There are pros and cons to adopting a pay transparency policy. Here’s what you should know about compensation management before trying radical transparency.
You’ve heard the buzz about companies large and small that publish employee’s wages in an effort to be transparent and validate wage equity. There are success stories and failures amidst the practice. Some research suggests wage transparency sparks productivity and drives employees to work harder and attain more goals. Determining whether pay transparency is right for your company or not may depend more on how, rather than if, you decide to adopt the model.
The benefits of pay transparency
Researchers looked at the practice of pay transparency and concluded that keeping salaries a secret is associated with reduced employee performance. In another, larger experiment workers were assigned a task and some were told what the rewards would be for themselves and others at the end of the first segment. For those who knew what their earnings and others would be, performance increased significantly for the second task. The data suggest that employees work harder in an atmosphere that provides salary transparency: some believe it may spark a previously unfulfilled competitive nature.
Data suggest that employees work harder in an atmosphere that provides salary transparency
Others suggest that when employees are unaware of the salaries, they assume they are underpaid. When they are able to make comparisons, they may spend less time dissatisfied and more time performing.
The cons of pay transparency
There may be a downside to pay transparency that also affects performance. While knowing everyone is paid the same rate for the same work is a plus, for those employees who work harder (or believe they do) than their colleagues, wage transparency might have a negative impact. They may look for another job or demand a higher salary in exchange for their higher level of performance, making it more difficult to maintain equity across specific job titles.
What should I consider before implementing pay transparency?
Not every pay transparency plan starts off on the same footing as an experiment. In an uncontrolled environment, there are differentiating factors that come into play. Two employees may perform the same tasks, but one may bring more experience or education to the table: should they be paid the same rate? What role do those elements have in the salary provided?
Another issue for many employers is the market conditions. In a tight applicant market with skills and talent shortages, business is using higher starting wages to attract new hires. For those hired even a few years ago, starting wages may have been significantly lower. Even with seniority and performance increases, their current wage may be lower than a newcomer.
Job categories may also complicate the situation. A receptionist in the Human Resources Department may need a higher level of tact and understanding of confidentiality than their counterpart in another department, which may impact their rate of pay.
Providing staff members with specific formulas on how education and background weigh the rate can allow them to compare more equitably.
For businesses to succeed with salary transparency, all these factors must be explored and published, along with wages. Explanations of how (and how much) experience, education, and other skills increase wages must be alongside the salaries, so employees can make reasonable comparisons. Providing staff members with specific formulas on how education and background weigh the rate can allow them to compare more equitably.
What’s my motivation?
Before you decide on pay transparency, it’s important to determine your motives. One of the most common reasons is to ensure wage equity. If your goal is to assure and affirm salaries for women and minorities, for example, are unbiased, first review your data to assure you’re in line with your intentions or willing to get there before you publish. Be prepared to make any monetary adjustments needed to achieve your goal.
Many businesses consider wage transparency as a motivational tool. Your aim may be to provide employees with salary information to keep them driven and engaged. If so, you’ll want to be ready to address any questions or concerns about performance that may arise. For employees to maintain high levels of engagement, they must believe performance equity is as important as salary equity.
Rolling out a pay transparency plan
For many, implementing pay transparency at the inception of the business is a way to keep wage equity top of mind and achievable on an ongoing basis. But existing companies can also adopt the practice, providing they are willing to explain the information they publish in detail, and make any adjustments needed to meet their parity or motivational goals. The most efficient way to ensure wage equity is to monitor salary data with compensation management software. Looking at your data from a high level might reveal wage gaps or highlight employees who you’re under or overpaying.