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Using Pay Transparency to Improve Employee Retention

Jen Dewar
May 21, 2021 7:15:00 AM

Your team members may not trust your compensation decisions. This could be leading to turnover or, perhaps worse, a disengaged workforce that will only contribute the bare minimum. Employees won’t give their all to companies they don’t trust, and top-tier talent certainly won’t stick around when they have seemingly better opportunities available to them. Pay transparency can help.  

What is pay transparency?

Pay transparency refers to clearly communicating pay practices to help employees understand how their salaries are set.

In practice, this can look different at different companies. Some may provide salary ranges to team members and their managers, and train managers on how to have clear, effective salary discussions with their reports. Others may publicly share their compensation practices and employee salary information internally—or even externally. 

Pay transparency is a spectrum, and most companies skew toward less transparency. Only 37 percent of companies share pay ranges, 16 percent share market data when making an offer, and 19 percent share market data when giving a raise. 

But, at the very minimum, pay transparency should mean that each employee understands why they earn what they earn, and how they can earn more. The specifics of what information is shared should vary based on the organization’s values, culture, and team.

Why pay transparency matters for retention

Only 22 percent of employees agree they are paid fairly, which isn’t surprising given the low levels of pay transparency in most organizations. And only 52 percent say that employees know how to move up in their career paths.

When employees don’t feel they’re being paid what they’re worth and don’t see opportunities for advancement, they may be more inclined to look elsewhere for employment. In fact, compensation and career advancement are often listed as top reasons people leave their jobs. Given the high turnover that’s been predicted for the post-COVID workplace, it’s important to cover all your bases to improve retention and ensure you can still meet business goals.

Pay transparency garners a certain degree of trust in your organization’s compensation decisions. When people know why they earn what they do, they’re more likely to trust that your compensation decisions are made strategically, and not on an ad-hoc basis. This can improve employee engagement, productivity, and loyalty. Most (82 percent) workers feel more engaged and fulfilled by their work when they are paid fairly, and 81 percent say they are more productive and loyal to their employers. 

When people know what it takes to earn more (and legitimately have opportunities to do so), they can feel confident that they will achieve career and pay progression over time. This benefits everyone. Your team members will be able to reach their career goals, your employee retention will improve, and you will have a skilled workforce ready to fill future roles. In addition, job seekers are 75 percent more likely to apply for a job if a company has a reputation for paying fairly. 

Keep in mind that it’s not enough to pay fairly—you must also effectively and transparently communicate with your team so they trust that they are being paid fairly.

How to support pay transparency to improve retention

Pay transparency requires strategic planning and an ongoing commitment to get it right. It often evolves over time. Consider where you are now, and where you’d like to be—then go at your own pace. 

Here are some tips to help you get started:

  • Determine your level of pay transparency. Figure out what information you will share, and with whom. For instance, you may decide to share each employee’s current pay range with them, but also provide managers with the next pay range up for each of their reports. This can help them better advocate for raises and promotions when they’re due, so you can better retain your team members.
  • Train recruiters, HR, and managers. Anyone who may need to address compensation questions from candidates and employees should be well-versed in the company’s compensation strategy. They should also know how to use the information at their disposal. For instance, you may provide managers with pay range penetration or compa-ratios so they can make more informed raise recommendations. Make sure they understand what those metrics mean, and how to use them effectively.
  • Get bi-directional feedback. Pay transparency should be bi-directional. Make sure you have a system in place for team members to flag potential compensation issues—before they reach the point of an exit interview. For example, if a team member’s work location is in Zone 3, but believes their geographic area should be in Zone 2, create a process for them to make a case. Do your due diligence to consider the issue, and report back to the team member with your findings and decision.
  • Communicate, communicate, communicate. Communication is the most important aspect of pay transparency. In fact, don’t be afraid to over communicate. If you share your compensation strategy internally, share it multiple times: at the point of hire, during each review cycle, and whenever questions arise. During review cycles, communicate anything that may be new, including a pay equity analysis that might impact some team members more than others. And if you’re planning to embrace remote work long-term, communicate whether that might affect compensation.

Final thoughts on pay transparency for retention

With one in four workers considering quitting their jobs after the threat of the pandemic subsides, retention is top of mind at many organizations. Pay transparency can be a powerful tool to garner trust, retain employees, and build a more engaged workforce. Including it in your employee retention strategy can result in a more well-rounded and successful effort.

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