Employees Say They Are Underpaid, Worry Pay Isn’t Based on Merit

As the compensation landscape evolves, new data gives the latest indication that employees are dissatisfied with their pay: 1 in 3 employees in the U.S. say they are underpaid compared to peers in similar roles and industries.                              

That’s according to the Pay Gaps & Perceptions Report from career website Zety, which also found that just 55% of workers feel confident their salary is based on merit rather than gender or other biases.

The findings indicate a deep-seated problem when it comes to pay, and one that can affect organizational success, said Jasmine Escalera, a career expert with Zety.

“When employees don’t understand how their pay aligns with their contributions, it can lead to disengagement, lower motivation, and increased turnover,” she said. “Employees who feel undervalued are more likely to seek opportunities elsewhere.” 

Meanwhile, Escalera said, employee uncertainty over pay suggests deeper cultural issues, as many employees may not feel recognized for their efforts.

The new data comes on the heels of SHRM’s BEAM Framework, which stands for Belonging Enhanced by Access Through Merit and was introduced after President Donald Trump issued his DEI executive orders in January. The BEAM Framework takes a structured approach to fostering inclusion in the workplace by prioritizing merit and measurable outcomes over performative diversity efforts. It argues that merit should be the primary lens, meaning that talent identification focuses on measurable skills and performance, using skills-based assessments to eliminate biases and ensure decisions reflect true potential.

Dissatisfaction With Pay

The Zety data also mirrors other research that finds employees are feeling increasingly dissatisfied with their pay. Although significant, it isn’t much of a surprise, given that plenty of data suggests employees are financially stressed at the same time that employers are pumping the brakes on pay raises.

Emphasizing that point, a BambooHR report released in December found that one-third of employees (33%) feel negatively about their current financial remuneration — a significant jump from 23% in 2023 — and 50% struggle to make ends meet due to rising costs.  

And Payscale’s annual compensation report, released earlier this month, also found that a push and pull is playing out with compensation due to a shifting labor market and decreased employee satisfaction over pay.

Some organizations have pulled back on compensation spend, including reducing pay increases (a strategy embraced by 18% of employers), hiring less experienced talent (15%), and lowering salary offers (14%), to take advantage of an employer-friendly labor market, Payscale found. On average, organizations are reducing pay increases by 0.3% — planning for 3.5% pay raises in 2025, compared to the 3.8% given in 2024.

“The employer-employee friction has always been there, but I think it’s really been building for the last few years, with compensation at the center of it,” Lexi Clarke, chief people officer at Payscale, told SHRM at the time.

These are concerning trends that HR leaders should pay attention to, experts say. 

“Pay dissatisfaction is a serious issue that companies must address proactively,” Escalera said, adding that Zety’s report found that 77% of employees say dissatisfaction with their salary has negatively impacted their productivity or engagement at work. “This directly affects business performance, as disengaged employees are less motivated and productive.”

Transparency, Feedback

To help quell employees’ feelings of frustration and confusion on pay, employers should consider improving pay transparency practices and regularly talking to employees about work, pay, and merit.

“Without regular feedback, employees may question whether their work truly matters or how pay decisions are made,” Escalera said. “A lack of clarity around compensation can be demoralizing, affecting both productivity and engagement.” 

For instance, she said, companies should be clear about performance-based raises. “Merit increases should come with clear, open discussions about how compensation reflects an employee’s contributions. Transparent communication helps employees see their impact and feel valued.”

Salary transparency is also important, Escalera said, and it’s one of the most effective ways to remedy employee confusion about pay. “Employers should implement clear salary bands, openly share them with employees, conduct regular pay audits to identify discrepancies, and ensure performance evaluations are based on measurable outcomes,” she said.

Nine in 10 employees say knowing salary ranges for roles in their organization would improve their trust in leadership, the Zety survey found.

“Open communication about pay decisions fosters trust and helps employees feel valued and fairly compensated,” Escalera said. “By prioritizing transparency and accountability, companies can bridge the confidence gap and reinforce that salaries are based on merit.”