Retrofit Pay Transparency into your Organization—One Bite at a Time

4 min read
Dec 17, 2021 6:30:00 AM

When employees believe their organization is transparent about compensation decisions, they also trust that the organization pays people equally for equal work. Conversely, only 49 percent of those who believe their organization lacks pay transparency trust that employees are being paid fairly.

Employee trust is critical for your reputation, recruiting, retention, your culture, and employee productivity. For instance, job seekers are 75 percent more likely to apply for a job if a company has a reputation for paying fairly. Eighty two percent of workers feel more engaged with and fulfilled by their work, and 81 percent of respondents say they are more productive and loyal to their employers, when they are paid fairly.

It’s no surprise that 67 percent of organizations view pay transparency as an increasingly important practice.

What is pay transparency? 

I like to think of pay transparency very simply. Employees understand why they make what they make, and how they can make more. More generally, pay transparency requires clearly communicating with employees to help them understand how their pay is set. 

Pay transparency is also a spectrum. Some companies have a closed system where team members only know their own salaries, while others openly share employee compensation data with the public. Most companies are somewhere in between, with some sharing pay ranges and others sharing market data when giving raises. 

The 5 pillars of pay transparency

If you’re ready to expand upon your organization’s pay transparency, there are five important areas to take into consideration: culture, processes, education, technology, and communication. Consider and work through each of these steps for the most successful outcome.

1. Culture 

There’s more than one way to practice pay transparency, and it’s important to move forward in a way that makes the most sense at your organization. 

Begin by asking yourself the big questions. Who do we want to be as an organization? What are our priorities? What does a great outcome look like? For instance, you may want to become a super transparent company. You may choose to prioritize internal pay equity. Other organizations may emphasize increasing employee trust.

Once you’ve done some introspection, think through your priorities and approach. You can’t do everything (and you may not want everything). Define the ideal transparency for your company based on your organization’s values, culture, and team. For example, if you optimize compensation for performance, are you comfortable sharing widely variable salary data, or would you rather share the salary range and bonus potential? Remember, you will need leadership buy-in – and you only have so much social capital to spend – so set realistic objectives and timelines to make changes that stick.

2. Processes

Set goals before taking action on pay transparency. Plan out the steps you’ll need to take, what to measure, and how to make this repeatable. You don’t need to do everything at once, so prioritize and conquer. 

For example, if you’re prioritizing employee retention, you may begin your plan by letting existing team members know how you set their current pay, and what they can do to earn more. This might include sharing salary ranges for each team member’s current job level right away, then sharing salary ranges for the next job level up at some point in the future.

Measure success by tracking employee satisfaction and engagement scores, as well as turnover rates and the number of people voluntarily leaving due to compensation. Then continue to focus on pay transparency by incorporating it into your regular compensation cycles.

3. Education

Anyone who may need to address compensation questions from candidates and team members should be well-versed in the company’s compensation strategy. It’s not enough to say “we pay competitively” in the current market as candidates have become more educated and savvy. Go in-depth with managers and company leaders about how compensation works at your organization. 

For example, explain career ladders, how you build salary ranges, how stock grants work, and how you execute your bonus strategy. If you have a distributed team, explain your remote compensation strategy and why you approach it the way you do.

Building a foundation and understanding of your compensation strategy is crucial for implementing pay transparency consistently. This helps ensure that everyone is aiming toward the same goals and applying your strategy consistently across teams.

4. Technology

Compensation is complex, and your legacy toolset will only get you so far. Put the right compensation management software in place to bring your strategy to life, manage your process, and meet managers and leaders where they are.

For instance, Compaas can help you consolidate your compensation data—like salaries, bonuses, and equity—in one place. This gives you instant insights into total employee compensation so you and your managers can make more informed decisions and communicate more transparently with your team members.

5. Communication 

Communication is the most important aspect of pay transparency, and it’s important to be both open and consistent in your messaging. Ramp up communication before and during review cycles, and provide managers with tools like compensation reports to help them navigate compensation conversations with their reports.

Don’t be afraid to over-communicate, especially when you’re introducing something new. For instance, if you’re rolling out a remote compensation strategy or introducing a pay equity initiative, be proactive in telling your team members what to expect and when. Share some information around your initiatives during all-hands meetings, and follow up with emails and internal posts to enable the best reach. Let your team members know when decisions will be made, and when changes will occur. And have a feedback mechanism in place to allow for two-way communication and feedback that could improve your processes.

Final thoughts on pay transparency

Pay transparency is a journey that may change throughout a company’s lifecycle. For example, an early stage company may be less transparent in order to accommodate greater compensation flexibility as the team grows. As they mature, they may put more infrastructure in place to make more consistent compensation decisions, and feel more comfortable increasing transparency. No matter your journey, keep the pillars of pay transparency in the back of your mind to guide the way.

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