Three big ideas on pay transparency

Pay is the foundation of the relationship between employees and employers. After all, what is work at its core but the exchange of labor for compensation?

Despite this, how pay decisions are made often remains a mystery to employees.

Many companies have historically tried to limit discussions about pay, or keep these discussions behind closed doors.

But the modern relationship between employees and employers is built not just on pay, but on trust and transparency.

As such, expectations about pay transparency have fundamentally changed.

Whether spurred by changes in the legal landscape, a desire to demonstrate greater equity, or shifting demands from prospective candidates and current employees alike, pay transparency is part of our new normal of work. 

Let’s embrace the opportunities that increased transparency can bring to the table.

Here are three big ideas to help you get started on your journey.

Pay transparency drives business impact

Maintaining compliance with local legislation is a critical starting point for any conversation about pay transparency.

Depending on your company size and where your business operates, you may be impacted by requirements to disclose salary ranges, report your gender pay gap, and/or share executive compensation figures.

Understanding how these laws, including the new EU pay transparency directive, will impact your business should of course be the first step in your process.

But did you know that embracing pay transparency can also improve recruiting efforts, employee retention, and even business performance?

Being transparent about your approach to pay decision-making is an important step in building trust with your people at every stage of the employee lifecycle.

For candidates, knowing up-front what a job will pay helps them determine whether or not the role is a good fit – without wasting the valuable time of your recruiters and hiring managers.

For employees, knowing their pay is fair and equitable spurs higher levels of loyalty, engagement, and feelings of appreciation and value.

It shows that you’re serious about fair treatment, that you value people’s input, and that there’s no room for bias and discrimination in your work environment.

Ultimately, being transparent about your pay practices can act as a powerful incentive to keep your best people with the company and can be one of the best ways to boost retention. 

Additionally, employees are more invested in their roles and the outcome of the work they do when they’re treated fairly.

According to new research, when employees find out how their earnings stack up against others, it can motivate them to work harder.

A parallel study found employees were motivated to put in more effort when they learned that their managers earned higher salaries than anticipated, viewing it as a potential avenue for advancing their own careers.

According to the authors of this latter study which surveyed 2,660 bank workers in the US, these re-energized employees generated higher sales revenue after learning more about how pay was set throughout the organisation. 

Conversations about transparency don’t just have to center on cost and risk; embracing transparency positively impacts the bottom line, too.

Pay transparency isn’t one-size-fits-all

Just like compliance requirements may be different from one company to the next, so too may be the exact approach to transparency.

While some mistakenly believe that transparency is an on or off switch – where either everything is a total secret or everyone knows exactly what everyone else makes – in reality, transparency is a spectrum, and where you fall on that spectrum should reflect your overall company culture and approach. 

At your company, it may just be HR and Finance right now that know the pay ranges for jobs in your organization. Perhaps, as you embrace transparency, you’ll evolve that approach to enable managers to see the pay ranges for their employees’ jobs.

Or, you might want employees to know the range for their job, as well as where they fall within the range.

Or, because of your strong organizational culture of career progression, you might want them to be able to see the range for both their job and one level above theirs.

Maybe you want employees to know the broad bands for all levels in the organization, or even the ranges for all jobs in the organization.

Or, you could go farther and share actual employee pay.  It’s up to you and your team to decide what is right for you.

Pay transparency is nothing without pay policy

Once you decide what transparency looks like for your company, you’ll need a clear compensation philosophy, strong program design, and an effective communication strategy.

Employees are eager to learn more about how compensation decisions are made, but without a well-defined, effectively communicated policy supported by capable managers, even the most well-meaning efforts can lead to confusion, misunderstandings, and potential workplace strife. 

First, determine your compensation philosophy – a foundational statement that explains how pay decisions should be made in the organization.

Establishing a unified approach to pay guarantees that no one within your organization is left to navigate compensation decisions in isolation.

It serves as an invaluable resource for key decision-makers, including recruiters, people managers, and compensation specialists, guiding them in making fair and informed choices throughout hiring and performance management processes. 

Next, leverage reputable market data to set pay ranges or bands that reflect the jobs in your organization, and determine how current employee pay compares to desired ranges.

Making use of both internal and external compensation information will help you not only gauge your readiness for embracing increased pay transparency, but can also help you pinpoint any existing pay gaps and inconsistencies that you’ll need to calculate the cost to adjust.

Finally, when you’re ready for program rollout, remember to engage executives and managers in the training and rollout.

Get buy-in from your executive team for changes and communication plans, and partner with your Finance department to implement any necessary adjustments you’ve identified.

And don’t forget your people managers, who are the first line of defense when it comes to employee questions about pay – they need training on how best to articulate your compensation philosophy and your approach to transparency.

With more legislation just around the corner, now is the time to proactively integrate pay transparency into your company culture and business operations.

Creating a strong foundation of trust and transparency will pay off – not just in improved relationships with your employees, but also in company performance and reputation in the market.