Updated: Dec 30, 2021
Pay transparency is exactly what it sounds like; it is the practices and approach that employers use to share and communicate compensation related matters. This could be internal communication (shared with employees only) or external communication (shared with the external market and employees).
The focus of pay transparency is typically on monetary elements, such as salaries, and how these are made visible (or not) to employees. The same concept, though, could be broadly applied beyond compensation, i.e., transparency of all rewards practices beyond pay within an organisation.
Pay transparency is often a difficult subject to approach because of widely differing views on the subject by decision makers and employees. Organisations will have different comfort levels and understandings of what it means to be transparent. In some jurisdictions, there are laws governing elements of pay transparency (e.g. gender pay gap reporting). However, every single employer has either passively or proactively decided how to communicate compensation to employees. Indecision or silence may have unintended consequences.
Pay Transparency Spectrum
Pay transparency can be viewed on a spectrum ranging from zero transparency to full pay transparency. Zero transparency means nothing is shared. An employee would only be privy to his or her own salary. There would be a lack of understanding of how pay decisions are made, why they are made, how to increase one’s salary (e.g. if an employee is promoted, what could he/she expect), what the eligibility guidelines are for variable incentives, etc.
Full pay transparency, on the other extremity, would mean sharing compensation policies (pay philosophy as it is applied in the organisation) as well as employees knowing what other colleagues are paid. Employees would understand how their pay fits into the salary ranges, how to progress their pay and even understand why their employer manages pay a specific way.
Many companies are somewhere in the middle of this spectrum, providing some degree of (partial) pay transparency. Examples may be sharing salary ranges but not actual salaries, providing access to pay policies but not being clear about compensation progression opportunities, providing salary ranges in job advertisements, etc.
Pros of Pay Transparency
It can improve engagement along with job performance amid equitable salaries.
It can build trust, which is a key aspect of the employee satisfaction.
It can help to decrease existing pay gaps that typically impact underrepresented and/or historically discriminated groups including women, people with disabilities, race-based discrimination, low-wage workers, etc.
It can create a competitive advantage for organisations whose values are underpinned by fair practices, diversity and inclusion, etc.
Brand reputation can be boosted if there is a wide perception that the organisation uses fair and equitable practices towards its employees.
Cons of Pay Transparency
It might generate resentment and conflict between employees.
If inappropriately managed, pay transparency can create confusion and increase mistrust.
Differences in pay may be taken out of context.
It can reflect poorly on organisations if there are huge inequities in pay, particularly when it is clear certain groups have been marginalised. (This should be an incentive to correct the inequities though!)
It could create a fear that competitors may be able to potentially poach employees.
Importance of equitable pay practices and how you can improve it for your organization
Equitable pay practices are vital for organisations that want to build trust with employees and create sustainable processes. It is an important lever not only to attract talent, but also to motivate and retain existing employees.
Below are some considerations to determine where your organisation’s desired position fits within the pay transparency spectrum:
Do you have a clear rewards philosophy? If yes, who is this shared with – executives, HR, people managers, etc.? Consider who these stakeholders are and who they can be.
Have there been changes in legislation or trends in the market that has created a need to rethink your organisation’s pay transparency model?
Are you able to appropriately budget employee rewards offerings? Being able to budget and forecast typically means you have clear structures and processes behind pay decisions.
Do you have visibility of existing pay gaps or pay discrepancies? What remedial action is being taken?
Any shift in pay transparency is a gradual process that needs to be carefully managed. The mistake would be to allow compensation to be weaponised by completely avoiding the topic instead of building the muscle to have appropriate pay discussions.