How Pay Equity and Pay Transparency Increase Employee Retention

by Sarah Reynolds - August 1, 2017
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According to the Willis Towers Watson Global Talent Management and Rewards and Global Workforce Studies report, one out of five of employees don’t believe they are being paid fairly. With stagnant employee engagement and increasing turnover levels, as well as changing employee expectations, more companies are turning to pay transparency practices to address retention and pay equity issues. From conversations about base pay policies to career advancement opportunities, transparency in the workplace leads to happy and engaged employees. Moreover, a lack of clear information about the organization and its policies – especially around pay - may prompt some employees to turn to less reliable external sources of information.

The same report by Willis Towers Watson shows that employees are looking to work for organizations that offer fair and competitive base pay, which remains the leading driver of attraction and retention globally. However, employees don’t have a good understanding of relative competitiveness of pay due to a lack of communication with their employer about how pay rates are determined. Only about half of employees say they understand how their total compensation compares with that of the typical employee in their organization (47%) and those who hold similar jobs in comparable industries (44%). When employees don’t know where they stand among their coworkers or against the market, it becomes difficult for them to gauge whether or not they are being paid fairly. Such situations can appear to be unfair to employees and make it difficult to engage and ultimately retain them.

Real-time Data Makes Pay Transparency Practices Perfect

Additionally, HR professionals don’t always have total visibility into pay disparities within the organization. Annual compensation analyses usually evaluates pay grades and job levels compared to the market and looks at whether workers are paid below or above the market range for their position. Those analyses usually aren't looking at pay differentials based on gender or race or other demographics. When little is being done to discuss these disparities, lower salaries can be perpetuated and employees will get frustrated. Furthermore, in an ever-changing job market, annual compensation analyses are no longer sufficient to stay competitive with the market and equitable within your organization. HR professionals need real-time, proactive alerts that highlight potential pay parity and competitiveness issues – not cumbersome annual processes that perform point-in-time comparisons.

Pay transparency promotes fair pay within a company and across job markets. Consistently analyzing compensation data is the only way that both employers and employees can understand if there are discrepancies in pay (internally or versus the market).

Becoming more transparent is as easy as initiating conversations with your employees about their pay. Talking openly about your organization’s compensation philosophy and the data you use to determine pay rates may seem like a scary proposition, but it is the best way to ensure that your employees fully understand why they’re paid what they’re paid.

Edited by Meredith Wright.

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