Pay has a direct effect on employee productivity and engagement. “Organizations and teams with higher employee engagement and lower active disengagement perform at higher levels,” according to a 2018 Gallup report on employee engagement. The report found that business units in the top quartile of engagement enjoy enhanced levels of customer service, increased productivity, fewer accidents, and 21% higher profitability.
While pay is only one of several factors influencing employee engagement, it plays a key role in the equation. Employees who feel valued and appreciated are motivated to do their best work.
Underpaying your employees can place a question mark on their worth to you. Like a dog chasing its tail, if they question how much they mean to your organization, they’re less likely to exert the effort to make an impact.
Have you ever heard the proverb, “One bad apple spoils the barrel?”
A single employee’s dissatisfaction has the potential to spread to others on the team and even throughout an organization. Emotional contagion refers to one person’s ability to “catch” another’s feelings. People who live—or, in this case, work—closely together are particularly vulnerable.
According to The Gallup Organization, there are around 22 million disengaged employees in America, which cost the economy $350 billion dollars per year in lost productivity. Low morale contributes to absenteeism, illness, and mental health issues, among other detrimental factors. One discontent employee can have a ripple effect throughout an organization.
An underpaid employee is likely to adopt a devil-may-care attitude. If employees feel like their employers don’t care about them, why would they go the extra mile?
Employees who don’t feel like their employers are looking out for them tend to be clock-watchers or go through the motions until the day is over. Disengaged and undervalued employees tend to do the bare minimum amount of work to get the job done, with indifference to quality or outcome. Unlike their well-compensated counterparts, these employees are usually unwilling to contribute additional time or energy to help the company achieve its goals.
By underpaying your employees, you’re conveying a powerful message. Employees who believe they’re earning less than their worth usually have one foot out the door, actively seeking better opportunities. According to MarketWatch, 45% of workers say salary is the top reason for employees switching jobs, ahead of career advancement opportunities, benefits, and location.
In a tight job market, lower-qualified candidates might be more willing to accept jobs on the lower end of the pay range. Let’s face it: No one aspires to be an underpaid employee, especially in a competitive job market.
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