Should employers take a radical approach to pay?

Need to know:

  • Proactively communicating salary brackets for individual positions is an effective way of driving forward pay transparency.
  • Good communication is key when changing pay strategies. Failing to communicate effectively can create distrust in pay practices, and trust is fundamental to employee decisions on whether pay is fair or not.
  • Adopting radical pay structures will not be feasible for all employers, but workforce parity can be applied in other areas such as employee benefits, and learning and development opportunities, and explore salary options that can enhance talent acquisition and positively impact employee engagement.

Pay can be a sensitive subject in any workplace, yet pay transparency is one of the most hotly debated topics among HR and employee benefits professionals today.

Some employers have taken a radical approach to pay, from complete transparency, publishing everybody’s salaries online, as social media management software firm Buffer has done, to letting employees set their own pay scales, as those at government funding specialists GrantTree are able to do. In 2015, credit card processing firm Gravity Payments grabbed media headlines when it raised its minimum salary to $70,000.

Should other organisations be following suit? The fear for many is that making radical changes to pay strategies will impact the financial performance of the organisation

However, it can lead to a healthier performance, says Laura Trendall Morrison, founder of the Gamechanger Consultancy. “At Buffer, the pay of the CEO [chief executive officer] is also included, and every employee’s salary is published, which shows a balance in the business and greater equality,” she explains.

“Often there is a perceived large disparity in pay between CEOs and senior management, versus the people that keep the business running, and certainly in the UK there have been calls for legislation to cap this. This should be a lesson to other [organisations] which fear raising pay will impact its bottom line: implemented correctly, it can actually improve the bottom line.”

GrantTree’s decision to let employees set their own salary is designed to demonstrate transparency, trust and openness as part of the employee culture. “It encourages employees to link the work they are doing to the value created, and encourages higher performance to justify the salary set,” adds Trendall Morrison.

Gender pay gap

Pay transparency has already been introduced to the UK through measures such as gender pay gap reporting and executive pay gap reporting. While these requirements are both currently in place for businesses with 250 employees and above, the sentiment is being picked up by businesses of all sizes and industries, and more employers are actively making changes to their pay practices with these in mind.

But these requirements fall far short of what candidates and employees really want to know: what their peers are earning and what salary they should expect to earn themselves, says Jo Cresswell, community expert at recruitment site Glassdoor: “To drive forward pay transparency and ensure individuals are being fairly and competitively compensated for their work, businesses should proactively communicate salary brackets for individual positions.”

Greater pay transparency means more candidates applying for jobs. Research by Glassdoor, conducted in March 2020, found that 72% of job seekers would be more likely to apply for a job that indicates an approximate salary. With access to that information they will only apply for a job if the salary is within the range they are after, thereby saving time on recruitment for employers.

“Pay transparency is also good for the employer brand,” adds Cresswell. “It sets a business apart from [organisations] that avoid disclosing salary details up front. Forty percent of employees say they value transparency in an employer [according to the Glassdoor research].”

Changing strategies

Changing pay strategies is not always easy to do and can require some form of employee consent and notice in line with the corporate performance year.

Ruth Thomas, senior consultant and co-founder of Curo Compensation, says: “When it comes to pitfalls even the best designed compensation plans can fail because a vital step was missed, namely finding out what employees value in a reward package and incorporating that in the planned changes.

“When it comes to implementation, poor communication can create distrust in pay practices, and we know that trust is a key issue when it comes to employees deciding whether pay is fair or not.”

Ultimately, benefits are more impactful when compensation programmes are aligned to organisational goals and add value to the lives of employees, in order to ensure the attraction and retention of the best talent.

Overall employee experience 

Societal changes are impacting both pay and benefits, and the days of salary being the key driver for recruitment and retention have fundamentally shifted. Competition for talent is fierce and employees are becoming more aware of the importance of the overall employment package.

Adrian Matthews, employee benefits director at MetLife UK, says: “While salary still remains an important consideration, wider benefits packages are now seen as a major contributory factor in both recruitment and retention of quality staff. Enlightened employers are already aware that a rounded and well-communicated pay and benefits package is a key factor in recruiting staff and this isn’t just for the big FTSE-100 [organisations]. SMEs are also competing for the same talent and therefore having to evolve their offerings.”

Given the unprecedented challenges posed by the current Covid-19 crisis, businesses will need to evolve quickly to stay afloat, and should consider re-evaluating their pay structures and strategies as part of that, says Nikki Wood, managing director of County Employee Benefits.

“When this dreaded virus has passed, we’re going to see large tracts of people not wanting to return to their old, desk-bound jobs and miserable commutes, so it is worth considering how this is going to play out culturally for the organisation now and working to secure the very best talent. With the right approach to pay, benefits, work-life balance and career development you can move from being an ‘employer of choice’ to an ‘aspirational employer’.

“Even if [it] can’t adopt the approach of paying everyone the same, [it] can still apply this across benefits, learning and development etc. There are many more ways to become an aspirational employer. Now is a good time [for an employer] to look at [its] business and decide where [it] wants to be, then change accordingly.”