Whether addressing the volatility of the labor market or complying with pay transparency requirements like Colorado's Equal Pay for Equal Work Act, organizations are wondering how much to communicate about their pay plans.
Pay transparency can have positive impacts in the workplace, including:
Pay transparency alone won't fix the talent shortage, nor can it enforce true pay equity. What it can do, however, is make your employees more informed and aware of how compensation functions within your organization.
Pay transparency exists along a spectrum that ranges from only knowing your specific rate of pay to knowing everyone's pay. You don't have to go to full pay transparency right away (or ever), and partial transparency can still have a positive impact. Each organization should assess its preferred location on this spectrum.
Where do you start? Once you decide where you want to be on the spectrum, here's a step-by-step approach you can use:
Step 1: Communicate your compensation strategy. You can start by sharing information about your organization's philosophy, including how salaries are determined, whether you aim to meet or exceed the competition, and how you weigh the components of compensation other than base pay.
Sample: The pay portion of our total rewards package is based on the weighted average of the market. Employee pay is also determined by considering education credentials, certifications, years of experience, and performance. We have a comprehensive and market-competitive benefits program, a very generous maternity leave package, and cover 100% of our employees' public transportation costs.
The ideal foundation for a pay structure is a total rewards statement that defines how the organization plans to pay and reward employees and includes base pay, variable pay, benefits, work-life, performance and recognition, and career opportunities. Click this link for more information on Developing a Total Rewards Philosophy.
Step 2: Be open about your organization's data to determine pay rates. Analyzing the salaries other organizations pay for comparable jobs is a major step employers use to define their external labor markets and their compensation program. Share information about the compensation data sources you use. Many factors, including size, industry, culture, environment, competition, and economic influences, vary dramatically from employer to employer. No one market rate is right for all organizations, as there are many factors to consider when determining the right market rate.
Sample: ABC Co. will benchmark our salaries to the Denver metro area, targeting the oil and gas industry and an organization size of 50 employees. We believe that this definition of a competitive set represents our market.
Supplying information on how you view market pay can address an employee's perceptions. People are often wrong about how much they're paid compared to the going market rate. Perceptions about pay don't always reflect reality, even if employers are paying the same — or more — than similar companies. Here's more information on Analyzing Salary Surveys.
Step 3: Provide information on how you view the pay structure. Employees generally understand the CEO may receive the highest pay and the entry-level salary for your organization. What they don't know is how your organization determines the levels between the CEO and the trainee.
Organizations can use salary structures as tools for aligning the internal value of jobs with their external market values. Employers have several choices when building a base pay structure. These variables include the organization's total rewards philosophy, ability to pay, internal value of jobs, and current labor market conditions. Share the choices you've made and how they align with your organization. Learn more about Constructing Salary Ranges
Step 4: Share your process for making decisions on pay.
Samples: New employees will be hired within the first 25% of the job's respective salary range.
If warranted, employees may receive a merit increase, which will be calculated based upon the appropriate Merit Increase Matrix; the matrix will consider the individual's level of performance and their position within the assigned range.
At the time of a lateral job transfer to another position in the same salary range, an employee would not normally receive a salary increase. However, the specifics of the new position (including duties and responsibilities, as well as the employee's specific experience and the anticipated amount of time they will take to be effective in the job) will be considered.
Step 5: Train managers on how compensation is managed for your organization. While Human Resources professionals are the subject matter experts on compensation, employees rely on and trust information from their managers. The more transparent an organization is the more questions from they will get from employees about their pay. This transparency can lead to an uncomfortable situation between managers and employees, especially if the managers can't explain how individual pay is determined.
The Ultimate Step: Post employees' pay. Your organization might not ever be ready for full pay transparency, but this is not a new concept. Pay data is available for some or all employees in many organizations, including the public sector, federal contractors, the U.S. Military, unionized workforces, nonprofits, and publicly traded companies.
There isn't one right answer: find your location on the transparency spectrum by reviewing the pros and cons, auditing your existing practices, and assessing your ability to communicate and hold difficult conversations with employees.
Ultimately, a compensation program should supply the ability to attract, motivate, and retain qualified workers; provide internal and external equity; be legally defensible; and be linked to an organization's business strategy, goals, and culture. Use this opportunity to explain how your organization's business strategy is reflected in your compensation programs and how those compensation programs drive results.
Employers Council has many resources and services available to assist your organization: HR Consultation, Benchmark Survey Data, Compensation Planning, Pay Equity Audits, Legal Services, and Training.
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