What is pay transparency?
Pay transparency is the visibility of company compensatory detail within the organisation, as well as to external third-party sources. So, in simple terms, it’s the policy or practice that an employer has in place for how visible information is relating to salary.
Who does it affect?
Pay transparency is something that should be considered by organisations of all sizes, as the rewards of increasing visibility within this area can be felt by all businesses regardless of their size, industry or structure.
Larger organisations may be more directly affected in this area due to increased reporting responsibilities that are outlined within law, such as the introduction of gender pay gap and ethnicity pay gap reporting.
Pay transparency also affects every generation within the workforce – it’s becoming increasingly more common to see the newer workforces such as Gen Z sharing their employment Terms & Conditions online via social media and employer review sites such as Glassdoor and Indeed, as well as with one another and other employees, too. This increased level of comfort and transparency is considered as part of the reason that this conversation is becoming more prevalent and prompting organisations to consider their own visibility levels.
What is the importance?
Pay transparency is a key consideration for employers to think about, as the impacts of having low visibility and transparency can negatively impact both your business and your most valuable asset, your employees.
First, lets take a look at the impacts on the organisation. One of the biggest factors that can impact a persons’ employment, workplace experience, engagement and ultimately length of service is your culture. Having a lack of transparency can breed a culture cloaked with secrecy, which is not conducive to supporting the more open and supportive environments that most employers are putting huge amounts of effort into creating.
This leads directly onto the next impact on the business, which can be a poor use of company time and planning when assessing reward incentives, as these can often be poorly received if employees cannot see the bigger picture or understand the wider scope of how to reach next stages or how any incentives introduced are fair and consistent. Assessing, or introducing, pay incentives can take a great deal of time and resource, and so by not having the culture there to support with the reception of these, this time can often go to waste if employees do not see the value to the exercise.
Then, when looking at the potential impacts of low visibility and how this directly affects your teams, you may see several factors including increased turnover, lower retention rates, poor team cohesion and potential workplace conflict.
In the report by Emiliano Huet-Vaughn (2013) ‘Striving for status: a field experiment on relative earnings and labor supply’, it was found that workers are more productive when salary is transparent and so the increased need for pay transparency can be directly linked to the output and performance of your teams.
All of the above affects combined can have a huge impact on an organisation and the performance of its individuals. This can ultimately lead to an impact on the bottom-line performance of a business, as an organisations’ profit can be affected by poor performance, output, and high turnover levels through losing skilled or experienced individuals.
So, what can you do to begin your journey towards pay transparency? We’ve pulled together 4 steps for you to consider to get you started with the process!
Steps to take:
Firstly, it’s important to understand the definition of pay transparency and what it means within your organisation from a wider contextual point of view. Once you’re comfortable with what pay transparency is, it’s then important to align this to your organisation. For example, begin considering the answers to questions such as “what are the perceptions of pay transparency at the company?” and “what are the organisations’ goals regarding pay and reward incentives/total reward?”.
Now that you have the background and understanding, it’s time to begin assessing your organisation in detail by carrying out an audit. To do this, you’ll want to start gathering and assessing the data available to you – analyse the current salary structures, the current pay transparency levels, assess these against the market-rates, identify any gaps, and being preparing a plan on how to resolve any issues highlighted.
Consider any training needs within the organisation – if you’re allowing Managers to have conversations surrounding pay, are the comfortable in doing so? Do they know what the can or cannot share? Are the Managers well-versed on your internal policies regarding the organisational goals and how transparency feeds into this?
Lastly, pre proactive in your approach! Don’t wait until you are experiencing the negative impacts before tackling the issue. By waiting for an issue to arise, it’s then already too late to prevent it from happening. Consider the frequency too – it is recommended to carry out an audit often, potentially annually, to ensure that the incentives remain competitive and up to date.