Best practices for pay transparency

'If your employees feel undervalued, then you have a retention issue'

Best practices for pay transparency

With a new pay transparency requirement soon to be in place in B.C., and one already rolled out in P.E.I., the time is right for HR professionals to get onboard if they haven’t already.

And while it may seem like an onerous undertaking for many, there are benefits to boosting transparency.

For one, the recruitment process may improve, says Matthew Bidwell, professor of management at The Wharton School, The University of Pennsylvania in Philadelphia.

“I think the advantage to organizations is they’re more likely to get the right applicants by them not going to waste their time with people to go all the way through the process and they go, ‘Wait a minute, how much are you offering me?’”

In addition, greater transparency can boost trust, he says.

“If you’re a low-trust organization, then to some extent it may increase some of that trust so if people are not feeling like they’re being taken advantage of or that their pay is unfair, if they can see that actually they’re getting paid in the same range as everybody else… it probably can help build and maintain trusting relationships with employees.”

Potential downsides to pay transparency

But the issues of trust might affect organizations negatively, according to Melanie Presseault, senior principal, compensation at Normandin Beaudry in Vancouver.

“If some employees learned through the posting, for example, that they’ve been underpaid compared to their coworkers, then trust will likely be irreparably broken.

“If your employees feel undervalued, they will most likely be seeking opportunity elsewhere, and then you have a retention issue. The organizations really need to fix the inequities.”

While implementing this regime might eliminate some gender-based inequities, often hiring externally means higher pay, with the logica that somebody is taking a risk coming to your organization, says Bidwell.

“So, as a company… do you stop paying a big premium to your new hires, which may be sensible but also potentially makes it more difficult for you to recruit. Or do you feel that you need to raise the pay of all of your existing employees in order to persuade them to stay?

“And so you lose those individualized negotiations with that kind of pay transparency,” he says.

Women especially are willing to leave if the pay is not fair, according to one survey.

Pay transparency on its own will not solve all of the internal inequity problems, says Presseault, especially at organizations unaware that unfairness exists.

“It’s all great news because it’s enabling that transparency but it doesn’t address the dynamics within an organization that may be biased; it doesn’t address unconscious bias. If the organizations keep their policies and practices biased, then you’re not addressing the issue.

“People will know [pay ranges] but it’s still going to be a biased process and we’re not going to be addressing the fairness in pay.”

Updating posting, compensation information

To improve pay transparency, employers should update their job postings to include the necessary compensation information.

“The second thing would be really inform and train your talent acquisition teams, the recruitment teams and your hiring managers on the new requirements and to not ask any compensation history question because that’s in the legislation as well,” says Presseault.

When doing these updates, it’s also key to “begin to identify compensation gaps based on gender and make the necessary adjustments. The reporting for most starts in a year or two or three, you still have time so start working on the necessary adjustments,” she says.

The legislation in B.C. will begin to effect only crown corporations beginning Nov. 1 but over the next few years, more employers will have to pay attention.

‘Managers should carry the transparency torch’

When transparency is in place, it’s the people leaders who should champion its rollout, says Presseault.

“The employees will have most of their discussions with their managers about the payment. They’re not going to go to HR necessarily or the compensation advisor so really, the managers should carry the transparency torch. They are the ones with the real influence on the employees’ perception on their pay,” she says.

“But for sound compensation and compensation communication, it’s paramount that those managers are equipped, and also comfortable having these discussions with their employees.”

In order to make it run smoothly, education for managers will be needed, she says.

“You need to consider training them and providing them with tools that are both easy to use and to understand ,like Q&As dedicated to pay concerns, preparation guides for salary discussions and things like that.”

Also, coming up with a comprehensive communication strategy is key to helping the workforce understand the rationale behind the compensation decisions.

“You can’t just think that by posting something like a communication, it’s going to be a done deal. Employees will need to understand, so multiple communications, multiple media to get to them — that may be through training; it might be communicate with an email blast, but there’s tons of tools that you’ll need to use,” says Presseault.

“You’re going to focus more on making sure that the managers and the employees really understand how the pay decisions are made and you’ll want to reinforce that sense of internal equity.”