Pay transparency is a hot topic these days. Several trends encourage organizations to be more transparent around compensation. These trends include younger generations who are accustomed to the openness of social media, a focus on pay equity, and the increasing availability of compensation information on sites like glassdoor.com and salary.com.
Before jumping on the pay transparency bandwagon, it’s important to think about how much transparency is appropriate for your organization and what the impact of increased transparency may be within your organization.
The amount of pay transparency that is appropriate for your organization will depend upon a number of factors, including your culture, the extent to which your compensation practices are formalized and consistent, and the degree to which managers feel capable of having conversations about compensation.
QUESTIONS TO CONSIDER |
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Finding the right level of pay transparency can be challenging. Complete transparency, including individual salary levels, can have unintended negative consequences. For example, some Organizations with total pay transparency have experienced increased turnover and lower morale from employees who realize their compensation is below that of their peers.
A complete lack of transparency can also be problematic, as it leaves room for employees to create their own stories about how compensation decisions are made. This can sow distrust as employees may assume ill intent based on the lack of information shared.
The table below provides a spectrum of pay transparency. Organizations that want to increase their level of transparency can use this spectrum to identify the next level of compensation information to share.
| Level | Component | Description |
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basic | | | | | | Moderate | | | | | | Fully Transparent |
Philosophy | Share the organization’s compensation philosophy and goals, including items such as the organization’s target relationship to the market and the role of variable pay |
| Process | Share the process through which compensation data are gathered and decisions are made, including how market data are collected, how jobs are assigned to a salary range, and when and how salary increases are determined. | |
| Salary Ranges | Share with individual employees the salary range for their job, or go further and share the full salary structure with all employees, including the job titles in each salary grade. |
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| Compa-Ratios | Share compa-ratios with employees and provide education on how compa-ratios are used in compensation decisions. |
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| Average Salaries | Publish information on average or median salaries by job title or level within the organization. |
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| Individual Salaries | Publish individual salaries for all employees. |
PULSE SURVEY OBSERVATIONS
Twenty-one Foundations Consulting clients participated in the July Pulse Survey on communicating compensation. Eighty-five percent of survey respondents indicated they share their compensation strategy or philosophy, with 70% indicating they share with employees the salary range for their own job. Fifty percent of surveyed organizations share the employee’s compa-ratio with each employee. Fewer than half of the survey respondents share other aspects of compensation.
Approximately a third of respondents indicated that they have increased the amount of compensation information provided to employees over the last five years, with another third indicating they are considering future changes to their compensation communication practices.
BEST PRACTICES
Wherever your organization is on the spectrum of compensation
transparency, Foundations Consulting recommends the following
best practices:
- Periodically assess whether additional transparency is possible
and appropriate - Educate and coach managers on the compensation philosophy
and processes so they are equipped to talk to employees
about compensation - Check with employees to confirm their level of understanding
of the compensation philosophy and their compensation - Address misunderstandings and modify messages as needed
Contact Foundations Consulting for more information on pay transparency and how to move your strategy into a reality.