Pay Transparency — It’s the Way to Go

Pay fairness, or the perception of fairness, is often cited as the reason employees choose to work for or leave a company. While it may seem like enough to provide competitive salaries and benefits packages, studies consistently show that pay transparency may be the key to successful recruitment and retention. Companies like Whole Foods and Uber are well known for their implementation of pay transparency practices and the positive impact they have had on employee satisfaction, organizational loyalty, and productivity. These companies may take it to the extreme, providing complete transparency with individual salaries, but the success of implementing some form of pay transparency is undeniable.

Recent research by Willis Towers Watson found that 50% of employees feel they are not fairly compensated, and in addition, do not fully understand how salaries are calculated or the value of their benefits package. When employees feel they are being unfairly compensated this can lead to discontent.  This is further exacerbated by the fact that compensation is a hot water cooler topic that employees will undoubtedly discuss.  While discussion of compensation cannot be stopped per federal and in some cases state and local legislation, there are ways to get ahead of misunderstandings, and transparency is where it begins.

Having a pay transparency policy does not necessarily mean providing employees with individual salaries of everyone in the company, but rather educating them on your pay practices, including how their pay is determined.  That said, before you can assist your employees in understanding their individual compensation, it’s a good idea to first ensure your program is administered fairly. The implementation of a salary study can provide an opportunity to analyze both external market competitiveness and internal equity. Take the time to do a thorough analysis, address any inequity, and train management to adequately explain how pay decisions are made. This can help you get ahead of anticipated issues or employee frustration.

Employees have more choice and access to information than ever which means implementing an effective pay transparency policy may be key to recruiting and retaining the best employees. Begin the conversation by communicating with employees about how compensation is determined, help them to understand how they are paid, how their benefits are calculated, and why. One way to do this is to provide employees with a benefits summary or ‘total compensation statement.’ This statement can provide employees with eye-opening information, correcting misconceptions about their compensation or how it competes with other offers they may receive. In addition to providing information, providing a comprehensive view of compensation can help employees to see the value you place on their individual work, leading to increased employee satisfaction and organizational loyalty.

In the end, there is no substitute for providing competitive and equitable salaries but in addition, employees need to have a comprehensive understanding of what that means and how salaries are calculated. Educate yourself on what is competitive within your industry and assist employees in understanding how you came to these conclusions. Studies consistently show that transparent pay policies and practices lead to increased employee satisfaction, organizational loyalty, and retention. Implementing a well-researched and transparent pay policy will not solve all your problems but it will go a long way in ensuring organizational loyalty and creating a happier, more productive work environment.

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