Employee perception of underpaid is largely a function of
fairness relative to some benchmark or expectation.
Wharton management professor John Paul MacDuffie cites
research which suggests that employees arrive at
perceptions of fairness regarding their compensation by
comparing the ratio of their inputs to outputs:
*Inputs – credentials, level of experience, amount of
effort put into the job, etc.
*Outputs – salary and benefits.
Under MacDuffie’s theory, employees also compare
themselves to others and to themselves at an earlier stage
of their career. This is an interesting comment
considering the number of people who had positions and
salaries of some substance before the Great Recession and
are reentering the workforce at levels lower than earlier
The point here is that the result of all this comparison
can create emotional strain if the employee perceives the
ratio inordinately weighted on the input side.
An employee who feels that he/she is getting paid 25% less
than others or less than his/her worth may reduce his/her
productivity by 25% in an effort to balance this perceived
inequity. In extreme cases, employees may resort to theft
of company property to balance the inputs and outputs.
HR POINTER: When an employee feels that he/she is unfairly
paid, there is often resentment and disengagement from
work. Communication is the key to helping an employee
resolve this issue.
From a communication perspective, an organization needs to
have a compensation philosophy relative to other in-house
positions and to the external market that can be simply
and rationally explained to employees without charts,
graphs, statistics, etc.
Additionally, managers need to be instructed to control
their comments about future salary increases when speaking
with employees. Often managers try to provide
encouragement to an employee about the person’s future
The problem with such “potential” statements is that any
number dangled as a future target often becomes a promise
in the mind of the employee and in the mind of any
candidate for employment.
Even with a sincere and honest effort to address
compensation, a manager may still face an employee who is
extremely dissatisfied. At this point, a manager will
need to engage the employee in a frank discussion about
performance and behavior expectations going forward
despite the employee’s unhappiness with his/her salary.
Additionally, this discussion must address the reality of
the employee finding another job at another company.
Extreme dissatisfaction with compensation is like a tear
in a piece of paper – it does not mend itself with time
but only gets bigger. If we can stop the tearing, the
paper may be salvageable. If not, then we need a new