Increasing Pay Transparency? Here’s What Employers Need to do First

Pay transparency is increasing nationwide as states like Washington, California and Colorado, as well as major cities like New York, move forward with new legislation that requires employers to share salary and/or benefits information with current employees and prospective candidates. While this progress is significant, many places still lack pay transparency laws or regulations, making it harder for employees in these areas to fully understand their organizations’ compensation practices and decisions.

As a result, workplaces in areas that do not yet require pay transparency by law should be looking for ways to be more open about their compensation practices, especially since 31% of employers say they currently feel unprepared to abide by the laws. Additionally, these laws can help attract and retain talent and help businesses better prepare for potential future pay transparency laws requirements. Until these laws come into effect further afield, there are several practices workplaces should implement before diving in.

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Using data to identify all pay gaps and potential bias

Unfortunately, pay gaps exist in most workplaces, but today’s employees are looking for a stronger sense of transparency around those gaps. In fact, over a third (37%) of employees say their organization doesn’t share its current gender pay gap internally or externally and 7 in 10 employees believe their leaders should disclose those overall gaps. To build greater trust, employers must effectively and consistently communicate with employees about their organization’s compensation practices.

As a starting point, organizations should arm themselves with data about their current pay gaps to gain a deeper understanding of any current biases and inequities. That way, when employers share the average pay across their organization (as well as factors that go into that number like revenue and inflation) employees will better understand what their employer is realistically able to pay staff.

Additionally, to hold themselves accountable, employers should share information on pay gaps between gender, race and people with similar roles, along with steps the organization plans to take to bridge these gaps. This level of communication shows employees that their leaders are aware of problems brewing under the surface, backed by real data, and are proactively working to create a stronger sense of fair pay.

Employers should also discuss how different factors, such as budget, revenue and location, can impact an employee’s compensation. Sharing this information with workers can help them better understand their total compensation (which 48% of workers admit not knowing), as well as help them see how their total compensation compares to others in similar roles and eliminates a sense of secrecy. It can also reinforce the fact that pay is individualized and complex, so employers need to consider several factors before deciding on a person’s salary, whether they’re a newly hired or tenured employee.

Setting up a strategy to create change

After employers share data and communicate with staff around pay gaps, the next step is for leaders to take concrete actions toward closing those gaps. Setting salary benchmarks for all roles and setting performance standards for raises and bonuses gives staff tangible goals to reach for. These standards are also key to retaining and building trust with employees, since 24% of Americans say they think companies are deliberately secretive around salary and bonus information and six in 10 (61%) are more likely to apply for a job that includes a salary range in the job posting.

When employers proactively strategize ways to boost fair pay, employees will be less likely to seek other job opportunities. That’s why actions like distributing regular, anonymous employee surveys asking staff for their feedback on potential concerns or suggestions about their organization’s pay practices and how they feel about the factors that impact their pay can make a long-term, positive impact.

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Leading conversations and building stronger trust

Once employers learn about existing pay gaps and set forth a plan for bridging them, leading discussions around salary with employees, as well as keeping the door open for future talks, is a critical next step. Although these conversations can be difficult, to avoid confusion and doubt, employees must have context about what factors into their salary and how their employer goes about making pay decisions. After all, over half (58%) of employees have talked to a colleague about their salaries in the last year and almost half (43%) learned a colleague in their equivalent role with similar experience is earning more than them. It’s up to employers to help them understand how items like budget, tenure and location can cause variations in salary, even for two people in the same role.

In order to effectively communicate, employers can incorporate pay conversations into ongoing performance discussions and one-on-one meetings with employees and managers, making sure both feel comfortable discussing salary and raising relevant questions. Depending on the organization, another option is for employers to open the floor to compensation-related discussions during staff meetings, helping to create a sense of openness around pay and encourage employees to speak up when they have questions or concerns.

As pay transparency continues to rise in the workplace, it’s important for employers to make sure they’re adequately prepared by evaluating their pay practices, staying up-to-date on their own organization’s pay gaps and consistently strategizing ways to make pay as fair as possible. When employees see these efforts being made, they’re more likely to have trust in their organization’s compensation practices and their workplace as a whole.

[To share your insights with us, please write to sghosh@martechseries.com]
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