Pay as a Demotivator:Why Organizations Must Act on the Data

The Problem We Already Know About—but Don’t Fix

Every year, companies conduct engagement surveys to understand what drives employee satisfaction and retention. And every year, pay ranks among the lowest-rated factors. Employees consistently tell us they are unhappy with how pay is structured. However, most organizations do little to change it.

The data is clear. EngageRocket’s research, based on employee surveys across Southeast Asia, ranks pay 10th out of 11 engagement factors. Similarly, Hulu et al. (2025) found that while job satisfaction explains 79% of retention, pay alone is not the dominant driver.

If the evidence is so clear, why are companies still operating under the assumption that pay is the key to engagement and retention?

The Reality: Pay is a Hygiene Factor, Not a Motivator

HR leaders often assume that better pay leads to higher engagement. But research shows that pay only “solves” engagement and retention problems up to a point:

• Low pay leads to dissatisfaction. Employees who feel underpaid are more likely to disengage and leave.

• More pay does not create engagement. Once fair pay is achieved, increasing compensation further has lower impact on satisfaction, motivation, or retention.

This aligns with Herzberg’s Two-Factor Theory, which distinguishes between:

1. Hygiene factors (like pay, job security, and working conditions) that prevent dissatisfaction but do not create motivation.

2. Motivators (such as recognition, career growth, and purpose) that drive long-term engagement.

EngageRocket’s analysis confirms this: employees value teamwork, a sense of belonging, and recognition more than salary increases.

The takeaway? Fixing pay dissatisfaction is necessary, but increasing pay alone is not enough to drive engagement.

The Inaction Problem: Why Companies Aren’t Changing

Despite clear evidence that pay is a recurring issue in engagement surveys, most organizations fail to act. Why? Here’s what I have concluded from my own research and observations:

• Inertia: Companies assume that as long as pay is "within policy," it doesn’t need further attention.

• Outdated assumptions: Leaders still believe pay is the primary driver of engagement, despite the data showing otherwise.

• Lack of data utilization: Organizations collect engagement data but rarely analyze or act on it when it comes to pay. A typical reaction is: “employees always complain about pay; don’t worry about it.”

Failing to address pay dissatisfaction has consequences. While pay may not be the strongest engagement driver, neglecting it can erode trust, damage morale, and increase turnover, especially in competitive job markets.

A Data-Driven Approach to Fixing Pay Dissatisfaction

Instead of relying on assumptions, organizations should take a data-driven approach to compensation strategy. HR leaders should ask:

• Are pay practices aligned with performance, engagement, and retention outcomes?

• Do certain employee groups perceive pay as unfair? Are disparities appearing along demographic lines, job functions, or tenure levels.

• Are there pay equity gaps that could harm morale or increase turnover risk?

Next Steps for Organizations

1. Analyze Existing Data. Don’t just collect engagement survey results; connect pay satisfaction scores to retention, engagement, and performance metrics.

2. Address Pay Perception Issues. If employees consistently rank pay poorly, transparency, equity and fairness, not just increases, need attention.

3. Balance Pay with Other Engagement Drivers. Employees value career development, recognition, and a sense of purpose at least as much as salary adjustments.

4. Commit to Continuous Improvement. Compensation strategies must evolve with market trends and workforce expectations.

Final Thought: Stop Ignoring the Facts

HR and compensation professionals must move beyond outdated assumptions and beliefs and start acting on the data. We already know pay dissatisfaction is an issue. We already have the insights to fix it. The real question is: why aren’t we doing anything about it?

It’s time to stop dismissing engagement survey data on pay and start using it as information to help improve pay perceptions and workplace satisfaction. Only then can organizations create compensation strategies that truly support retention, engagement, and long-term business success.