Every individual's financial plan starts with earning money, but how much you make may often seem to be out of your control.
Only 20 percent of people say they understand how their employer determines pay, according to compensation data and software firm Payscale.
But that doesn't have to be the case, and it shouldn't be. "Ten years ago, employers held all the cards. Now, employees can be much better armed with data," said Tim Low, PayScale's senior vice president of marketing. With sites such as PayScale and Salary.com, employees have a greater ability to research what their work is worth and a better opportunity to ensure they're being paid fairly.
More than ever, employers must address their own compensation policies and work to keep employees satisfied while maintaining their bottom lines. In light of this new era of transparency, Payscale recently held a webinar for an audience of mostly human-resources professionals, in which they debunked a number of commonly believed myths about compensation.
Here are the most commonly held misconceptions:
Employers save money by underpaying employees.
It is not in the best interest of a company to pay their employees less than fair value and risk creating high turnover. Low says it costs employers 150 percent or more of an employee's annual pay to hire and retrain someone new. On top of the monetary cost of turnover, company morale is greatly affected when good employees leave. "Counting coins and paying pennies didn't work for Scrooge, and it won't work for you," said Aubrey Bach, senior manager of editorial marketing at PayScale, at the webinar.
People don't leave their jobs because of pay.
According to PayScale research, in 2015, the No. 1 reason people left their jobs was, in fact, pay. With the economy and overall job market improving, employees are better positioned to demand higher wages and walk if they don't feel they are being fairly recognized or compensated. "It's not universally true across industries and geographies, but as the economy is expanding, employees do have a little more negotiating power," Low said.
As important as pay is, however, job satisfaction can be raised in other ways. For example, workers in health-care and education fields often report high levels of satisfaction even in lower-paying positions. "If people are leaving because of pay, dig deeper," said Mykkah Herner, director of professional services at PayScale, at the webinar. "Job meaning and an employee's sphere of influence within their organization are important, too."
Talking to employees about pay will incite a riot.
On the contrary, more pay transparency can help improve employer-employee relationships. And it may be better for companies to initiate the conversation rather than let workers simply hash things out on their own. "If you aren't talking with your employees about pay, chances are that they're talking to each other and creating their own story of what [the company's] compensation policy is," said Bach. "That's not a good thing."
But when companies have been more open about compensation policies, employees have responded well. In a PayScale survey of 71,000 employees, 82 percent reported that they were satisfied with their jobs, even if they were paid lower than average, if their employers clearly communicated why they offer smaller paychecks. "Basically, communication equals more loyal employees," said Bach.
Pay transparency can work well for employees, too. "Knowledge is power," said Cynthia Shapiro, author of "Corporate Confidential: 50 Secrets Your Company Doesn't Want You to Know — and What to Do About Them." "You should always find out the proper scale for your pay and understand what the real range is."
Armed with knowledge of what the market typically pays for what you do in your area, you can better position yourself to ask for a raise and get it. But you need more than averages on your side. You have to be prepared with a list of your accomplishments and prove that your work has helped the company. "Put together your greatest hits," said Shapiro. Also, try to time when you ask just right. After you've been publicly recognized for good work would be the optimal time to ask for more pay.
However, she notes, pay transparency can have a downside, if it's not put in the proper context. Take into account the size and age of your company. For example, a start-up may not able to afford paying as much as a Fortune 500 company, but it can come with other benefits, such as greater responsibilities and opportunity for growth. That's why it's important for employers and employees to be clear about compensation policies.