Top tips for employers that want to improve pay transparency

pay transparency

Need to know:

  • Increased transparency can boost engagement, retention and trust, among other things, meaning that it is well worth tackling ingrained traditions of secrecy surrounding compensation.
  • Employers should find a degree of transparency that suits their organisation and workforce, and should use open communication to ensure it is rolled out smoothly.
  • Pay transparency allows organisations to shape their own narratives, and this should be used as an opportunity to be honest about flaws and the methods being used to fix them.

Changes to legislation and the increasing ease of information sharing mean that organisations may no longer have a choice about becoming transparent.

Nevertheless, secrecy is still deeply ingrained when it comes to pay. How can employers break the habit of a lifetime and face the daunting prospect of pay transparency?

Weigh the pros and cons

Closer scrutiny may affect the ability to offer personalised ‘sweetheart’ deals, and some organisations might argue that they thrive off secrecy and competition.

However, pay transparency can also build trust, promote advice sharing and financial wellness, boost engagement and drive recruitment and retention.

Duncan Brown, head of HR consultancy at the Institute for Employment Studies, adds: “If they’ve got gender pay gaps, those are probably going to be noticed early on and addressed, rather than hidden away.”

These benefits do not have to come at the expense of competition, argues Brian Kropp, group vice president at Gartner. “What you also want is for everyone to know the rules of the competition. When some people don’t know the rules, that’s when it becomes problematic.”

For many, the positives surrounding transparency are clouded by the fear that employees will become dissatisfied upon seeing the truth about their compensation compared to others’, but the evidence suggests the opposite. PayScale’s Compensation Best Practices report, published in February 2018, found that only 21% of employees feel that they are paid fairly. In which case, providing more transparency could, in fact, prevent the loss or disengagement of employees who have made incorrect assumptions about being underpaid.

Find the right degree of transparency

The first step is to understand that pay transparency does not mean revealing intimate compensation details about every employee.

Lydia Frank, vice president, content strategy at PayScale, explains: “It doesn’t have to be an on-off switch, there are some steps in between. If [employers] fear the negative consequences of going fully transparent, [they] can do things like ensuring that employees understand the pay range within their organisation. It sounds simple, but a lot of organisations don’t show that information.”

Focus on fairness

Employees will likely understand that some are paid more than others as long as they can see the reasoning for it, and so it is important to be transparent around the processes that underpin pay levels.

This might involve producing a salary formula to go alongside pay data, being clear on progression and reward markers that affect pay, or simply being open to constructive conversations with employees. Whatever the approach, the focus should be on fairness and equity.

“Fairness is critical to [employees’] motivation,” explains Brown. “It’s not just about what you give people, it’s about their perception of whether that’s fair. [Employers] need to give [staff] an idea of how pay is managed and what processes are in place for fairness.”

Cushion with communications

Ideally, prior to full transparency, employees should understand their packages and where they are positioned within the organisation. Without this, employers may lack the kind of communicative culture that will make pay transparency a success.

“It would be like coming into work with all your clothes off tomorrow, you might want to try taking your tie off first,” says Brown.

This gradual approach means empowering line managers to relay messages and field concerns from employees, which will also be integral once pay levels have become transparent and these conversations naturally multiply. However, according to PayScale’s report, only 29% of organisations train managers to have compensation discussions.

“There’s always going to be people who think that they should be paid more than others,” says Frank. “[Employers should] make sure [they] have a good answer and a good strategy for how [they are] going to address those questions.

“Before going transparent, I would say [employers] should think about [their] pay brand. Why do [they] pay the way [they] do, and how do [they] want to talk about it?”

Shape the narrative

One of the benefits of being proactive with pay transparency is the opportunity to shape the way information is presented, and the messages that go alongside it. This does not mean that the message will, or should, only be positive.

“When [organisations] become more transparent, those gaps that [they] have that [they] might not have closed will become more exposed,” notes Kropp.

So, should organisations strive to address discrepancies such as the gender pay gap before becoming transparent?

“[Organisations] don’t have to be perfect, and also, honestly with pay equity, it’s an ongoing process that’s never done,” argues Frank. “If [they] wait until [they are] finished, [they will] never get there.”

Rather than being fearful of exposing inequity, then, employers should focus on providing a constructive narrative around their flaws, and, most importantly, going on to address them.

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