You’ve probably noticed an uptick in discussions around pay transparency in the past few years. Everyone’s getting in on it, from state legislatures and organizational leadership to interns and celebrities.
So what should People teams consider when approaching pay transparency?
Let’s start with the basics. Put simply, pay transparency is the practice of sharing salary ranges and other compensation details with employees and job candidates. The goal of pay transparency is to help workers understand a more complete compensation picture, and it’s gaining steam as a major workplace priority for 2023.
But what are the pros and cons of pay transparency? Let’s take a look and then review recommendations from the experts.
There are plenty of reasons why organizations might choose to implement pay transparency. We’ll start with a few of the most common:
Pay transparency is often discussed alongside other important topics including gender pay gap and DEI - and for good reason! Pay transparency has been shown to reduce gender pay gap without affecting firm profitability. It’s hard to argue with results like that.
For organizations committed to reducing their pay gap, pay transparency is an obvious solution. When employees are empowered to see and understand what their colleagues are earning, employers become more accountable for ensuring everyone is being fairly compensated.
When organizations are committed to pay transparency, trust flourishes. Companies report higher trust when employers are up front with salary and benefits.
Pay transparency also sets fair expectations for employees and HR teams. With a common and open “source of truth,” employees know what to expect from their compensation and can trust that their HR team is being upfront about the company’s budget and compensation philosophy.
That trust goes a long way and extends beyond pay. HR teams who are seen as trustworthy are more likely to effectively communicate with and engage their teams.
Many companies report increased productivity after opening up pay transparency. When communicated appropriately, sharing compensation across a team can help to focus everyone on a shared goal rather than individual achievement. This can lead to a more collaborative and effective work environment.
Grab some coffee, because this might be a shock. Workers who discuss pay transparency with their teams, even when they’re paid less than the market rate for their jobs were more satisfied with their jobs than peers in less transparent environments.
This is an important management lesson - people leaders need to talk about money more, not less. When we avoid conversations about money, we create an environment of secrecy and mistrust. But when we’re open and honest about compensation, we can build a more positive and productive workplace.
Pay transparency helps you comply with new laws. There have been a number of recent changes to state transparency laws, including in Colorado, California, Connecticut, Maryland, Rhode Island, Nevada, and Washington - some of which take effect at the beginning of 2023. Many organizations are now required to provide a salary range for all extended offers if a candidate requests it. In some states, salary ranges are required for all job postings.
In addition to new laws, there are a number of longstanding laws that can require pay transparency, such as the National Labor Relations Act (NLRA). The NLRA gives employees the right to discuss their wages, and any attempt to stifle that discussion can be met with strong legal challenges.
Pay transparency isn’t without its challenges. Here are a few considerations any organization should take into account before changing pay transparency policies:
One unintended consequence of pay transparency is that it can make managers more likely to homogenize employee performance-based incentives. That means that, in order to keep everyone happy, managers may be less likely to give raises. Inequity in pay without appropriate context can also impact employee-manager relationships.
In environments with high pay transparency, employees are more likely to have personalized requests fulfilled outside of salaries. When pay is compressed, creative arrangements to include additional training or benefits can pop up as a reaction. If these kinds of arrangements aren't monitored, pay transparency can in some cases lead to more inequality instead of less.
Identifying pay gaps is one thing, but if no one does anything to change them, it can cause chaos. This is where follow-through comes in.
Imagine you’re an employee who sees that you make less than a colleague with a similar job title. You might be upset, but if your company has a plan to address such disparities, you’ll likely be more satisfied than if you found out and nothing was done about it.
So how can you approach pay transparency the right way? We asked 8 top People Leaders, and here’s what they had to say:
When organizations are transparent with their pay strategies (and ranges) with candidates, employees and managers, it builds a foundation of trust and is a great maintenance tool for your overall pay strategy. As an HR leader, my approach is open transparency; including the pay ranges in all internal/external job postings and making pay ranges accessible for viewing internally.
The reluctance that can occur with this approach is that it can highlight low market pay practices or create fear that your competitors will see it and use it against you in attracting candidates. If you are concerned candidates will be turned off by your compensation, then you may need to rethink your pay or communication of your “why work here” message rather than waste the candidates, recruiters and hiring managers time by waiting to disclose pay until they are emotionally invested in your process.
