Why – And How – Employers Should Embrace Pay Transparency

Originally published in HR Dive.

Pay transparency is gaining considerable momentum, with four states (Connecticut, Rhode Island, Nevada and Colorado) recently joining the ranks of five other states that have amended pay equity laws to require wage range disclosure.

However, with the prevalence of remote work making all recruiting national, the reach of these laws effectively extends beyond state borders. The emerging trend to further increase pay transparency has compelled many companies to take a hard look at how their organizations measure up when it comes to pay equity.

The hard looks might very well yield some disappointment, however. Once they peel back the top layer of good intention, many companies will find a proverbial pothole — the lack of an established pay philosophy. In fact, in a 2020 survey by Salary.com, more than half of the organizations surveyed revealed they do not have a formal process in place to address pay equity. Yet establishing a pay philosophy is a critical step in the move towards pay transparency.

A pay philosophy is a company's commitment to how it values employees. And a consistent pay philosophy gives the company and the employee a frame of reference when discussing salary in a negotiation. With a goal of attracting, retaining and motivating employees, a pay philosophy can mean different things to different organizations.

For companies in the private sector, this usually requires a competitive pay philosophy, while for companies in the public sector, this means a well-rounded philosophy, with a focus on benefits and work life. When establishing a pay philosophy, organizations of all types need senior management to be involved, and they need to ensure the philosophy is strongly aligned with organization objectives. Then your company can effectively address pay transparency.

Know your company’s 'why'

First, step back and try to understand what you’re trying to achieve with pay transparency beyond meeting a legislative mandate. There is, of course, undeniable market pressure, with high employee turnover and even higher recruiting costs. The creation of pay transparency can help companies respond to these current market conditions in a way that doesn’t break the bank.

There’s also the desire to avoid the negative outcomes that invariably arise from any mystery surrounding pay. When pay practices are not clear, it’s common for internal class systems to form, resulting in employee resentment and tarnished employee branding.

Another negative outcome: a surface approach to societal issues embraced by employees. Take, for example, diversity, equity and inclusion. Companies can no longer say they support DEI with initiatives like educational programs and leadership series if their pay practices do not support the pivotal pay equity element of DEI.

When companies take the time to ask whether greater pay transparency can support and reinforce organization culture and values, the answer, inevitably, is "yes." Pay transparency is a movement: Employees, and society at large, are demanding it.

Steps to achieving transparency    

It’s important to understand where you’d like your organization to be in terms of compensation versus where it is now — and what the journey's implications are. To that end:

• Establish a pay philosophy and a pay structure that are aligned.
• Create the business case for how pay transparency can support recruitment and retention by meeting employee expectations in this highly competitive employment environment.
• Seek legal counsel to help guide a thoughtful and compliant pay equity analysis process. (Pay exposure and liability is real. Attorneys and compliance experts can dictate a course of action that minimizes that liability.)
• Establish that your pay practices are aligned with stated goals of DEI.
• Try to avoid unintended consequences. Sometimes you have to be honest about needed improvement by saying "we’ve not done a good job of pay getting it right."

How data can influence senior leadership

Pay transparency cannot exist within your company if your senior leaders are not on board.

Change management is always a big challenge for companies, and when compensation is involved, it can feel particularly controversial. It's important to emphasize to leadership that pay transparency is about strengthening your value proposition; it’s not about throwing money at the issue. With so many tools at our disposal today, there’s little reason to administer pay without leveraging technology and data resources and engaging key stakeholders in the process.

This kind of change management and a move toward pay equity won’t succeed if your company is using outdated methods like spreadsheets. HR teams need analytics, data and other software solutions that allow them to conduct efficient and accurate reporting to senior leadership. Data is a universal language, one that leadership understands and respects. By using it, you can make informed pay decisions and compel your leaders to move the dial on pay equity and transparency.

Pay transparency in action

Legislation is useful in terms of calling attention to pay transparency but it’s not the way to fix pay equity issues in the long-term.

That will happen only when employees and employers take responsibility regardless of where they reside. Companies should routinely review compensation and external benchmarking and make necessary adjustments. Communication is critical, whether it be with job applicants who are told the salary range for the job during the interview process, or to existing employees who seek to understand their pay grade and where they fall.

In creating sustainable solutions, a strong corporate culture plays a leading role in compelling employees to stay with an organization. Your culture needs to evolve to meet employee expectations and you must balance those expectations with external market pressures. While it is a delicate balance, the rewards include diminished organizational risk and, most importantly, an employee base that feels valued by your company.