A growing disconnect between employee perception and actual compensation is fueling top talent turnover, according to a new report from Payscale.

The report, released on June 17, found that 68% of employees believe they’re underpaid—even when their salaries meet or exceed fair market rates. This widespread perception is proving costly for employers: workers who feel underpaid are 45% more likely to seek new opportunities.

“Pay misinformation and weak communication are damaging trust in the workplace,” said Ruth Thomas, Chief Compensation Strategist at Payscale. “This misalignment threatens the retention of high performers.”

Despite broader coverage under pay transparency laws, Payscale emphasized that legal compliance alone isn’t enough. Companies must back their pay practices with clear, data-driven communication to help employees understand how their compensation is determined. Transparent practices, the report notes, significantly impact retention—workers in highly transparent organizations are 59% less likely to leave.

The gap between perception and reality has widened since 2021. Back then, 51% of employees earning at or above market levels felt underpaid. That figure has jumped, even though salaries have generally increased. Among Payscale’s 325,000+ survey respondents, 47% of those paid above market still believed they were earning less than they deserved.

This perception issue extends to the job-seeking population as well. Sixty-five percent of active job seekers view their current pay unfavorably. Lexi Clarke, Payscale’s Chief People Officer, stressed the importance of helping employees understand not just what they earn, but why—and how they can grow their compensation through internal career paths.

The challenge is particularly acute among Gen Z. A separate ZipRecruiter study found that 2025 college grads expect to start at six-figure salaries, while the actual average hovers around $68,400.

Looking ahead, HR leaders anticipate pay transparency and equity will continue to shape employer branding. However, 2025 may bring friction: while companies trim budgets, employees will push for more. Clarke advises that listening to employee concerns and leading with fairness could become a key differentiator in retaining talent.

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Source: Hrdive.com