Your employees are your business, so ignore the following truths at your peril:
1. Policy, schmolicy: Employees talk. Many companies actively discourage staff from talking to each other about their salaries. I even know companies that require employees to sign agreements stipulating they won’t disclose pay, benefits, etc. to other employees.
Doesn’t matter. Employees talk. I did, both when I was “labor” and when I was “management.” Generally speaking, the only employees who don’t share details about their pay are the ones who are embarrassed by how much or how little they make.
Never assume raises, bonuses, starting salaries, perks—basically anything related to compensation—will stay confidential.
2. They think about their pay a lot more than you do. Unless your business is struggling, to you employee pay is a one-off market research activity or something you consider when it’s time to prepare your expense budget. Otherwise checks get cut, people get paid, and it’s business as usual.
Employees think about pay all the time. Every time they deposit their check they think about their pay. To you, their pay is a line item; to employees, pay is the most important number in their family’s budget.
Each week spend a little time thinking about ways you can improve employee pay and benefits. While you may not be able to make substantial changes to what you pay, you can find other ways to improve how you compensate employees: flexible hours, flexible benefits, developmental opportunities, etc.
3. They’ll let you take advantage. Occasionally the job market is a seller’s market, but most new employees are just really happy to land the new job. And since business owners are born cost cutters, it’s natural to hire every new employee for as low a wage as possible.
Then the employment honeymoon wears off and the employee feels you took advantage. And that feeling never, ever goes away.
Never take advantage of a naïve or desperate employee. The gain is never worth the pain.
Plus it’s just wrong.
4. They don’t care about pay scales. Pay scales are like a pacifier to a big company. Falling back on pay scales is often the easiest way out of a difficult discussion about pay.
Pay scales—and pay practices—are important to you, but they’re largely irrelevant to an employee who, often with good reason, views them as arbitrary rules you came up with one day.
Saying, “That’s just how our system is set up,” is a cop-out. If you can’t afford to pay an employee more, say so. If you think a certain percentage raise is fair, explain why. Use pay scales to build your budget, and use reason and logic—and empathy—to explain pay decisions to employees.
5. When you negotiate, you both lose. Why? Employees lose if only because they resent justifying a certain pay level; in their view you should already know their value. You lose because at some point you may have to say, in so many words, “I’m sorry, but you’re just not worth that much.”
Great employees are worth a lot more than their pay. You get what you pay for, so pay whatever you can to get and keep the best you can.
When you find great, always make your best offer. If your best offer is too low, there’s nothing you could have done.
6. No matter how much you pay, it’s not enough. We all grow accustomed to what we have. A big new house eventually seems normal. The effect of a big raise eventually wears off; eventually, that raise is just pay as usual.
We all want more. It’s natural. Unfortunately you can’t always give more. And that’s okay, because…
7. Reasonable pay is okay. Employees are smart. They understand market conditions, financial constraints, revenue shortfalls, and increased competition. They understand when you can’t pay top-of-market salaries. What they don’t understand is when they don’t feel fairly compensated compared to other employees in similar positions, both inside and outside your company.
Once pay is reasonable and fair, other things become important: recognition, respect, challenging work, opportunities for development… the feeling that their job is more than just a job.
The happiest and most engaged employees feel they work for something more than just money. It’s your job to provide that sense of belonging and meaning. Without meaning, your employees are stuck simply working for a paycheck.
Higher pay is great but the effects are fleeting.

Respect, recognition, and a sense of real purpose last forever.