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COMPENSATION & REWARDS
Mar 31, 2015

How transparent should you be about compensation?

Getting clear on the desired outcomes can help shape a solid path forward
    

By Claudine Kapel

If you’ve been exploring whether your organization should become more “transparent” with respect to compensation, you’re not alone.

And if you’re not sure about the best path forward, you’re in good company there as well.

The principle of pay transparency has been getting a lot of press, especially in the wake of various news reports featuring companies that allow employees to access information about other workers’ salaries.

That has certainly added a new chapter to the debate over just how much “transparency” organizations should have around their compensation programs.

And part of what has been making the discussion so contentious is the lack of clarity around what an organization even means when it talks about making pay more transparent.

While sharing information about individual salaries would indeed be a form of pay transparency, it’s important to recognize that this represents the extreme end of the information-sharing continuum.

More significantly, it’s not a prevalent practice by any stretch of the imagination. Companies that share employee salary information with staff are getting media coverage precisely because the practice is so novel.

The reality is pay transparency can be delivered to different degrees, particularly with respect to the details of the organization’s salary structure and ranges. In essence, an organization can choose to:

  • Communicate nothing about compensation beyond individual pay details shared only with the affected individual
  • Share the details of an individual’s salary range only, including the range minimum and maximum
  • Disclose additional details related to the salary structure, which could just be details of the next salary range up from an employee’s current range, or could include details of additional ranges, up to and including the entire structure.

As part of pay transparency, organizations may also share information related to:

  • Their compensation philosophy and how they seek to position themselves relative to competitive market practice
  • How they conduct competitive market analysis, including the types of compensation surveys and comparator groups utilized
  • Market pay practices, particularly with hiring managers to support the formulation of job offers
  • Their pay administration guidelines, including the criteria for awarding merit increases and promotional increases.

To that end, there’s a whole spectrum of compensation-related information that can potentially be shared before you even get to the possibility of allowing employees to find out how much other employees are making.

And while more companies may be thinking about pay transparency, the notion of broadly sharing salary information is hardly becoming in vogue.

A recent U.S. survey by Challenger, Gray & Christmas on salary transparency found that only 12.9 per cent of human resource respondents agreed with the statement: “Employees should know exactly how much everyone at the company earns.”

But of the roughly 100 survey respondents, 41.9 per cent felt companies should “only provide salary ranges for departments and positions” while 38.7 per cent indicated “I shouldn’t know co-workers’ salaries and they shouldn’t know mine.”

To decide what level of pay transparency may be right for your company, consider what you seek to achieve through your pay-related communications. At least some level of communication is needed if your desired outcomes include:

  • Building employee trust that the company is managing pay fairly and delivering a competitive compensation offering
  • Ensuring employees understand what is expected of them and how their contributions will be rewarded
  • Supporting the retention of talent and driving desired performance and results, and
  • Demonstrating that your organization is a great place to work.

And with so much pay-related data available on the Internet, you may need to engage in discussions about pay to help employees distinguish fact from fiction. Further, you may need to train your people managers so they can effectively communication on pay-related matters as well.

There are many benefits to sharing well-crafted information about your company’s compensation programs and practices. As a starting point, you’ll need to determine how much – or how much more – you want to share. In others words, you’ll need to frame what pay transparency means to your organization.

And you’ll probably find you can derive value from such communication without ever having to reveal what everyone is earning.

    
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