Why Pay Is Driving Employee Satisfaction

After years of frozen wages or small pay increases, U.S. employees are now tying compensation to how happy they are at work, according to Job Satisfaction and Engagement: The Road to Economic Recovery, a SHRM research report released in May 2014.

Sixty percent of employees rated compensation/pay “very important,” and 36 percent rated it “important,” making it the top contributor to overall employee job satisfaction—up from the No. 3 position in 2012, when “job security” and “opportunities to use skills/abilities” were the leading drivers of satisfaction.

“Incomes have grown slowly since the recession, and that undoubtedly is having an impact on workers’ priorities and one explanation for the leap to the forefront by compensation,” said Evren Esen, director of SHRM’s Survey Research Center.

The report draws on SHRM surveys of U.S. employees and HR professionals conducted in the latter half of 2013.

Compensation/pay was either the top or second-rated aspect of job satisfaction for four generations of employees (Millennials, Generation X, Baby Boomers and Veterans). It was also cited as one of the top three job satisfaction contributors among several employee categories (nonexempt, professional and middle management). However, it did not place in the top five aspects for executives, who most often cited opportunities to use skills/abilities (66 percent) as the most important aspect of job satisfaction.

In addition to overall pay, employees rated the importance level of four compensation factors:

• Being paid competitively with the local market. More than one-half (56 percent) of employees viewed this aspect as very important, and 57 percent were satisfied with it.
  
• Base rate of pay. 53 percent of employees felt this aspect was very important, and 63 percent were satisfied with it.
  
• Opportunities for variable pay (e.g., bonuses, commissions, other variable pay, monetary rewards for ideas or suggestions). Roughly two-fifths (43 percent) of employees said variable pay or differential pay was very important, and 45 percent were satisfied with it.
  
• Stock options. Less than one-fifth (17 percent) of employees viewed this aspect as very important; however, 41 percent of employees whose organizations offered stock options were satisfied with them.

Benefits Rebound as Satisfaction Driver

From 2002 to 2010, employee benefits ranked among the top two contributors of job satisfaction. But recently workers have been more concerned with the stability of their employment—thus, just grateful to have a job. Benefits fell to fifth place in 2011 and did not appear among the top five aspects in 2012.

In 2013, 53 percent of employees rated benefits as a very important contributor to job satisfaction, bumping it up to the No. 4 position.

During these years of economic recovery, some organizations may have trimmed employee benefits to control costs. Nevertheless, as the economic climate gradually improves, employees may expect workplace conditions to get better as well. Moreover, one possible solution for organizations unable to support salary growth is to examine their overall benefits package.

“Often, the manager-employee conversation is only about pay,” said Alex Alonso, SHRM’s vice president of research. “At a time when salary budgets aren’t increasing significantly, employers might want to emphasize overall benefits packages—including health care, retirement savings and paid time off—as a way to help them retain skilled workers.”

HR and Employee Perspectives

Several of the most notable differences between HR professionals and employees were in the areas of compensation and benefits, with employees rating compensation higher as a driver of job satisfaction. While compensation was the top job satisfaction contributor for U.S. employees overall, HR professionals rated it as the 10th most important job satisfaction contributor for themselves, regarding their own jobs.

In 2013, opportunities to use skills/abilities and relationship with the immediate supervisor tied as the top contributors of job satisfaction deemed “very important” by HR professionals for their own jobs.

Regarding benefits, defined contribution retirement plans and paid time off (vacation, holidays and sick days) both demonstrated a difference between the two groups, with HR professionals finding these to be much more important to job satisfaction compared with employees’ views.

“Current SHRM research shows that organizations do not often leverage their benefits packages to recruit or retain employees,” the report notes. “Developing a ‘total rewards’ strategy that incorporates employer-sponsored benefits to attract top talent could be valuable for organizations, especially when trying to target certain [highly skilled] employee groups.”