This article is part of a recurring series highlighting recent talent mobility industry reports. If you would like the WERC editorial team to consider covering a specific industry report, email mobility@talenteverywhere.org.
Conversations about pay are among the most critical yet challenging aspects of the modern workplace. Payscale’s Pay Confidence Gap Report sheds light on how employees and employers perceive salary discussions, trust, and compensation practices. The findings are drawn from surveys of 1,000 U.S. employees and 500 HR and business leaders, highlighting significant gaps in perceptions, trust, and confidence around pay. These disparities influence turnover, morale, negotiation strategies, and organizational trust. The report's major themes include turnover from tough conversations, the trust gap, misinformation from online and AI sources, cost-of-living pressures, economic uncertainty, merit-based pay, and solutions that build confidence in compensation strategies.
The Impact of Tough Conversations on Turnover
Salary is closely tied to perceptions of personal value and quality of life. According to the report, two-thirds of employees say they would consider leaving a job if a pay conversation went poorly. Millennials (72%) and Gen Z (71%) are most likely to leave, compared to 47% of boomers. Nearly half of employers report increased turnover due to pay-related conflicts in the past year, with larger organizations experiencing the greatest impact.
A Trust Gap Between Employers and Employees
One of the most striking findings is the significant “trust gap.” While 93% of employers believe employees trust their pay decisions, only 69% of employees actually do. Additionally, 41% of employees report never having a transparent conversation about how their pay is determined. Such gaps suggest employers often overestimate employee trust and underestimate the need for greater transparency in pay strategy and communication.
Employer vs. Employee Perspectives on Pay Conversations
Employers and employees experience salary conversations differently. Some 28% of organizations report these discussions are getting more difficult, while 26% say they are becoming easier. Factors making conversations tougher include increased access to comparative salary information (41%), cost-of-living pressures (39%), misinformation from online sources (37%), and economic uncertainty (32%). Employees, meanwhile, express mixed emotions after difficult pay conversations: 19% feel powerless, 14% feel resentful, and only 26% feel motivated to act. A quarter of workers also lack confidence that their pay reflects market value, leaving them disadvantaged in negotiations.
Pay Misinformation and the Role of Online Sources
Employees frequently consult a variety of sources before negotiating pay. The most common are job postings (36%), industry salary guides (30%), and friends or family (28%). However, 20% rely on social media, and 18% use AI assistants like ChatGPT. Employers report that 72% have seen increased salary negotiations based on online information, with 63% citing reliance on inaccurate or unverified sources. On average, 31% of pay requests reference unreliable data. This disconnect highlights the challenge employers face when countering employee expectations shaped by flawed sources.
Generative AI and Rising Expectations
The report notes a sharp rise in employees using AI assistants to inform salary expectations. Seventy percent of employers have observed this trend. While AI tools can provide easy access to information, they often deliver inconsistent or overly optimistic data. As a result, 38% of employers say salary expectations are now higher than ever, and 35% say employees receive conflicting information. Interestingly, 30% of employees who used AI felt more confident entering negotiations, demonstrating the technology's increasingly important role in shaping perceptions of fairness and value.
Cost of Living and Geographic-Based Pay
The rising cost of living has become a flashpoint in pay confidence. Two-thirds (66%) of employers report more employees challenging pay based on local cost-of-living conditions. Almost half of employers acknowledge internal conflicts when employees in high-cost regions compare their pay to peers in lower-cost areas. Meanwhile, 88% of employees believe pay should reflect cost of living, yet only 66% feel their salary does. Almost half considered leaving their jobs in the past year because their pay failed to keep pace with rising expenses. Employers, on the other hand, often prioritize the cost of labor over employee living standards, with 64% actively hiring talent from lower-cost regions to manage expenses.
Economic Uncertainty and Pay Decisions
Broader economic conditions significantly influence compensation strategies. One-third of employers are reassessing pay structures, 32% are more cautious with raises, and 25% are increasing performance-based pay. About 53% expect pay conversations to become more challenging over the next year. From the employee perspective, 27% are more focused on job security than before, 25% are more likely to seek a higher-paying job, and 23% are more likely to ask for a raise. Despite economic concerns, 43% of employees expect their financial situation to improve over the next year, showing cautious optimism.
Merit-Based Pay and Performance Recognition
Both employers and employees recognize the importance of rewarding performance. Seventy percent of employers admit they have raised pay beyond typical ranges to attract or retain top talent, with larger organizations more likely to do so. Employees strongly link performance to pay: 76% say they would consider leaving if their performance was not reflected in their compensation. Yet, 32% feel their contributions are not adequately recognized in their pay packages. Discrepancies between expectations and reality can contribute to disengagement and attrition.
What Creates Confidence in Compensation?
The report identifies several practices that build confidence in pay systems:
- Pay Transparency: Organizations that share pay ranges and methodology across the organization are 4.3 times more likely to feel confident in market pricing.
- Compensation Strategy: Employers with a defined compensation philosophy are four times more likely to feel confident in their pay increases.
- Pay Equity Analysis: Companies that analyze equity are 80% more likely to rate confidence highly.
- Compensation Technology: Those using purpose-built tools are 114% more likely to be confident in market pricing.
Collectively, these practices reduce tension in pay conversations, increase trust, and support retention.
What to Make of the Data
The Payscale Pay Confidence Gap Report reveals a complex but addressable set of challenges. Employees increasingly demand transparency, fairness, and alignment between pay and cost of living. Employers, meanwhile, are grappling with misinformation, economic pressures, and the need to retain talent without overspending.
The trust gap—where employers assume confidence that employees don’t feel—remains the central issue. Solutions lie in adopting transparent communication, robust data-driven compensation strategies, pay equity analysis, and technology that supports fairness and consistency.