When Employees Say They Are ‘Underpaid,’ Bosses Often Misunderstand

When leaders hear employees complain about being underpaid, they typically investigate to see if the complaint is reasonable. They might examine pay benchmarks, historical comparisons and what the company can afford to pay without affecting profitability.

This approach, however, doesn’t always reflect a good understanding of what the employee’s concerns really are or how best to address them.

To effectively address compensation complaints, managers need to know what employees mean when they say they are unhappy with their pay. Here are four common frameworks employees have when they complain about their compensation:

Their compensation doesn’t match offers being made to new hires. Using benchmarks to compare and justify pay works nicely—but not always. That can be the case in an inflationary economy, or in jobs or locations where competition for talent is fierce and companies have to pay premiums to attract good people. In those cases, employees might be perfectly satisfied with their pay—until they find out that new hires who will be doing the same work are being offered better packages. Leaders need to recognize that workers won’t accept claims that their pay reflects appropriate benchmarking when the benchmarking doesn’t reflect the current reality they see. Instead, leaders need to acknowledge the fast-changing nature of pay and assess whether their actual pay rates match offers being made today.

The company is getting more from employees than it is paying for. When someone leaves an organization, the remaining team members often have to take on extra work until a replacement is hired. Sometimes that process drags on, and sometimes the company decides not to fill the position at all because the team is getting the job done. This supersizing of jobs often isn’t accompanied by a commensurate increase in pay for those doing the extra work. For example, if someone takes on 30% of the tasks of the person who left, they typically don’t get a 30% increase in pay to go along with it. Instead, the organization keeps and redistributes that savings, a kind of organizational free-riding. Over time, this kind of reliance on employee goodwill leads to resentment—and complaints about pay. When this happens, leaders have three options: pay more, hire more or expect less.

The employee can’t lead a decent life, given what is expected in their current role. In many markets, the pay and workload for certain jobs don’t add up to a decent life. Perhaps employees are struggling to find affordable housing or child care. If they work long hours, they might be worried they can’t meet family responsibilities, participate in their community or stay healthy. Others have no work-life balance because they have a boss who expects them to put the job first, always. In these cases, when employees say they are “underpaid," they mean their current role affords them no quality of life. There are plenty of things leaders can do to fix quality-of-life problems, including readjusting their expectations of employees. But first they need to recognize the problem exists.

The company is posting record profits, but not sharing them with employees at a meaningful level. It is common for leaders to say that they “can’t afford to pay more." But when a company is posting record profits, providing large bonuses to executives or paying large dividends to shareholders, that explanation doesn’t pass the smell test. Employees expect to reap a commensurate share of the profits they have helped create. When that doesn’t happen, employees translate “we can’t afford to pay more" to “we will pay ourselves and shareholders, and you should be happy with your standard compensation."

Managers should make it a priority to understand why an employee feels underpaid. Understanding the root cause is the first step in addressing and resolving complaints about pay.