Tina Marie Wohlfield, TIMAWO, LLC
The core of compensation transparency is having a pay philosophy that is realized in the actual pay that your employees receive. The more strict adherence there is to the pay policy, the easier it is to be transparent. Our team knows where they stand within their band, as well as banding structure across our organization. This combined with conversations around career pathing, set up our team with a clear path on how they can grow within our structure. This transparency drives our team’s behavior. The team aligns their behavior with what will increase their compensation, ultimately driving the business goals that will fund those increases.
Kate Conroy, Red Clover
With compensation transparency, our company follows the rules of what, where, why, and how. Our goal is to be as transparent as possible with our employees. “What” answers flat out what the income they will make is, while “where” answers when it falls. In addition to those two formalist answers, we try to answer the why and how as best as possible too. To do this, we utilize our most recent data, and emphasize our best offerings via our culture to supplement our answers for the why.
Kevin Callahan, Flatline Van Co.
At our company, we believe that compensation transparency is essential to creating a fair and healthy workplace. We approach compensation in a very thoughtful and deliberate way, taking into account factors such as experience, skills, and performance.
We want our team members to feel confident that they are being paid fairly and equally for their contributions. As such, we regularly review our compensation practices to ensure that they are aligned with our values. We also encourage our team members to openly discuss compensation with their managers. We believe that this open communication is key to ensuring that everyone feels confident and comfortable with our compensation practices.
Travis Lindemoen, nexus IT group
We believe that compensation transparency is one of the most important aspects of any company. Our team has developed a transparent compensation formula that helps us align our employees' interests with the company's. This ensures that everyone on our team understands how their work impacts the company's overall success and what kind of compensation they can expect as a result. It helps ensure that our employees are appropriately compensated for the value they bring to the company.
We believe this helps us retain our best talent and incentivizes people to perform at their highest level. It also helps us understand what each person contributes to the company's success and how much they deserve in compensation as a result.
Tiffany Homan, Texas Divorce Laws
No matter how transparent your organization is, there will always be a question or two that someone on your team can't answer. But that doesn't mean you should stop striving for transparency. In fact, the best way to handle this situation is to build a culture of asking questions and being open about the answers. Here's how:
Open up the dialogue. Encourage everyone on your team to feel comfortable asking questions about salary and compensation at every level in your organization. This way, no one gets left out or feels like they have to keep quiet because they don't have all the answers.
Amer Hasovic, Love & Lavender
My company has a sizeable workforce and we were looking to regulate a compensation model, built organically. We soon realized that the company lacked a clear structure around the compensation program and plan. Hence, it wasn’t going to be as straightforward as we'd thought.
We ultimately decided to implement "pay transparency" internally. We decided to include the company's average and external data for every job offer. By doing this, we wanted the managers to have a clearer idea with regards to the salary ranges, in case of any negotiations with the candidates, and at the same time empower employees by showing them that we are doing our due diligence to remain competitive.
Here are a few benefits of pay transparency:
- A valuable recruiting and retention tool.
- Made financial planning easier.
- Skips/ reduces the negotiation process/ time while hiring.
Jody Ordioni, Brandemix
Our pay is guided by the State, so we are very transparent in our compensation plan. The State dictates a certain percentage of our compensation and how it is to be distributed to each employee (across the board, performance evaluation ratings, etc.)
Each year, we also have a committee of employees that meet to bring up compensation and non-compensation ideas to administration. We are able to take into account what they recommend on top of what the State dictates. This could be giving longevity increases as a compensation item and free access to our fitness center as a non-compensation item.
Lindsey Hight, Sporting Smiles
Pay transparency is evolving quickly, with more and more companies implementing policies that make employee compensation more transparent. It’s already commonplace for many, including education and government jobs. As we’ve seen, some states even require it.
Take the time to find the right solution for your organization. For example, you might not want to go straight to publishing a spreadsheet with everyone’s salaries on your website if you’ve never discussed pay bands internally. Progress takes time.
If you’re considering improving pay transparency, it can require a serious culture shift, but you’re not alone. There are plenty of benefits that come with opening up the books on employee compensation.