Salary Transparency: Benefits for HR & Employees

Traditionally, talking about salary in the workplace has been taboo and a bit controversial, with employers preferring that these details were not shared between workers.

Recently, salary transparency has become quite a talked-about phenomenon, with many companies taking a more transparent approach to their discussions of compensation in pursuit of openness and pay equality.

In this article, we will look at what salary transparency is, the benefits of transparency for both HR and for employees, and the best strategy to implement salary transparency in your business.

What is salary transparency?

Probably one of the most reported-on problems when it comes to pay is the gender pay gap - but salary inequity comes in many different forms, and having a policy of salary transparency works towards a more equal pay structure.

Salary transparency is about openly disclosing compensation arrangements, and it can include things like adding salary ranges to job postings or even go as far as publicly posting the salary details of every single employee in the company.

There are different degrees of pay transparency.

Full transparency is where every member of staff can see the compensation of every other member of staff. Buffer is probably one of the most extreme versions of this, as they made their pay structure and the salary of every member of staff visible to the public back in 2013, but many companies who use a full transparency policy are similar to Whole Foods, who made the decision to share salary information internally since 1983.

Partial transparency is slightly different. This is more about pay ranges for certain positions, or the grade system for pay that is used in UK public companies like the Police and the NHS. These are less structured than the full transparency, allowing flexibility to pay staff more for their experience or for extra skills as needed. Most companies have this level of transparency.

No transparency is when companies actively work to keep compensation secret. This gives the most flexibility to paying employees what they may deserve, so it is flexible - but it is the most problematic and in some places could actually be illegal, especially in certain states of the USA.

Having a transparent salary policy is something that more and more companies will be adopting, not only because they want to address things like pay inequity, but also because it builds more trust and openness in the company culture.

Benefits of salary transparency for HR

A transparent pay structure makes deciding what each employee should receive as their compensation package much easier, and creates a clearly defined career path that gives employees visibility on what they can achieve. There are other benefits for HR, which include:

• Less risk of discrimination - equity is achieved when employees are earning the same for broadly the same work - and this reduces the risk of wage gap problems due to things like gender, ethnicity, age, or any other protected characteristic.

• Improved culture - openness from the top down demonstrates the way a company culture works, and this can be achieved with honest communication about salaries, reducing the risk of jealousy and friction

• Better recruitment - many jobseekers will not even apply for a role if there is no salary posted on it, so salary transparency helps to recruit a better caliber of candidates.

• Better retention - employees know that they can work to get to the next level of the business and what that will be worth to them in terms of compensation.

Benefits of salary transparency for employees

For employees, being open about what they are currently earning means that not only are they in a stronger position to negotiate pay raises, they can also feel like they have more control over their compensation and their entire career path. Other benefits include:

• Understand their worth - a clear structure makes it obvious why each employee receives their level of compensation.

• Can make better decisions about their future - if they are offered a role elsewhere, they know what their future salary will be so they can choose whether to stay

• Less jealousy and misunderstandings - when every person is aware of salary (and what the criteria for higher pay is), there is less friction.

• Better culture - openness and honesty starting from the top means that communication and trust is given utmost importance, which is beneficial for improving culture

• Better position for negotiations - employees who know their worth are in a stronger position to negotiate for raises or more responsibility, giving them more power to control their career development.

How to implement salary transparency

Salary transparency is not something that can just be decided on one day, it needs to be introduced slowly and in a considered manner so that everyone is on board, much like any other organizational changes. If you are looking to implement salary transparency in your company, the following steps will help.

Step 1: Define your objectives

Firstly, why are you looking to improve salary transparency? Is it to increase equality and inclusivity in the workplace? Do you want to boost morale? Are you looking to improve trust and honesty?

Some might want to implement salary transparency to create a more attractive workplace with a culture that is happy and healthy, meaning that they are able to recruit better (and retain more staff).

Whatever the reason for implementation, this is an important consideration to make because the goals of the project will influence the way you create the policy.

Step 2: Determine the level of transparency

How transparent are you looking to go? While the Buffer level might be a step too far for most businesses (and employees), you might want to make internal sharing the objective. You might want to stay in the middle with partial transparency too.

