Pay transparency: A practical guide

Published: 25 February | by Jane Vivier

Whether you need to comply with EU legislation or want to make the link between pay transparency and engagement, preparing to be transparent reaches beyond showing salaries in job adverts and right into the culture of the organisation.

The foundations for pay transparency need to be built long before a job advertisement is drafted. Here, Jane Vivier sets out her eight-step approach on how to do this effectively.

1. Check your foundations

Start with job design, job adverts and interview processes. Ensure you are thinking about how to get the best from candidates for that role rather than simply following a process. Are you filling your role profiles, interview questions and feedback with words, phrases and attitudes that aim get the best from people? Seek and act on feedback from employees, unsuccessful candidates and talent professionals on your collateral and processes.

2. Review current pay levels

It’s not just what you pay today but what you might pay in the future that attracts or retains your people, so make sure you have a robust pay and grading framework. Often seen as cumbersome and difficult, a good framework can actually help bring your reward offering to life.

One of the reasons employers can shy away from pay transparency is because of worries around internal equity and the gaps in pay between current employees and new recruits, and the cost of “making things right” if the gaps are exposed.

Start by reviewing your current pay levels. You could perform a benchmarking exercise and look at what the market is telling you about your people. With the cost to recruit running so high, it will almost certainly be cheaper to adjust internal salaries in order to retain good staff—and that’s before you consider the cost to continuity, customer satisfaction and reputation.

3. Install a good pay and grading framework

It’s not just what you pay today but what you might pay in the future that attracts or retains your people, so make sure you have a robust pay and grading framework. Often seen as cumbersome and difficult, a good framework can actually help bring your reward offering to life. You don’t need to create a cottage industry of job evaluation with panels and appeals, but you do need to be able to objectively justify where jobs are placed in the framework. You can do this with a simple job evaluation methodology, either off the shelf or specially developed for you to match your business needs, neither of which has to be prohibitively expensive. (And anyway, remember the high cost to recruit!) The results of the evaluation exercise can then be put together to form pay groups. The salaries for these should be competitive in the market and fair to your current employees.

4. Look at your bonus policy

It’s not just base pay that’s important: having a clear bonus policy and process is essential. As with base pay, bonus payments can quickly become an issue without careful and impartial oversight. Without having a full moderation process you cannot know how fair your incentives are.

5. Think about performance management

You’ll need to explain to employees what pay transparency actually means in your organisation and why you are doing it. It’s not about revealing individuals’ reward packages, rather it is about encouraging every employee to understand their reward and to believe it is fair and equitable, and that they can influence and affect future progression.

Performance management is one of the least robust and most subjective processes in the employee lifecycle, despite the fact it frequently has a direct link to pay. It’s not uncommon for the bulk of “high achievers” in an organisation to be in more senior grades, often as executives’ reports. However, a fair process would allow anyone, of any grade, to be acknowledged as excelling – creating a strong positive impact doesn’t just happen in senior roles.

Regardless of someone’s career stage or job role, there should be equity in measurement, with performance measures appropriate to the role and its function. Take a look back at the last few years of your performance data and see how many lower graded and paid employees are marked as top performers. This can be explained by what is called “proximity bias”, that is, those who are closest to the decision-makers are often recognised while those at a greater distance from power are overlooked. I don’t think this is a conscious act—simply, those whose work is seen directly by the people who make reward decisions are more likely to be recognised for it. Others need people to advocate for them when decisions are being made. While those further removed from the decision-makers can be of any gender, age or ethnicity, research shows us that they are often female and/or non-white—and at both ends of the age spectrum.

6. Rewrite your pay policy

Another area that’s often neglected is pay policy. This brings us back to the matter of hearts and minds. If you already have a clearly written, easy-to-understand and fair policy for managing pay in place, the adoption of pay transparency will be smoother. A policy allows all of your people to understand the conditions around pay and pay change and have belief that they will be treated fairly and equitably. In the absence of an agreed policy there is little to ensure that opportunity and outcome are consistent or fair, and though people may have been recruited on an equitable basis a policy is necessary to maintain that fairness.

7. Communicate with your employees

Communication is vital. You’ll need to explain to employees what pay transparency actually means in your organisation and why you are doing it. It’s not about revealing individuals’ reward packages, rather it is about encouraging every employee to understand their reward and to believe it is fair and equitable, and that they can influence and affect future progression.

8. Educate business leaders

I talk here about the practical things you need to do to achieve pay transparency, but the most important thing—the thing that will determine whether you succeed—is education. You must have buy-in from business leaders to be transparent, not only to help win the battle for hearts and minds but also to ensure that when people want to go against your pay transparency goals and processes there is overwhelming support in the leadership team for doing the right thing.

By being transparent, you are declaring that, as an employer, you regard being fair as an absolute—there are no “shades of fairness” that can be implemented when a difficult situation arises.

No silver bullet but cause for optimism

I will finish by saying that I don’t believe pay transparency is the silver bullet for gender (or any other kind of) pay equity. The conditions that have allowed disparities to develop are ingrained more widely in society and education and will take many decades to change—the traces will probably last beyond our lifetimes.

I do, however, believe that pay transparency affects the level of engagement in the workforce and could have a positive knock-on effect on productivity too as people can see and understand how their aspirations are rewarded.

Most importantly I believe pay transparency is a step in the right direction in modernising the world of work, moving it towards an adult relationship built on trust, understanding and respect. Who knows—that’s one thing that we might actually see in our lifetimes.