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Pay transparency
Mark Chamberlain • 10 May 2021
Pay transparency, a subject being discussed through numerous platforms, but what is driving this intrigue and how should companies respond?
When offering a reward, ‘the deal’, it will have a greater impact if you let people know that it exists and what they need to do to earn it. By being transparent, companies should be able to demonstrate to their people how their approach to reward supports the company and aligns to the purpose, the mission, the ‘reason for being’ and also that the reward reinforces where the company wants to be. By being open and transparent about how the company manages reward, employees are more likely to trust reward decisions and feel that a fairness is applied.
However, there are also some external factors pushing companies to be more open, most notably the requirements for large organisations to publish their gender and CEO pay ratios, and a government consultation on ethnicity pay reporting. This practice could trickle down to smaller organisations, either as ‘best practice’, or through legislative requirements and developments?
Furthermore, the ever-evolving social media platforms are making it easier to share personal reward practices ‘the deal’ through sites such as Glassdoor, Pay Scales and Indeed. It is also becoming increasingly more open practice for people to talk about their reward experiences and opinions on such sites as Twitter and Facebook.
There is also various research evidence indicating that pay disclosure can make a difference. For instance, research finds workers are more productive when salary is transparent, and that by keeping salaries secret is often associated with decreased employee performance.
However, before companies start preparing to consider or reviewing the introduction of ‘pay transparency’, they should first ask several questions. How should their company define pay, and should it include pension contributions and benefits in kind? Another question is what do others mean by pay? For example, companies might have one definition, while other regulators may define it differently for reporting purposes.
As well as pay decisions (in terms of pay rises or levels), will the company also be transparent about the pay processes that led to the decisions, such as how jobs are valued. And will information also be provided, such as how an employee’s pay compares with comparable jobs within the organisation?
In addition, who should the company be transparent with? Should it disclose information to its customers and investors? What needs to be disclosed to the regulators or the media? What needs to be given to the governing company board?
Companies may also need to think about the level of transparency they want. Should their company be fully transparent so that all their people can see all pay data, or should it share this data at an aggregate level, such as through medians or pay quartiles, and by reference groups, such as by jobs or ethnicity?
There are also several practical concerns that need to be considered before transparency can be introduced, including: is it what the company wants, is it the right thing to do; how much pressure is from the regulators; data protection concerns; and whether the measures used to inform pay decisions are easily shared?
Companies also need to define what is meant by ‘pay’ and ‘transparency’ as well as who tells what to whom, why and how. For instance, if line managers are going to be expected to communicate about the pay processes and outcomes to their people, what support does the company need to provide to them? What training / education will be required?
Intuit can have an important part in helping create and craft a pay narrative about what the company wants to reward ‘the deal’, why and how and to this share with their people as part of the transparency process. As well as assessing how this narrative compares to the reality and evaluating what policies and practices need to change and by when.
Because pay transparency is becoming more of an issue, doing nothing can’t be an option for most companies. So, Intuit can help companies become proactive, by starting early companies will be better placed to overcome the challenges, provide foundations for ‘the deal’ and take advantage of the opportunities.
For company’s, what are the advantages of segmenting the benefits that they offer to their people or segmenting their people when it comes to communicating the benefit package? Can such an approach help a company better target resources, or might it end up creating dissent and disunity?
Research findings suggest that only 45% of employees think that their pay is appropriate for the job they do, given their responsibilities and achievements, while 36% do not, there is room for improvement. By way of comparison, overall job satisfaction is 64% positive. However, these subjective perceptions of pay are linked to objective amounts of money.