The decision should be made in consultation with managers and employees - it is their information that will be shared, so they need to be comfortable with the level of openness that you are looking for.

Step 3: Conduct a pay equity analysis

A pay equity analysis should be one of the first steps in implementing the policy, because you need to know what the salary structure looks like at the moment.

This is especially true when you are dealing with protected characteristics like age, gender, and ethnicity, for example - and you will need to address any discrepancies as soon as possible.

This could mean increasing the compensation for employees that may already be paid less for no objective reason (such as level of skill or experience, for example).

Step 4: Develop a communication plan

As with other changes, management of the implementation will hinge on successful communication. You need to be able to communicate ideas, decisions and discussions with employees and managers so that they have time to digest the changes and work through any problems that they might have with what is going to happen.

Step 5: Train managers and HR staff

The managers and HR staff will be your voice with the staff during the implementation, so it is most important that you get strong buy-in from them before you start making any big decisions. They need to be included in conversations and given tools to help them discuss the project with staff so that they can effectively answer questions about it, and they also need to understand what the potential short- and long-term impact could be.

Step 6: Establish pay ranges and guidelines

Using the information available from the current pay structure and market research from other companies, you need to create a structured formula that you can use to calculate salaries. This needs to remain based on objective data rather than anything subjective; bias can make more issues with salary discrepancies. Guidelines will help you to remain unbiased.

Step 7: Implement the new policies

Although you will have consulted the employees throughout the early stages of the process, now when you come to implementation you need to present the changes in a way that can be understood - and that helps everyone get on board. This might start with a company-wide presentation, with the facility for one-on-one discussions with line managers so that any problems can be dealt with, and all employees can be completely on board with the process.

Step 8: Monitor and evaluate the results

Change management is only possible if the results are monitored and evaluated, and to be sure that this can happen there needs to be some sort of measurable metric attached to the initial goals of the project. If you have decided to implement salary transparency to improve recruitment, then you should be able to analyze that data to see if there has been success.

Challenges of salary transparency

Salary transparency might not always be a simple process to implement, and it is not without its challenges, which can include the below:

Unhealthy competition

Knowing what other employees are earning can instill a culture of competition that isn't healthy - and can lead to a decline in culture.

What was designed to allow for greater openness and honesty can lead to increased friction if employees are not given all the information that they need to understand why their pay is different from other members of staff.

Difficult to implement

Getting everyone on board for new policies is not very straightforward, and despite the steps to make talking about salaries less of a taboo subject, it is still not an easy transition for people to make.

Getting the policy right and ensuring that it is applied fairly is a challenge by itself - aligning compensation to a structured framework takes a lot of initial work and requires quite a bit of data analysis.

Poaching risk

A highly qualified and skilled employee is a great asset, but they will also be a great asset elsewhere. A transparent salary structure will let your staff know what their next step career-wise will be worth to them - so if another offer comes along, they might be likely to allow themselves to be headhunted if it represents an increase in salary or benefits.

Uncomfortable

Not everyone finds talking about their salary comfortable, and some feel that they would rather it is kept private. Salary can sometimes be tied to what an employee thinks that they are ‘worth’, and this might not align with their own perception of value, especially when compared to other employees.

Staff who are uncomfortable with sharing this information will need to have some extra time and more understanding to get on board with the new structure and pay policies.

Not a solution on its own

The final thing to remember is that salary transparency is not a solution to pay inequality by itself - there is additional work that needs to be done to ensure that there are no pay gaps.

This means honest and fair assessments of current salary, taking into account all the factors that make a good employee - and reducing bias when it comes to more subjective things like experience so that minorities (women, different ethnicities) are not paid less on average for the same work.

Key takeaways

Salary transparency is not something that is going to go away any time soon, and the increase in legal ramifications for not ensuring pay equity is a top priority in business means that most HR departments need to find a way to implement some form of structure to their pay framework.

Implementing the change might come with some challenges, but with careful consideration and lots of open communication, the benefits will far outweigh the challenges and make this the way forward for all companies in the future.