In decades past, people didn’t always discuss salaries with their colleagues.
Some people were not even allowed to have such conversations due to Pay Secrecy rules that meant you couldn't reveal your own pay to co-workers. Job listings rarely disclosed salaries, which meant that applicants had no idea how much they could potentially earn.
This system has come crumbling down in recent years, especially in the age of social media and negative Glassdoor reviews. Employees talk about their compensation. Applicants expect to know salary ranges. And upcoming legislation could soon make pay transparency a federal requirement.
What is Pay Transparency?
Pay transparency is the policy of sharing information about your company’s salary structure. In a culture of pay transparency, everyone knows how their compensation compares.
The term “pay transparency” covers a number of important concepts in recruiting and human resources. Let’s break it down:
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Salary disclosure: When advertising a vacancy, employers can choose to disclose the available salary range. This information helps applicants negotiate a higher starting salary and tells current employees if their compensation is in line with new hires. Some states have salary disclosure rules—for example, California and Colorado employers must include salary ranges in most job postings, while Maryland employers must provide the pay range on request.
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Pay secrecy: The National Labor Relations Act gives employees the right to discuss their compensation with colleagues. However, this rule doesn’t apply to some workers, especially contractors, and some managers. These people may be subject to a “pay secrecy” clause in their employment contract that forbids discussing salary.
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Pay equality: Pay equality is about ensuring that everyone gets paid fairly according to their work. If two employees make the same overall contribution, then they should receive equal compensation.
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Pay equity: Pay equity is about deeper issues that affect employee compensation, such as discrimination, lack of opportunities, and larger social issues.
Equality and equity are important elements of pay transparency. In fact, pay transparency is a vital element of delivering your DE&I strategy.
Why is Pay Transparency important?
Pay transparency can cause issues for employers. For example, when the labor market is competitive, you must offer a higher starting salary to attract talented job seekers. Unfortunately, when your existing team discovers they’re being paid less than a new hire, they’ll demand a pay rise or quit.
Wouldn’t it be easier not to have pay transparency?
In fact, no. Pay transparency can benefit employers in a number of other ways, such as:
- Improved employer brand: A pay transparency policy shows you’re committed to open communication and employee engagement. This demonstrates that you’re got a positive company culture and enhances your employer brand.
- More job applicants: 91% of candidates say they’re more likely to apply if the job listing includes a salary range. Publishing your pay scale also helps set expectations early on, which will lead to a higher offer acceptance rate.
- Improved employee engagement: Salary transparency can make people more productive and improve retention rates. Some studies on pay transparency have found that people will work harder if they have a clear idea of available salary increases for managers and high performers.
- Visible DE&I outcomes: Pay transparency makes it easier to identify DE&I issues, especially if there are inequalities across multiple organizations. On the other hand, if your DE&I strategy is going great, then pay transparency proves that everyone is being treated fairly.
- Reduced compliance overhead: Pay transparency laws are already appearing at a state and local level, regardless of whether the federal transparency bill escapes from Washington. You’ll stay ahead of the regulatory curve by implementing pay transparency now.
- Better budgeting: Budgets that incorporate headcount plans, the largest area of spend for many companies, are more likely to avoid costly misallocation.
These are some of the benefits of pay transparency, but it’s not always easy to disclose pay data. Here’s how to make it work in your company.
How to implement a pay transparency policy
A successful pay transparency policy requires planning and good communication. Here are some steps that will help you create an open and positive dialog around salaries in your organization.
1. Review job framework and salary structure
Pay equality is based on the concept of “equal pay for equal work,” but it’s not always easy to compare two employees. Some people may have similar roles or titles, but their day-to-day responsibilities could be very different.
It’s a good idea to start by reviewing all job frameworks to ensure that each person’s title reflects their contribution to the organization. This makes it easier for you to audit salary data and ensure that everyone is paid appropriately.
2. Clarify your rewards philosophy
Your compensation strategy says a lot about your company’s underlying philosophy. For example, do you give bonuses to individuals or share them between teams? Are pay rises based more on performance or length of service? How big is the salary gap between an operations-level employee and a manager?
Having a written rewards philosophy explaining how compensation is connected to your organization’s goals is a good idea. A rewards philosophy statement can help employees understand why they're paid their current salary—and give managers a guide to compensation strategy.
3. Provide access to salary information
You can publish salary data in many ways, including:
- Job postings: Candidates will appreciate seeing a wage range in your job ads. Current employees are likely to see these salary ranges and may ask questions if they feel underpaid.
- Internal salary guidelines: You can equip managers with internal salary guidelines, giving them the tools and direction on a role-based guide to salaries when they’re dealing with salary queries.
- Total rewards statements: Pay transparency often focuses on salary, but employees receive lots of other forms of compensation, including bonuses, perks, and professional development. A personalized Total Rewards statement can help individuals understand the full value of their compensation.
The goal of pay transparency is to be as open as possible so that everyone has a clear understanding of how your organization’s reward structure functions.
4. Educate managers and talent acquisition staff on fair pay practices
Employees will have questions, especially if your salary data raises some difficult questions. Provide some training to managers on fair pay practices and your rewards philosophy. This will allow them to have productive conversations with their team members.
Prospective employees may have some queries, too, so make sure that your talent acquisition experts can talk about your rewards philosophy during the hiring process. Also, ensure recruiters understand any compliance issues around employee pay transparency regulations.
5. Perform regular salary audits
You’ll need a regular audit process to help keep your salary information up to date. Make sure that everyone has access to the latest data, especially if they’re creating a job listing. You may also need to update internal guides and information published on your job portal.
It’s also a good idea to watch internal compensation trends, especially from a DE&I perspective. You may start to see disparities and wage gaps emerge over time. If so, it’s important to work with your DE&I team to create a more equitable salary structure.
Make pay transparency part of your company culture
Pay transparency policies can positively impact team spirit and company culture—if you handle it the right way. Implementing a pay transparency policy requires careful planning, excellent communication, and a team of talented HR professionals to make it all happen.
The best strategy is to bring in an experienced HR consultant that can deal with all issues related to pay transparency, from compliance to communication. The right consultant can help make transparency a key part of your team culture and employer brand.
Want to talk to an expert? Book a consultation call with a Helios HR expert.
