular merit pay cycle;
• Offering market adjustments in addition to merit increases; and,
• Addressing pay compression issues when new hires are brought in at higher market rates.

“Conducting regular pay studies at least every three years sends a message that the employer is serious about calibrating pay with empirical data,” he said.

From there, communication and education are central to improving perceptions — and that takes time.

“It’s about building this muscle of education and making pay transparency come to life in your organization,” Thomas said. “It’s not something you can switch on overnight.”

Too often, employers continue to fall back on annual performance reviews and generic compensation statements, rather than have ongoing conversations about the pay portion of their workplace culture, Thomas said.

“There is still notable information asymmetry between employees and employers,” Greenfield added. “Employees may have access to pay ranges, either directly or through job postings, but what they really need is an understanding of how the ranges were created, what criteria was used to decide where to place them in the range, and, most importantly, what they can do to increase their pay or move to a higher-paying position.”

Additionally, the experts in this article agree managers need to be trained on the organization’s pay philosophy, pay ranges and the factors that influence pay so they can comfortably — and regularly — have those conversations with employees.

Flexing the pay transparency muscle pays dividends, Thomas said. For example, when employers do communicate openly about pay, the proportion of employees who believe they are compensated fairly jumps significantly, she said. In fact, Payscale’s report found employees who work for organizations with high levels of pay transparency are 59% less likely to leave.

“Part of the problem is we have this long history of pay secrecy,” Thomas said. “If workers understand how compensation works and know how to progress internally, they are more likely to stay with their organization, even if they’re not earning more right now. If you’re struggling with pay budgets, making sure people know they’re being paid fairly is an important part of maximizing your total investment.”

Editor’s Note: Additional Content

For more information and resources related to this article, see the pages below, which offer quick access to all WorldatWork content on these topics:

• Employee Compensation
• Finance and Budgeting
• Workforce Engagement