Shining a light: the benefits of salary transparency

What employees ultimately want to know is that they are being treated fairly. Cultivating a culture of transparency, one where colleagues trust each other and its leaders, can go a long way towards establishing our organisations as fair and inclusive, maintains Rameez Kaleem

When it comes to pay, we build trust between colleagues by being transparent. The thought of publishing everyone’s salaries and discussing them openly may scare you, but it’s not really what needs to be done. Discussing pay transparency in these binary terms devalues its wide-ranging benefits. Transparency is not the same as disclosure; transparency is about giving people context on how and why decisions are made.

This journey is different for each organisation depending on where we’re starting from and our organisational culture. It is a gradual process that needs careful consideration and clear communication to employees. We cannot suddenly move from a culture of secrecy to complete transparency.

Even something as beneficial as a healthy diet can lead to adverse side effects such as fatigue and dizziness if we make a sudden change. This is because the sudden change is not sustainable and we soon resort to old habits such as binge-eating. We need to plan our diet carefully and make incremental changes. Similarly, pay transparency requires careful planning and gradual change.

The importance of fairness

Salary for many people and in many cultures is personal and disclosing this information should be a personal choice. But some employees are going to talk about pay. Do we want them to speculate, gossip and make assumptions about our intentions? Or do we want to be transparent and shape that conversation instead of reacting to it every time?

Often, when HR professionals and organisation leaders think about pay transparency, they’re actually thinking about pay disclosure. In other words, revealing the salaries of their employees. Being transparent about pay doesn’t mean we have to tell people what everyone gets paid, especially because that may make some staff uncomfortable.

That said, we do need to be clear about how and why pay decisions are made. People want to know that there is a sound process – fairness and consistency. They want to know that their livelihoods are not subject to bias or the ‘gut feeling’ of their line manager, which begs the question: how do we ensure fairness and consistency?

The answer is: through establishing clear and obvious indicators about performance. A once-yearly meeting where employees receive an arbitrary rating along a forced distribution curve, without knowing how or why that decision was made, is not enough.

Taking part in salary benchmarking

We need clear indicators of the skills and competencies people need to carry out their roles successfully in different parts of the organisation. Do we need people to be better at collaborating, managing diverse relationships, or problem solving? How will they develop those skills and competencies as they progress? How will they be measured objectively, so we don’t just promote people based on who the manager thinks is the best ‘fit’ for the team without any guidance or data?

Sometimes, when an organisation’s leaders carry out a salary benchmarking exercise, they find that many of their people are earning below their chosen market position and do not want to say anything to employees. It’s only natural to worry in this scenario. After all, what will employees think when they realise they are not even at the mid-point of the pay range?

This brings us to the PayScale survey, which found that organisations paying below-market salaries but clearly communicating why this was the case still have 82 per cent satisfied employees compared to 40 per cent in the absence of clear communication. Isn’t that incredible? So many people feeling satisfied, despite knowing that their salary is below the market rate. This just goes to show the impact we can have on our people by treating them like adults, being open and transparent, and explaining exactly why we choose to make decisions in our organisation.

With a lack of pay transparency and clarity over how and why pay decisions are made, people form their own perceptions about their pay and the pay of their colleagues. The PayScale survey found that two-thirds of employees who were paid the market rate believed they were underpaid. This doesn’t have to be the case.

Organisations can implement various degrees of pay transparency. Whether it is partial or complete pay transparency, which means disclosing the salaries of all employees, there is plenty of research that shows a clear correlation with increased employee retention. It’s only natural, since pay transparency builds trust and any relationship, including a workplace one, lasts longer when it is built on a foundation of trust.

Rameez Kaleem is the founder and managing director at 3R Strategy, an independent reward consultancy dedicated to helping organisations build a culture of trust through pay transparency. He is also the author of A Case of the Mondays

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