Pay Transparency: Experts Weigh in on What HR Can Do
Pay transparency has been a hot topic for several years, primarily because it is a tool that drives transparent remuneration practices resulting in equal pay for equal work. In fact, pay transparency is not only becoming increasingly regulated and formalized through legislation but expected by employees.
So, should HR professionals pay more attention to how pay transparency works, the pros and cons of a pay transparency strategy, and how to implement a pay transparency policy? The answer to all of these questions is an unequivocal yes.
Contents
Why HR should prepare for pay transparency
The benefits of pay transparency
The pitfalls of pay transparency
How HR can help prepare the organization for pay transparency
Why HR should prepare for pay transparency
From a general best practice perspective, it’s important to remember that the law generally follows public perceptions and expectations. In this case, by the time pay transparency laws started being passed in the US, pay transparency practices were already commonplace in many European countries.
In the US, employees are not only expecting to see salary ranges on job listings but are often outright skeptical of positions (and companies) when they are not included. One survey found that 32% of respondents assumed the company was hiding something if salary was excluded, while 30% indicated it showed the company would underpay.
As an HR professional, you are uniquely placed to help your leadership team understand the importance and benefits of pay transparency. But it will also be up to you to investigate where there is pay inequality within the organization, what your pay transparency policy should look like and how it will be implemented.
First, let’s look at where organizations fall short without a pay transparency policy.
1. Unequal salary ranges
Many corporations will come under scrutiny regarding their pay transparency policies. In some cases, this can be because pay transparency policies are not in place, and employees are actively discouraged from discussing pay ranges. Apple, for example, shut down a Slack channel created by employees to discuss their salaries.
In others, it is because legislation has forced pay transparency, subsequently revealing how unequal salary ranges are. Without a proper strategy, pay transparency can cause a lot of harm, if employees discover wildly unequal salaries and feel undervalued by the company.
2. Discouraging quality candidates
Employees – particularly talented employees – are demanding a higher standard from companies. Many may not even apply for a position if the salary range isn’t mentioned in the job ad. 85% of respondents in a survey indicated that they are more likely to apply to a job that lists a salary range, while additional research found that jobseekers said a salary included is the number one reason to apply for a job.
The longer organizations take to implement true pay transparency policies, the more talent they are likely to lose to other businesses already following best practices.
“Often, employers want to see what a candidate is earning in the hopes of hiring an experienced, talented person at a lower salary range. Candidates know this, and it causes a lot of frustration,” explains Miriam Groom, CEO of Mindful Career and Leader Human Capital at KPMG.
“What a person is currently earning shouldn’t be relevant – particularly if the role is different. Pay transparently allows candidates to apply for the correct roles and earn what they believe they are worth. This results in better candidates and fair pay.”
3. Rising employee frustration
“Secrecy around compensation can be a major source of frustration for employees that directly impacts wellbeing and productivity,” says Virgile Raingeard, CEO of Figures, a compensation app for startups and scaleups. “We see it every day in our business.”
The key is ensuring that employees feel valued and that they trust the business has their best interests at heart. As HR professionals, we see it every day; if a person does not feel valued, they do not bring their A-game to the office. And secrecy does not breed trust.
4. Future workforces expect more
Boomers might not expect pay transparency, but Gen Z has an entirely different perspective. According to a LinkedIn survey, 81% of Gen Z workers indicated that they believe sharing pay information is a step toward achieving pay equality, compared to only 28 percent of Baby Boomers. Modern organizations need to prioritize how their employer brand is perceived in the war for talent. Workplace culture and a commitment toward real, meaningful, and tangible transformation are paramount.
The benefits of pay transparency
If managed well, there are real benefits to pay transparency. From creating a culture of trust to positive impacts on productivity and engagement. Organizations will also provide transparency on how they are rectifying the wrongs of the past. They will also then be able to proactively shape their narrative as an employer.
Additional benefits of adopting pay transparency include:
1. Pay transparency creates equality: Pay transparency has been proven to reduce gender, ethnicity, background, and other demographic and characteristic-based biases that have historically resulted in pay gaps. This is because organizations are far more likely to correct any pay inequality if they have to share salaries openly. According to Michelle Hague, HR manager at Solar Panels USA, “the biggest benefit of pay transparency is that it helps to level the playing field for employees. As soon as a business becomes transparent about everyone’s salaries, HR can help ensure everyone is paid fairly.”
