Businesses today are tasked with meeting the expectations of a multi-generational workforce that has experienced rapid change in recent years.
When it comes to expectations surrounding remuneration transparency, some workers may recall a time when pay information was guarded with secrecy, whereas newer members of the workforce may see salary information as common knowledge (thanks to websites such as Glassdoor) to be discussed freely. And whilst views on the “appropriateness” of pay transparency may differ, what is clearly consistent is the expectation of a fair and equitable outcome for all.
If meeting the expectations of the workforce is not reason enough to review your approach to pay transparency, perhaps the growing trend of global law and policy makers introducing pay equity provisions may sway you. Take for example, the European Union which recently published a draft Directive giving employees extensive new rights and requiring unprecedented levels of transparency around equal pay. And, our British counterparts (who are often a lead indicator for potential changes in Australia) introduced a UK pay transparency law last year requiring companies to disclose and explain every year their top bosses pay and the gap between that and their average worker (aka the CEO pay ratio).
Companies need to be confident that their pay and reward structures are delivering on employee expectations, evolving to good governance requirements and ultimately appropriate pay equity. The vehicle to move towards pay equity is pay transparency.
What Is Pay Transparency?
Pay or salary transparency refers to the degree to which employers are open about what, why and how employees are remunerated. It also refers to the degree to which employees are allowed to discuss and share information on remuneration and reward. This can be applicable to all types of reward (e.g., variable pay, equity) and other related programs (e.g., career progression, recognition and performance assessment).
There are varying degrees of pay transparency within different industries and sectors. For example, the salary information of government employees is publicly accessible and therefore, inherently transparent. In contrast, most private sector companies will keep the salaries of individual workers strictly confidential.
In our 2019 Remuneration Pulse Survey, we asked participants to best describe employee’s understanding of their pay. Whilst the majority (60%) indicated employees know generally how their pay is determined, over one third (37%) of responses noted understanding of pay was limited to what they saw hit the bank account. This result is not surprising when the majority (54%) of organisations surveyed provided only “basic” communication such as fundamental remuneration and benefits policy information.
What Does Pay Transparency Mean To Your Organisation?
One of the biggest sources of confusion around the topic of transparency is that there are many different ways to be transparent. If you’re wondering how to implement pay transparency at your organisation, first ask yourself how it fits with your remuneration policy and practices. The message that you are trying to send is important – you can’t say “we’re all open, honest people” using remuneration, if all your other practices don’t support this message.
Consider the following:
What is it you want to be transparent about?
- Pay ranges and/or structures?
- Incentive opportunity?
- Salary review budgets?
- Job sizing/market pricing process and methodology?
- Performance ratings and how they impact pay?
- Remuneration strategy & policies?
What level of disclosure do you want to provide?
We suggest looking at the level of transparency as a scale or continuum. Take base pay and job banding as an example. Each bullet point in Fig. 1 below represents a key decision point that can either be the destination or a step in the progression towards greater base pay transparency (important tip – it’s often better to evolve than to make a big jump. Once it’s out there its hard to wind back!)The question of what to be transparent about and to what degree requires many considerations and depending on your answers to the prompts above, they can to some degree, affect each other.
What Steps To Take Now?
Determining where is the right level of pay transparency will be different for each organisation. Try starting with a simple articulation of your current customs and practices into a pay transparency policy for your organisation. Here are some factors to consider:
- How transparent is your current approach?
- How consistent is your current approach in practice? (Referring to ‘special cases’ or undisclosed exceptions that will undermine your policy if they become public knowledge)
- What is the company’s level of remuneration literacy and ‘maturity’?
- How stable is your workforce? How stable is the operating environment? Do you need to retain a high level of flexibility in case of change? (The more flexibility you need, the less likely it is that you can be fully transparent)
- What is your company culture? What is valued by your market for talent?
The answers to these questions can help you understand where the best place is for your business on the transparency continuum. In addition, they can help you understand the other factors that affect how transparent you can be.
We are working with clients on remuneration and reward strategies which ensure a sustainable approach to pay management aligning with their growing ESG agenda and in particular, diversity and inclusiveness.
Contact us for a complimentary discussion on your company’s pay transparency and remuneration strategies.