Pay transparency has increased in prevalence over the past few years, and with good reason. Transparent pay practices lead to higher satisfaction and lower intent to leave, according to a 2015 PayScale study. Transparency also improves performance, according to this study in a restaurant setting. With so many compensation data sources available to employees, they are increasingly coming to meetings and interviews equipped with data, expecting to have very open conversations about pay. So, if employers want to secure the best talent, it’s up to them to both substantiate their pay with data and be more transparent about some of the key decisions they make about compensation.
Transparency isn’t an on/off switch, however. There is a whole spectrum of choices organizations can make about how transparent they want to be with pay and pay decisions. In PayScale’s 2017 Compensation Best Practices Report (CBPR), while just 31 percent of organizations identified as transparent in 2016 (level 3 or higher on the pay transparency spectrum), 49 percent said they’d like to be transparent in 2017.
Often practitioners want to help their organizations become more transparent about pay and pay decisions, but aren’t quite sure where to start. Here are seven tips to get you started.
1. Decide How Prepared You Are
When I think about moving to greater pay transparency, I often think about a modern kitchen with no doors on the cupboards. In most kitchens, and mine is no exception, if you simply take the doors off the cupboards, you won’t have the desired result – you’ll be exposing a mess. In most organizations, there is a bit of work to be done before you can pull the doors off. Back in the kitchen, it takes a certain amount of care, space, and money to really be able to display pots and pans openly. Most open concept kitchens still tuck the pots and pans away.
If you carry the metaphor over to pay transparency, it may be that you’re not ready to show your pots and pans. You may decide you never want to openly show your pots and pans. Or maybe it’s your silverware. Before pulling the doors off, consider your organizational culture and compensation plans. Are you prepared to be at a level 3 transparency? Level 4?
2. Gain Executive Support
Transparency doesn’t work without executive buy-in. For some, there’s a fear of conflict. For others, there is anxiety of having their hands tied to pay key employees “whatever it takes.” These concerns are valid, as is the concern that, upon seeing other people’s pay, there will be a wild influx of pay increase requests.
There are two things you can do to alleviate executive concerns. First, explain what transparency is and isn’t. Give them a concise explanation of the benefits of transparency. Second, link pay transparency with results that matter to them. If your executives are concerned with retention and turnover, explain how higher transparency is linked to a lower intent to leave. If they are concerned about employee engagement, use the connection between transparency and trust to explain how moving towards transparency can help the organization succeed.
3. Develop a Plan
Once you’ve decided where you’d like to be on the pay transparency spectrum, and where you currently are, develop a plan to get you from one place to the other. For example, you may currently be at a level 2 where employees know their pay and the range max. You’d like to be at a level 3 where employees know their pay, their grade and range, the compensation philosophy, and the rationale for increases.
You have some work to do. Your plan might entail gaining executive support for developing or updating your compensation plan before unveiling it to employees. It might also involve increasing manager communication skills as they’ll likely be fielding more questions from employees.
4. Get Clear About Roles
Knowing the various compensation-related roles in your organization will help you transition your level of transparency. According to PayScale’s 2017 CBPR, 38 percent of managers communicate pay, while 78 percent of CEOs approve pay and 45 percent of HR teams recommend pay. Starting with those three compensation roles (approve, recommend, and communicate) will help you move to greater transparency.
I also find the DARCI model to be very useful in developing role clarity for any project, task, or major initiative like rolling out a new level of pay transparency. DARCI involves:
- Decision-maker – who ultimately gets to say yes or no?
- Accountable – who is accountable for the project once decided?
- Responsible – who gets to do the work?
- Consulted – who provides input along the way?
- Informed – who receives information and when?
5. Assess Your Workforce
Not every person in every workforce will be excited about increasing transparency. First decide if, on the whole, your workforce is likely to embrace greater transparency. If it’s a strong commitment from leadership, but the workforce isn’t interested in pay transparency, it may either fall flat or lead to increased turnover. Decide if that is an OK risk for your organization.
Even if most of your workforce seeks greater pay transparency, you may have pockets of resistance to increased transparency. For example, some functions are less thrilled about pay transparency. The same can be true for different organizational levels, generations, tenures and other groups within your organization.
Some may be more distracted than benefited by increased pay transparency in your organization. As the expert in your organization’s workforce, you’re best poised to determine how they will react to increased pay transparency. And when in doubt, ask them what they’d prefer.
6. Train Managers
Once you have support from your executive team, you’ll want to train your managers. It’s hard as a manager to buy-in to something if you don’t understand the rationale behind it. The more you do understand, the easier it is to get behind it and really become a champion for that cause.
At PayScale, we work with many organizations who say, “oh, our managers can’t do that or won’t be able to handle that.” According to PayScale’s 2017 CBPR, only 19 percent of organizations are very confident in their managers’ abilities to have tough conversations about pay. Don’t sell them short, expect more of them and then give them the resources they need to be successful. Part of those resources involve effective training. Good communication is a skill that often needs to be nurtured and developed. You can improve your managers’ abilities to have tough conversations about pay with practice and help. Provide information about the business, the reasons for increasing transparency, and tools for success. Share the rationale for pay decisions with managers, and train them to have specific compensation conversations with employees. Provide talking points.
7. Prepare Total Compensation Statements
In your quest for increased transparency, total compensation statements are a very quick win. They provide information about the cost of benefits and other expenditures the organization makes on behalf of the employee. In today’s highly mobile competitive market, finding out the cost of benefits at the point of COBRA is too late and a waste of significant resources. According to PayScale’s 2017 CBPR, 53 percent of top-performing companies provide total compensation statements to their employees.
Total compensation statements allow you to have more transparent, data-driven conversations about the value of your employees alongside a discussion of the value you provide to them. If you decide to begin using total compensation statements in your organization, be sure to prepare your managers to explain every number on the statement. Provide them with talking points, and anticipate employee questions. As a helpful tip: while some technologies can help, make sure you allow yourselves plenty of time to gather all the information necessary for the report. The details really matter.
The change may not be an easy one. On your path from being less transparent to becoming a more transparent organization you may face many barriers and obstacles, ultimately questioning what led you to begin this initiative. Keep your goal in mind, celebrate the small wins along the way, and remember: employees will talk about pay whether you want them to or not, so you may as well lead that conversation.
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