2. It promotes trust: Pay transparency keeps companies accountable to ensure that pay fairness is a priority, leveling inequities to close the gender and racial pay gap. To maintain this trust, regular benchmarking activities are conducted in a structured, data-driven way.
3. Retention rates improve: Because pay transparency comes with clearly defined job roles, employees know exactly what is expected of them and whether their compensation and benefits align with how their work is valued.
“Pay transparency helps to reduce turnover rates by creating a more positive work environment for employees who feel like they are being valued by the company and treated fairly,” says Bonnie Whitfield, Human Resources Director of Family Destinations Guide (FDG).
Erik de Groot’s HR pro tip:
Never assume that pay is the most important reason an employee joins or leaves an employer. It is only one criteria.
A high salary does not necessarily equate to feeling valued, particularly if trust, transparency, and equality are lacking in the workplace. Instead, a great working environment, challenging work, work that matters, good colleagues, and work-life balance are often equally or even more important than salary alone.
The key to pay transparency within this context is that a job’s role is clearly defined, and value is assigned to it – even if that value is also delivered through other means, such as flexibility and the ability to earn more based on additional skills and workloads.
Erik de Groot – AIHR Instructor & Global Rewards Executive & Interim Manager at dGM&C b.v.
The pitfalls of pay transparency
Of course, there will always be cons to every policy or strategy. In the case of pay transparency, there are areas that HR professionals should pay particular attention to when investigating, designing, and implementing pay transparency policies. Let’s unpack some of these:
1. Inequality exists in almost every business: Companies embarking on pay transparency will need to start closing those gaps. But HR should also expect some employees to become upset when they discover inequality. HR professionals will need to support managers and supervisors, who will be the first point of call for unhappy employees.
2. Mismanagement will lead to talent leaving: If poorly managed, pay transparency will lead to employee dissatisfaction, talent leaving, and unnecessary internal competition between employees.
3. Data can be taken out of context: Given the complexity of pay, most people do not understand the underlying nuance and criteria that governs remuneration. Transparency is important – if people have been treated unfairly, show them how your organization is fixing things.
Dr. Dieter Veldsman’s HR pro tip:
There are significant implications for practices such as Diversity, Equity, Inclusion, and Belonging and Culture. Transparency is positive, but on the flip side, it will also move us into a period of transition where organizations will have to be able to explain previous decisions and provide concrete plans on how to close pay disparities in the future.
Without strong and careful intervention by trained HR professionals, this could further tarnish the levels of trust between employees and employers, leading to disengagement and attrition. The role of HR has never been more important.
Dr. Dieter Veldsman – AIHR Subject Matter Expert, HR and Organizational Psychologist
How HR can prepare the organization for pay transparency
Short-term goals for HR
Step 1: Embrace the change
Legislation and public perceptions are driving some organizations to implement pay transparency policies in name only. This can cause damage to a brand because, instead of looking transparent, companies who are caught out may face backlash and reputational damage.
“I’ve seen more than a few bombed Glassdoor pages from organizations that are trying to game the system rather than actually creating a fair and equitable hiring environment,” says Dragos Badea, CEO of Yarooms, a hybrid workforce management software provider.
“People quickly pick up when a business technically conforms with the law but does not operate in the spirit of what pay transparency should achieve, which is trust in an organization.”
What HR can do:
- Build pay transparency into the work culture, values and leadership philosophy.
- A good place to start is incorporating it into your processes, if your organization’s transparency is not yet matured or isn’t prioritized by leadership as a core part of the culture.
- Start with the how. How are salary decisions made?
- Next is the when. Share a roadmap around when change will happen.
- Next is the what. What data sources are you using for your salary ranges and how are you positioned in the market?
- The act of investigating and beginning to share data will move your organization towards a meaningful pay transparency policy.
Gemma Baldock’s HR pro tip:
Pay transparency gives employees a clear idea of where they sit within a range and what they can achieve if they focus on developing themselves further. It’s a great incentive for career progression within the organization, giving employees something to strive for.
However, pay transparency does not mean you have to share everything with everyone. You could, for example, share with each employee the relevant salary range for their role and their position within that range. Some companies also provide the next range up so that employees can see what they are aspiring to in terms of career development.
