Pay Transparency: What it Means for HR and How to Prepare - Netchex

Admittedly, new regulations and social change can be disruptive for HR policies and routines. Progress may be slower than most like, but equitable pay might help reduce one form of inequality. Pay transparency is already picking up steam across America. It’s one of those issues where changing social norms may arrive before new legislation affects your company.

Technically, employees have been free to discuss their wages for nearly a century. In 1935, the National Labor Relations Act made it illegal to punish employees for discussing their wages. Topic is still taboo and considered rude in most breakrooms. That trend is changing as younger people have fewer inhibitions about discussing their wages.

Last year, a survey found that around 42% of Gen Z workers and 40% of millennials have shared information about their salary with a coworker or another professional contact.

Some states have passed laws requiring more pay transparency, but there also seems to be a larger cultural trend toward discussing wages more freely.

What is pay transparency?

Basically the same as it sounds, pay transparency means being open about salary and compensation. Some job ads will include specific details about compensation, but the regulations that promote pay transparency may only require you to communicate those details during the interview process.

Some public institutions already publish salaries publicly online, so taxpayers can compare the pay for college professors, administrators, and football coaches. Additionally, it’s increasingly common to make salary information available to workers within a private company.

Rise in legislation

Workers are already free to discuss pay voluntarily among themselves, but the new wave of legislation requires top-down disclosure from the company.

Several states have laws – in the works or already passed – requiring some degree of Pay Transparency in the interview process, including:

  • Washington
  • Rhode Island
  • Illinois
  • Nevada
  • Maryland
  • Connecticut
  • California
  • Colorado

As HR professionals, it is imperative that you watch out for similar proposals in your own state legislature.

Benefits of pay transparency

It’s not necessarily bad news for employers. If you are offering reasonable compensation, then transparency can help you attract new talent. When job seekers expect high pay and apply elsewhere, then your recruiters won’t have to wade through quite as many applications and dead end interviews.

Current workers are going to be critical of discrepancies in pay, but that can help you identify unconscious biases and legitimately unfair policies. Many workers perform better when they see that teammates and managers aren’t overcompensated.

Drawbacks of pay transparency

HR staff knows enough about workplace drama to be a little nervous about pay transparency. Long term workers already get frustrated when they hear that you’ve raised your starting pay without giving everyone else a raise.

Before becoming transparent, you’ll need to do a thorough review of compensation policies to make sure that any discrepancies are justifiable. Even if you avoid broadcasting salaries directly to the public, pay transparency can make it easier for competitors to poach your talent. 

There’s no way to guarantee retention of your most skilled workers, but that’s not exactly a new problem. Many of the drawbacks of pay transparency are coming regardless of whether your business voluntarily takes the first step. Savvy workers are already suspicious of vague job offers like “great pay,” and the shifting culture means that younger workers are increasingly likely to compare salaries on their own.

How to prepare for pay transparency

If you don’t take proactive steps to prepare for pay transparency, then employees (and their lawyers) might find their own explanations for pay discrepancies. Take control of the narrative by first getting your compensation policies in order and then making transparency a voluntary choice.

Choose an appropriate level of pay transparency

Full transparency means telling your employees how much all of their colleagues earn, and possibly even publishing those numbers publicly. Beyond telling workers (and job applicants) their exact compensation, you can also explain market factors that play into that number. For a little more transparency, you can outline pay ranges for different tiers or workers, plus clarify your policy for raises. 

Standardize your compensation philosophy

Many companies negotiate salaries and raises one-on-one with workers, but you’ll need a more consistent policy before going transparent.

The “high performance, low potential” workhorses who never pushed for a raise will be jealous of colleagues who simply negotiated for better compensation. Decide how factors like prior education and work experience should affect starting pay. Also, clarify how raises are tied to performance and professional development.

Update pay ranges

Nobody expects the entry-level trainee to make the same salary as upper management, but the pay should be similar among colleagues at each tier, regardless of gender, race, and other like factors.

Compensation can get a little wonky and uneven at companies without pay transparency, so pay ranges provide a good starting point. Considering annualized raises and other factors, what ranges of pay are possible? Hourly workers may need to know how much annualized pay is realistically possible, including any expected overtime.

Add flexibility with non-monetary incentives

One study of 111 firms found that pay transparency led to employees negotiating for non-monetary rewards for their individual performance. 

Employees will recognize when they consistently outperform colleagues at the same pay grade, and managers may be more willing to give rewards that don’t cause everyone else to demand a raise. With a Learning Management System, you can offer special training and professional development opportunities as an incentive to high performers.

Prepare recruiters and hiring managers

The recruiting and onboarding process should be more open and efficient with pay transparency. Even if job posts with exact pay generate fewer candidates, those job applicants are less likely to disappear after the interview.

When you’re transparent about pay ranges, however, a lot of workers will haggle for the highest possible pay. Recruiters and hiring managers should be prepared to discuss criteria that affect pay.

Roll out your pay transparency policy

Whatever level of transparency you choose, you’ll need to make the policy clear and available to workers. It’s probably a good time to update your employee handbook. Use large group meetings to initially explain the policies and what to expect, but try not to provide an easy setting for questions to spread discontent. Managers can address individual concerns individually.

Utilize all that payroll software offers

Your payment system should be fair, efficient, and error-free. Payroll software makes it easy to stay transparent without extra human work. Software makes it easy for management to compare the real compensation of colleagues in similar positions. Employees should also have a self-service portal to answer their own questions about hours and pay stubs.

Monitor and adjust

Big changes like pay transparency require ongoing adjustment and fine tuning. Watch out for competitors adjusting their pay and other policies in response to your transparency. Use employee engagement surveys to see where your current incentives are falling short.

Discover how Netchex can help you incorporate pay transparency into your HR policies with payroll software:

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