This article is a revision of another article written for Reba Online; the original can be seen here.
5 Ways to Manage Pay Transparency – How to set Expectations and Boundaries
Pay transparency is emerging as a key theme in reward management, partly driven by equal pay legislation and regulatory initiatives, but also by the changing expectations of employees who have easy-to-access pay information online. Add to this one of the most compelling facts about employee turnover is that when an employee leaves an employer for reasons relating to pay, it is not over the absolute value, but over the perception of whether they are paid fairly relative to their peers and the market. As a result, it is clear that pay transparency is a growing issue that needs to be addressed.
Here are five quick tips on how to drive pay transparency.
1. Demystify compensation
Today there should be no reason to shroud pay in secrecy. Ultimately, if employees can’t comprehend it then they won’t be motivated by it, and if managers don’t understand it they can’t make effective decisions or communicate it. But pay transparency can mean different things to different people. Pay transparency does not mean knowing what each other is paid but rather ensuring your employees understand what ends up on their paycheck.
Internally equitable and market competitive pay that is awarded in a fair and transparent manner to those who contribute the most has to be the goal. The easiest way to do this is using a pay framework that supports internal peer and external market data relativity.
2. Choose a pay framework that aligns to your organization's culture and talent model
The biggest challenge is deciding what pay framework works for your business and, with growing diversity in the workforce, a one-size-fits-all approach is unlikely to be the solution. The traditional talent model based on a career path that rewards expertise and progression has been the most commonly deployed model. But younger start-up companies that rely on key talent available in the external labor market with limited long-term career opportunities may be better served with a single rate of pay aligned with external market.
Some companies have even gone as far as publishing employee salaries and explaining how they calculate each employee’s worth. Buffer are a renowned advocate with their open salaries formula. Unfortunately, not all of us operate within a Greenfield site and are often hampered by historically complex and negotiated pay structures. But it is time to review whether the approach you are using is still appropriate.
The right pay framework should be easy to explain to all stakeholders because it obviously aligns to how you attract, retain and motivate talent.
3. Collaborate and empower your line managers with the information they need to make informed pay decisions
In surveys identifying areas of reward risk, often cited is poor line management capability to manage performance and reward messaging. Concern is often expressed that allowing line managers discretion in allocating the budget may be at the expense of consistency of approach. There is definitely a lack of trust prevailing. What we should be focusing on is an effective transfer of process ownership from HR to line managers, empowering them with the information and decision support tools they need to make optimal pay decisions. They make business expense decisions every day – why not trust them to do the same with pay budgets?
Best of breed compensation management tools have transformed decision making for review managers into an interactive user experience. The best tools layer decision support across their solutions, with intuitive alert functionality and real time analytics that can highlight employee’s pre- and post-review benchmarking positions, both externally and internally.
4. Identify and address your differentials for key minority groups
Emerging pay transparency legislation and public debates about pay gaps are driving awareness across all employee groups, forcing businesses to address the issues that drive both direct and indirect discrimination for minority groups in the workplace.
In the end, a surprising number of companies submitted their Gender Pay Gap metrics under the UK reporting legislation in April this year, but many failed to provide effective narratives explaining the outcomes to both external and internal stakeholders. This year’s key challenge will be explaining the year over year data, as the legislation requires you to retain three year’s data for reference. Demonstrating the impact of actions and showing progress on the gender pay gap will be critical.
Some leading employers are also publicly reporting their ethnicity pay gap, using the BAME (Black, Asian and other non-white minority ethnic backgrounds) approach to categorization with the same metrics and methodology as the government requires for the gender pay gap reporting.
5. Communicate – reward communications are critical for creating perceptions of fairness and equity
It’s still surprising the number of organizations I meet who don’t provide a communication to employees at the end of a review period. Having made it through the review process, there is a tendency to breathe a huge sigh of relief, when the communication phase is actually the most critical for creating perceptions of fairness and equity. It’s amazing how easily poor communication can erode these fair pay perceptions.
Ensuring employees receive timely communication with the right messaging will go some way to ensuring they feel recognized for their contribution. In fact, in engagement surveys, open and honest discussion around pay was found to be more important than other typical measures of employee engagement.
Pay transparency is proving to be one of the critical factors in delivering effective reward strategies. To be truly engaged employees need to be confident that they are in a fair pay review process, that the process is transparent and they will be treated equitably. Ultimately employees want to know that their effort and success has been recognized and that any pay award is commensurate with their peers.
Posted by Ruth Thomas
Industry Principal, Curo.LinkedIn