Tag Archive for: Compensation Transparency

Compensation Transparency: Why and How

March 2019

In our November Compensation Alert, we argued that compensation transparency leads to greater employee engagement. When done correctly—with a well-defined plan and communications approach—compensation transparency becomes a powerful tool for attracting and retaining top talent.

Although there is widespread agreement on the benefits of pay transparency in the workplace, what is not always understood is the best way to implement it or just how transparent companies should be. This newsletter looks at the pros and cons for pay transparency and offers recommendations to find the approach that’s right for your company.

Opinions on Pay Vary

In the 4th Quarter 2018 WorldatWork Journal, compensation researchers Dow Scott and Devin Jordan reported on a new Pay Transparency Survey using participants’ data collected by Amazon. The study examined how employees perceive their employer’s pay communications and levels of pay transparency and sought to answer whether increased understanding of an employer’s pay structure and policies is related to retention, trust in management, and pay satisfaction.

Although the survey shared differing views on some salary issues based on age, gender and other factors, it revealed the amount of pay information is positively related to perceptions of satisfaction and trust in management and negatively related to employee intentions to quit.

Overall, respondents believe their companies communicate on most aspects of pay. Over 75% of respondents say their employers communicate pay policies and procedures and agree that questions to their employers about how their pay is determined are answered. A lesser number of survey participants (less than 50%) say they are communicated to about merit increases and changes in salary ranges.

Additional survey findings give us a better picture:

  • Culture: Interestingly, 38% of employees believe their organizations pride themselves on being transparent about pay while an equal number disagree. Half of respondents believe there are strong organizational customs about not discussing pay. But only 18% think they will be disciplined or fired for sharing pay information.
  • Privacy: 46% of employees believe that information about base pay or salary rate should be kept secret. Just over half believe that other employees should not know how an employee is paid. Younger employees, as expected, are less concerned about sharing pay information than older employees.
  • Info Sources: The HR department (57%) and managers (60%) are the primary sources of pay information, respondents said. Just 34% get their pay information from other employees, 32% from web sites. It’s worth noting that employees still rely on management as their primary compensation information source despite so much salary information now widely available on the internet.

It’s no secret that compensation can be a challenging topic in the workplace. For this reason, determining the amount and type of information to be shared has always been problematic to employers.

More pay transparency often contributes to employees’ sense of fairness, especially when they believe how they are treated is the same as others in similar roles. Knowing pay ranges upfront can also align employee expectations about what they can do to achieve strategic goals. For ambitious employees, having a clear career path in the organization encourages them to pursue growth opportunities that also contribute to company growth.

However, explaining the justification between salary levels requires thoughtful communication and an open dialogue about pay. If handled poorly misunderstandings can arise. It’s also important to remember that if too much individualized salary information is shared, star employees may be more vulnerable to being hired away by competitors.

Walking the Pay Transparency Line

With these pros and cons in mind, we advise employers to land on the side of increased compensation transparency, but with the caveat strategic communication must also become a top priority. Consider the following:

  • Start by surveying your organization to learn what employees’ communication preferences are. Although communication style or frequency may not be the same for all employees, pay transparency is important to all.
  • Keep individual pay information private. Communicate pay philosophy, compensation strategy, and pay structure, including salary ranges, merit increases, and incentives for every position in each job family. That way employees who may want to learn new skills or try for a new position at a higher pay level know where their aspirations will take them. Explain how, when, and why the organization makes rewards decisions and plan to communicate these points regularly. Show how compensation supports the goals and strategies of your organization.
  • Train managers in the details of your organization’s compensation program and give them the tools to communicate benefits and opportunities to employees.
  • Because women in the Pay Transparency Survey said they are not receiving as much information about pay as men, take additional steps to close this gap.
  • Provide a total rewards statement annually. This gives employees a full sense of all benefits they enjoy on behalf of your company.

We recognize that how your company approaches pay transparency needs to be as individual as you are. The key is to commit to more pay transparency and to evolve your plan as organizational needs change. In the end, your employees and company will be better off.

Contact Us

Please contact me if you would like to discuss compensation transparency, why it is important and how to go about it. Also, feel free to pass this newsletter on to any interested parties. I can be reached at nlappley@lappley.com or (847) 921-2812.

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How Compensation Communication Promotes Employee Engagement

With unemployment at low levels and the economy continuing to expand, the need for compensation transparency is at an all-time high. Increasingly, employees are also making more demands for visibility into their rewards programs. If your employees aren’t asking directly for this transparency, they are likely seeking information elsewhere from peers, for example, or through websites offering compensation data.

The key to transparency is communication from the management team. However, managers at most organizations admit they struggle with how to explain the factors driving the company’s compensation decisions.

Employee Pay Perceptions

When employees believe they are paid fairly and equitably, they are more likely to stay with their current jobs and be more engaged in their work. However, a 2015 survey by compensation research firm PayScale shows there is often a wide gap between perceptions about pay and reality.

The survey of 71,000 employees found that most employees don’t understand how their compensation is determined or know if they’re paid fairly:

 

The survey results are clear: if compensation practices are not communicated, employees will not perceive the situation correctly or give the employer the benefit of the doubt.

Minding the Generation Gap

Laying the groundwork for a sound compensation communications plan begins with openness about how raises, incentives and promotions are handled. But changing workforce demographics may mean varying your communications approach and channels based on generational preferences:

  • Baby Boomers (Born: 1946-1964) – They tend to be longer-tenured employees with an attitude of loyalty and a strong work ethic. Boomers are used to pay discussions being private.
  • GenX (Born 1965-1979) – Having viewed the decline of employer commitment first-hand, they tend to be pessimistic about the workplace. They are conflicted in terms of openness to pay discussions. They’re willing to talk about the rationale of compensation, but less willing to talk about pay specifically.
  • Millennials (Born 1980-1995) – They are open with communication and are used to sharing information, believing there is little taboo in talking about pay. They tend to want fairness and career flexibility at work.
  • GenZ (Born 1996-Present) – Just entering the workforce, GenZ is comfortable with technology making it easier to communicate with them. However, we’re seeing the pendulum swinging back from the openness of millennials.

Millennials are now the largest group of employees. They are more open to compensation communications. This can be a problem for the other generation groups. But it is ultimately a good thing for everyone to be more open about pay as it will lead to greater trust which, in turn, will lead to higher engagement levels.

Consider Other Differentiators

There are other ways to think about grouping your workforce outside of thinking about generational differences. For instance, engineering employees may be less open about discussing pay, while sales teams may be more open. Or think of it in terms of job levels: entry-level employees may be very comfortable talking about compensation while senior managers may be less interested. Differences in how your employees prefer to get their information and the channels they are open to also influence your compensation communication strategy.

Are Your Managers Ready to Talk About Compensation?

According to PayScale, only about 19% of workers at organizations feel confident in their managers’ ability to talk about compensation. At the same time, managers are unlikely to recognize when an employee is feeling underappreciated. If an open dialogue is not developed and maintained, your company is more likely to experience loss of engagement, lower productivity and turnover.

We will return to the topic of compensation communication in our next Compensation Alert and look at how managers can improve their communications about pay to promote greater understanding of workplace compensation policies and practices. In the meantime, feel free to contact me about pay issues you are facing. I can be reached at nlappley@lappley.com or (847) 921-2812.

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