Why is pay transparency important? The practice helps ensure fair pay, attract and retain qualified employees, improve morale and shape organizational culture.
“Pay transparency” has come to mean the degree to which employers are open about employees’ compensation: what, why, the means which and how much employees are compensated.1
Measuring pay transparency is finding where on a continuum an organization falls. On one end lies a “black box” approach where decisions and pay data are kept secret; on the other end lies full transparency where inputs, outcomes and pay data are shared widely.
Many employers want pay transparency but do not deliver it. To be transparent, pay decisions must be objective, fair and consistent so there is a clear message for employers and managers to effectively communicate to employees.
But there are many points at which a breakdown can occur on the path to salary transparency. For instance, some organizations make decisions that aren’t data based. Others might operate without any formal pay structure or process, leading to inconsistent decision making. Poor communication compounds those problems — in one recent study, more than 60% of organizations reported managers are not trained to effectively deliver pay communications with employees.2
When evaluating pay transparency in your organization, it’s important to consider the following:
- With whom will you share compensation information? This might include people inside the organization (managers and employees) as well as outside the organization (job applicants and the public). The answer generally depends on your desired level of salary transparency.
- What do you want to share about employee compensation? Consider items such as your organization’s compensation philosophy, desired competitive position in relation to the market, employee’s own pay range vs. pay ranges for all jobs and short-term incentive plan targets.
- Is pay transparency the law? In some states, pay transparency is required by law; in Colorado, for instance, all job postings must display the hourly or salary compensation (or a range of the hourly or salary compensation) and a general description of the benefits and other compensation offered.3
- When will this information be shared? Options include providing the information when an employee starts, providing it on employees’ requests or providing ongoing access.
- Where will this information be shared? Communication methods might include intranet, job postings and one-on-one employee/manager meetings.
- Why are you sharing this information? What do you hope to accomplish by doing so? Reasons might include pay transparency as part of an organization-wide initiative to enhance communications with employees and improve morale.
It’s important to update compensation programs so that they are objective, fair, and consistent, as well as assuring there is a clear message. Here are some key steps to help HR and company leadership update their compensation programs:
- Define the organization’s compensation philosophy and write it down. Evaluate jobs in an objective and consistent manner using comprehensive, current data.
- Using the obtained data, build a market-based pay structure along with short-term incentive plan targets and criteria. Align employee pay with the pay range for their job, leveraging your compensation strategy.
- Create a compensation guide to ensure fair and consistent pay decisions for new hires and current employees. Train managers and decision makers on the compensation programs and teach them how to best discuss compensation information with employees.
- Communicate pay changes in advance of the effective date for base pay and prior to the performance period starting for incentive plans.
How transparent is your organization when it comes to employee pay and what impact do your current pay practices and communications have on employees and your business? Contact your HUB HR consultant to learn the answers.