Unlock the Benefits of Salary Transparency: A Strategic Guide for HR Leaders

What Is Salary Transparency?

When some people hear the term salary transparency (or pay transparency or wage transparency), they picture something like an open-access spreadsheet listing everyone’s names and earnings. But the reality of effective salary transparency is less about posting details and more about encouraging conversation. As such, the goals of salary transparency are for every employee to understand why they are being paid their current amount and how they can work towards pay raises, and to promote fair payment practices throughout the job market .

Oh, and it’s not always totally left up to employers. Pay transparency laws are becoming the norm in a growing number of cities and states , and potentially-steep penalties await any organization found to be noncompliant within those areas. Of course, a carrot will always motivate better than a stick, and the good news is that there are more advantages to pay transparency than just avoiding fines.

Benefits of Salary Transparency

We keep alluding to the fact that open discussion about salary can be beneficial for businesses. We should probably discuss how:

Increased Internal Trust

Have you ever had to work for someone that you couldn’t trust? It’s not the best recipe for success. When employees doubt that leadership has their best interests at heart or they suspect that their employers are trying to get more out of them than they’re paying for, trust in the company takes a nosedive. Gallup reports that currently, only 23% of US employees strongly trust the leadership of their organizations. But is trust really that important? Well, yes. It is. Employees of high-trust organizations are 50% more productive .Salary transparency places all the cards on the table, and when your people know why they’re earning what they’re earning, they’re more willing to trust that their pay is based on relevant factors (and other strategic decisions are as well) . 

 Better Talent Retention

Want to keep wages secret from your employees? Then they may not be your employees for long. The reality is that many candidates will take a company up on an offer of employment because they need something right now. But if that something doesn’t turn into a clear path for career advancement, then they immediately start putting out feelers for other opportunities. 

52% of US employees who have been with a company for three months or less are actively looking at other jobs , and ~60% of employees with 3-6 month tenures are doing likewise. And when you compare that to the fact that 72% of workers who aren’t given full transparency into their wages will seek other employment within six months, the need for wage transparency becomes even more obvious. If you want to keep your top talent, you need to be transparent. 

Improved Performance

Studies show that 81% of workers say that they are more productive when they’re paid fairly. Well duh — that really shouldn’t be much of a surprise. What might be a surprise is that “paid fairly” can be a difficult concept to nail down. In other words, how can a workforce know if they’re earning what they should be if there’s no discussion about the market value of their labor? 

Pay transparency gives employees the facts they need to evaluate their own wages. Are they being paid a competitive rate, or are they doing significantly less than others doing the same jobs? With salary transparency, your employees will know that their work is valued. The result? Increased performance, simply from being more honest about pay. 

Eliminates Discriminatory Pay Gaps

It’s no secret that pay gaps exist. On average, Black and Hispanic men earn only 75.8% and 75.4% (respectively) of what Caucasian men earn. At the same time White women earn on average only 83% of the wages enjoyed by White men, and women of color earn as little as 49% of White men’s wages. This kind of discrimination is held in place by holding relevant information.

Salary transparency gives employees and employers the insights they need to bring discriminatory pay gaps to light — and then eliminate them. 

Downsides of Salary Transparency

Let’s be clear: Honesty is the best policy. The more you include your people in discussions regarding pay and compensation, the more they will repay that trust in growing your business. Still, there are some counterarguments to salary transparency that are worth addressing:

Increased Poaching

Employees who know what their labor is worth have a much easier time identifying better offers. Additionally, if salary ranges are shared externally, competitors may simply increase their offers to undercut what your best talent is currently making. Wage transparency can lead to situations where competing organizations are constantly tempting valuable employees to leave their companies. Counter this issue by researching competitor offers and paying competitive salaries.

Unhealthy Employee Competition

If wages are not fairly distributed conflict, suddenly uncovering these discrepancies can result in reduced productivity and increased employment. Employees who are not paid as generously as their peers may decide (consciously or otherwise) that they are not required to put in as much effort. They may also begin to resent those who earn more than they do, even if the reasoning behind the higher pay is sound.

Salary Bloat

Finally, there’s the issue of budgets. In most companies, labor is the biggest expense (accounting for ~ 70% of total business costs). If not handled properly, salary transparency can easily become a situation where everyone makes the same amount without much attention paid to issues like experience or skill. This creates an unmanageable pull on salary budgets, and can quickly eat into company revenue.

How to Implement Salary Transparency for Your Employees

In the issues addressed above, the disadvantages of salary transparency all come back to one thing: failure in how it’s implemented. And although it’s up to every employer to define how transparent they should be within their organization (within the boundaries established by the law), a practical approach to establishing pay transparency generally includes the following stages.

1. Make sure that every employee knows how much they earn. It seems weird to list this as a stage; obviously your employees need to know how much they’re making for the jobs they do. But even a journey of a thousand miles begins with a single step, and before you can start promoting transparency throughout your company you first need to make sure that you’re being transparent with the individual members of your workforce about their current earnings.
    
2. Use empirical market data to reinforce how that salary was calculated. Once employees understand the what (as in ‘what are they earning?’), it’s time to focus on the why? Work with your employees to help them understand how their salary is determined and how it fits into your company’s overall compensation strategy. You will need to include verifiable market data to support your salary decisions.
    
3. Transition into an ‘open salary’ environment, where employees have full disclosure about how much everyone in the company makes and why. Finally, with your company and your employees now fully prepared, it’s time to pull the cover off of wages. This means providing employees with insights into how much their colleagues earn. Some companies take this even further, moving beyond internal transparency and sharing this data publicly. 
    

The stages listed above are an effective approach to achieving full salary transparency. Understand, however, that not every organization is ready to follow this path to the end. Work with key decision-makers in your company to determine where you currently stand, where you would like to be, and how to best get there. After all, making the transition to salary transparency can be a disruptive process, but if you can manage it effectively, the rewards are significant.

Conclusion

Doubt is the enemy of commitment; if you want to keep your people engaged, you need to earn their trust. Being open and honest about salary, compensation, and pay decisions demonstrates your commitment to your people, and lets them know that you truly value the work they do. Because at the end of the day, it’s tight lips and secrecy that sink even the most promising entrepreneurship.

Want to learn more about effective employee compensation? Speak with a Wellbeing Specialist today, and inspire your workforce to become something more. 

References

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