Gemma Baldock – Work Psychologist, HR Mentor and EE Consultant AIHR
Step 2: Start small
Next, start small. It’s essential to start the process. It’s equally important to ensure everyone in the business is on board.
“The biggest mistake you can make is to try to do too much too soon,” explains Karolina Kijowska, PhotoAiD’s Head of People. “Pay transparency is a huge change for any organization, and taking things slowly at first is important. Implementing everything at once will only overwhelm your employees and cause confusion.”
What HR can do:
- Educate employees on how benchmarking and comparative pay work.
- Explain job roles and leveling and why pay transparency will increase equality and the opportunity to earn more based on outputs and skills.
- Educate leaders and employees on how to discuss pay and take ownership of that decision.
- Understand your current position on pay equity and identify the gaps.
- Benchmark, grade, and compare your roles – this has implications for job architecture.
- Benchmark internally as well as externally. You need to understand how you compare to your competitors.
Gemma Baldock’s HR pro tip:
You can’t simply conduct the analysis, read the results, and walk away. You must take action to address the results. If there is inequity in pay, these cases need to be addressed with a full plan on when and how they will be equalized. You will also need to set aside a budget for this.
If you can demonstrate pay equity, this will signal to the market that your company is focused on fairness. Remember, fairness and clarity attracts talent and retains employees.
Gemma Baldock – Work Psychologist, HR Mentor and EE Consultant AIHR
Mid-term goals for HR
Step 3: Design the job-leveling framework
Once you have finalized your prep work, you can begin to design your job-leveling framework and determine salary bands based on job roles and levels.
What HR can do:
- Work with Remuneration and Talent on refining a transparent and simple job architecture. This can consistently be applied to help people understand remuneration decisions.
- Your framework should take responsibilities, expectations, and seniority into account, as well as skills and expertise.
- Salary bands should have minimum, mid and maximum pay ranges with clear responsibilities, skills, and outputs linked to each.
- Integrate pay transparency into HR practices such as talent attraction, EVP, EX, and performance.
- Implement a designated career mobility framework that helps employees understand how to grow their pay.
- Remember, with true pay transparency, employees understand how they can improve their earnings based on their work.
- Implement financial advice and education for employees to help them build financial well-being as part of your EVP. Pay transparency will be a key input into this conversation.
- Shift towards a total rewards philosophy that includes tangible and intangible rewards to show the total employee experience.
- Bring more choice and flexibility into remuneration at an individual level through personalized rewards.
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Long-term goals for HR
Step 4: Build pay transparency into your philosophy
Long-term, it will be important to incorporate regulatory requirements around reporting of pay. This will align with local laws, but it will also be a key factor in brand and reputation management.
Ultimately pay transparency makes your organization an employer of choice, which means it’s important to demonstrate what you are doing and how you are doing it.
What HR can do:
- Formalize pay transparency as part of your philosophy.
- Share what you are doing as a business. This is HR’s role as you have a full view of everything that impacts your people.
- Use this culture, philosophy, and data to attract and retain the best talent.
Miriam Groom’s HR pro tip:
Be deliberate at the beginning of the job posting. In point form, describe all of your benefits and compensation, including:
- Base annual salary
- Bonus retention
- RRSP contribution
- Cell phone and other allowances
- Office perks at office
- Flexibility
- Culture.
“Think about your ideal candidate and what would mean most to them. The selling point could be transportation allowance or dental coverage; you never know your employee’s exact situation. It’s better to list them all concisely at the beginning of the posting to attract the maximum number of applicants,” explains Miriam Groom.
Key takeaways
It is no longer a case of whether your organization should implement a pay transparency policy but rather when and how it will be done.
This is also only the first step towards businesses becoming better corporate citizens. “Real pay equity and fair pay for fair work goes beyond pay transparency and has to be ingrained in the people and remuneration philosophy of an organization,” says AIHR’s Dieter Veldsman.
“Transparency will highlight if and where there are problems that need to be addressed, but equity also needs to be seen in the context of representation. It does not help if you pay men and women in leadership roles the same, yet you don’t have any women on the Executive team. This is a complex problem and HR professionals are integral to the overall shift.”
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