This is an excerpt from an article originally published in the May 2018 issue of Workspan Magazine, a publication of WorldatWork. It has been reprinted with permission.
Last week, we looked at the trend toward pay transparency, examining the drivers, benefits, and downsides of sharing compensation data across your organization.
This week we uncover the secrets to ensuring that, as your company embraces greater transparency regarding compensation planning and decisions, you have some safeguard against the risks.
The Secret: Adding Context to Data
If your organization is looking to increase pay transparency, how can you safeguard against disaster and ensure your strategy is successful?
First, take time to review your compensation strategy and methodology.
Dated approaches may leave you exposed to either real or perceived inequity. If you find anything you aren’t prepared to explain or defend—to your employees or before a judge—launch an initiative to modernize and bring your compensation practices up to modern standards.
Then, when you’re ready to communicate with employees, don’t just give them data.
Adding context to the compensation information you provide employees is critical. Additional commentary around pay information helps employees understand the rationale behind their compensation and that of their colleagues, and enables your organization to fully own the messaging around pay decisions.
By explaining pay and pay practices—such as the relationship between pay and experience, performance, qualifications, and other data—you can build trust between employee and organization and thereby increase employee loyalty and engagement.
Even if you’re not ready to jump into an open salary strategy, context is key to other levels of pay transparency that can benefit your organization and your employees.
1. Explain the Underlying Strategy
At the most basic level, the organization can educate employees on its compensation strategy. Understanding the strategy gives employees some perspective on how compensation ties into the values of the organization, and empowers them to find ways to further contribute to the organization and increase their compensation.
2. Share Market Information and Explain Your Process
The next level is to provide employees with market studies and information on your compensation process. By publishing market studies, you can raise employee understanding of compensation ranges and market impacts on those ranges. In this way, you can demonstrate to employees that compensation is thoughtfully and carefully planned.
3. Train Managers to Talk about Compensation
In addition to providing valuable context, compensation teams can influence interactions between managers and employees.
As the first-line resource for employees, managers often field questions and hold discussions around compensation. However, in a recent PayScale study, over 70 percent of organizations report that their managers are not trained properly to discuss compensation.
Just as organizations can—and should—train managers to make better compensation decisions, they should also support better conversations with employees.
For example, information on performance, experience, market data, and other key metrics can help managers make better and more objective compensation decisions. And managers can leverage this information in conversations with their employees, to explain their compensation level and coach them to earn an increase.
The return can be two-fold: The employee gets a greater understanding of their compensation and the path to a pay increase, and their motivation to pursue a pay increase can drive improvements in business performance.
When Buffer implemented transparent pay in 2012, they educated all employees on their process and the various factors that determine compensation levels. Employees at Buffer value this knowledge, and their managers report having more meaningful and effective compensation conversations. As a result, employee trust, engagement, and retention remain above average.
4. Balancing Transparency and Confidentiality
As a provider of talent management software, we have seen organizations use many different strategies to address the need to increase pay transparency while maintaining confidentiality.
One utility company had a unique strategy for raising visibility and transparency into their compensation process—focusing on managers and improving awareness around their compensation recommendations.
As part of the planning process, the company developed a series of reports and made them accessible to all decision makers. These reports provided a visual representation of how the decision maker’s recommendations aligned with peer groups, other business units, and the company as a whole.
This organically produced data enabled managers to ensure that any material outliers made sense or were addressed—increasing the level of pay transparency among decision makers and improving the alignment of their pay decisions to performance, experience, and other data.
For example, if one business unit reported middle-of-the-road performance but skewed high on compensation recommendations, management had the opportunity to adjust those recommendations before finalizing their decisions.
Their approach not only helped to prevent situations like material pay disparity, but also gave managers better context, data, and confidence going into individual compensation discussions.
How Pay Transparency Can Work for You
While society is becoming more accepting of salary transparency, compensation managers and HR leaders should remember that conversations about pay data and increased access to compensation practices are sensitive topics.
Employees and their livelihoods are affected by salary, therefore, companies implementing strategies to increase pay transparency in the workplace must make verbal and written communication around compensation a thoughtful priority.
Substantive context about salary data, business rationale, and compensation packages builds trust and improves employee engagement, leading to greater organizational performance.