Pay Transparency Best Practices for 2023

Pay transparency isn’t a new idea, though it’s been gaining traction as employers seek to retain and motivate employees, attract skilled talent, and comply with new legislation. 

One in five North American employers (17%) currently disclose pay and salary ranges and another 62% are considering doing so in the future. This isn’t a decision employers are taking lightly — nor should they. Pay transparency requires foresight and planning to reap the benefits and avoid the consequences that may come along with it.

Here’s how you can set yourself up for success with pay transparency.

1. Have a clear compensation strategy

One in four organizations (26%) say a lack of organized pay structures is holding them back from reaching their pay transparency target. And that makes sense — you can’t effectively communicate about pay when decisions are made in an ad hoc manner.

It’s important to have a clear compensation strategy in place well before you need to begin thinking about pay transparency. Build and regularly update job levels and salary ranges that align with your strategy and be explicit about how job levels and exact salaries are determined. This will help you make strategic pay decisions that can be clearly communicated with your team.

2. Address pay inequities

Pay transparency can uncover inequitable pay practices within an organization, impacting both employee morale and retention. More than half (54%) of employees who found out they were earning less than coworkers with the same experience or title reported a drop in motivation and 59% looked for a new job within a year. 

Analyze internal pay equity before increasing transparency so you have an opportunity to find and address discrepancies. For example, look at compensation and compa-ratio by gender, ethnicity, and intersectionality. Make strategic adjustments to ensure employee pay aligns with your compensation strategy.

Despite good intentions, pay inequity can sneak back in – so make a plan to analyze employee compensation at least once or twice a year.

3. Formalize your pay transparency policy

Gather your stakeholders to determine your current state of pay transparency and the level of pay transparency you’d like to attain. 

Nearly half of organizations (46%) currently offer the minimum level of pay transparency: telling their employees when and what to expect on their paycheck. 

But many organizations want to be more open about pay:

• 18% want to share some market data with employees
• 24% want to share pay ranges with individual employees
• 25% want to share the compensation plan with employees
• 10% want to make ranges and employee pay information available to all employees

Make a plan to reach your desired level of pay transparency and create a formal pay transparency policy. Outline exactly what you will share and with who so it can be applied consistently throughout your organization. For instance, you might share pay ranges with all team members, but only share your compensation plan with employees at the manager-level and above.

4. Train your managers

Your managers are likely already fielding questions about pay from their team members, but 54% of organizations don’t train managers to handle these conversations. Increasing pay transparency can lead to additional questions so it’s a good idea to get your managers up-to-speed before you introduce any changes to the rest of your team. 

Train your managers around your job levels, salary ranges, and pay range penetration so they can best support your organization’s commitment to pay transparency. Provide a cheat-sheet with frequently asked questions and specific language managers can use when answering them.

5. Ensure bi-directional communication

Pay transparency requires clear, consistent communication between company leaders and team members. Review compensation decisions according to your pay transparency policy at the point of hire, during each review cycle and promotion, and whenever questions arise. 

Make sure your team members know about changes to your compensation strategy or pay transparency policy before they roll out. For example, let your employees know when you shift your market targets for salaries or if you’re going to start adding salary ranges to job postings.

Encourage your team members to flag potential compensation issues so they can be addressed before they lead to turnover. For example, if a team member believes they’re being underpaid compared to a colleague, enable them to make a case. Do your due diligence to consider the issue, and follow up with the team member to share your findings and decision.

6. Discuss total rewards

Wages aren't the only consideration when it comes to a great compensation package. Job candidates and employees also care about things like bonuses, stock grants, benefits, and earning potential. 

Use total rewards statements to quantify the value of your compensation package and make sure your employees know how they can reach higher levels of pay within your organization. For example, share the specific skills and experience the team member would need to move up in their current salary range or move into the next job level. A total rewards statement can be a powerful tool for managers to use during compensation discussions with their direct reports.

7. Use the right compensation software

The right HR tech stack can help you address opportunities and challenges related to pay transparency so you can make compensation your strategic advantage.

Compaas helps organizations think about compensation from various points of view, including pay transparency. Our compensation management software provides instant insights into total compensation so you can make more informed pay decisions and communicate more transparently with your team.

Final thoughts: Pay transparency is long overdue

Less than half (47%) of HR professionals said their organization is transparent with employees about how pay decisions are made, but 94% think it is important for organizations to do so.

Compensation has long been considered a taboo subject, but opening up about pay is a crucial step toward achieving workplace equity. Pay transparency holds your organization accountable for making fair, strategic compensation decisions that you should be proud to share.