Pay Transparency vs. Meaningful Conversations
By James T. Stodd, MS, SPHR, SHRM-SCP
August 21, 2018
One of today’s hottest HR topics is pay transparency. Of course the word “transparency” in itself implies a penetrating view, perhaps all the way up to full disclosure. That level of disclosure may be appropriate for government entities with respect to public service employees, government contractors who freely choose such requirements as a course of doing business, or other organizations when absolutely necessary to ensure appropriate legal and regulatory compliance. Otherwise, when applied to private employment the notion of “transparency” often seems to be overly invasive and to suggest a standard of disclosure that can be detrimental to respectful levels of individual and corporate privacy. As such, some recent calls for greater “pay transparency” just seem to be overkill and overshadow the real need, which is for employers to have some meaningful conversations with employees about pay and their pay practices.
Why the need? Well, recent research is showing that the implications for employers can be profound. For instance, one study showed that 73% of employers believed their employees to be paid “fairly”, yet 64% of those employees disagreed believing themselves to be paid “below average” compared to others performing similar roles . Moreover, in another study researchers found that only 45% of employees who believed themselves to be underpaid actually earned less than what employers typically pay for similar roles; the remaining 55% wrongfully believed they were underpaid, even when it simply was not true. In sum, this kind of research is consistently showing that, when in doubt, people tend to overestimate the pay received by others relative to their own, which then leads to feelings of being undervalued if not disrespected by their employers.
Incorrect assumptions and beliefs about pay can also be damaging to employers. For instance, a recent study by Aon-Hewitt found that “beliefs” regarding the competitive posture of their employer’s pay practices are linked to both employee morale and engagement. Specifically, that study found that 60% of “engaged” employees believed that their total rewards were above, or well above, what other employers offered. In contrast, only 24% of those classified as “disengaged” perceived their pay favorably. That study also found that employees who view their total rewards as “competitive” are 2.5 times more engaged than other employees.
Looking toward employee attraction/retention, the PayScale research referenced above found (for the fifth year in a row) that the number one reason most people leave their employment is “compensation”, with the majority of job changers cited “seeking higher pay elsewhere” as the primary reason for leaving their current employer. A very similar conclusion was reached by SHRM researchers in a study conducted in 2017 . That study also found that dissatisfaction with “compensation/pay” was the number one reason for job-hopping, while satisfaction with “compensation/pay” was the top motive expressed by employees who intended to stay with their current employer. Finally, very recent studies by both LinkedIn and Glassdoor confirm that “pay” and “benefits” are top-of-mind for recruits and the number one motivator for 67% of job seekers .
Given the importance of pay and benefits to both job seekers and current employees, forward thinking employers need to be very proactive about “pitching” what they have to offer…and these can be very meaningful and high stakes conversations. So what should employers talk about?
1. First of all, if your business has the goal of achieving and maintaining a certain competitive or leadership position pay-wise, then it might be good to say so. Of course you want to avoid making promises you can’t keep or creating expectations you are not likely to fulfill. On the other hand, if it is a strategic goal your organization is committed to achieving, then it serves you well to make that known. After all, it’s unlikely anyone else is going to make the case for you.
2. Some employers may be reluctant to create such expectations for the future, and that’s understandable. However, from a purely statistical viewpoint, half of the employers out there offer competitive or better pay and benefit programs. A smaller number, perhaps as many as 25 to 30%, pay well enough to maintain a significant strategic advantage over other employers. But no one is going to know that advantage exists unless the employer “claims” it.
3. Since some employees may be skeptical of what their employers have to say, sage employers will be prepared to discuss the steps they undertake to achieve their compensation goals and/or to rightfully claim a significant strategic advantage. This discussion should cover, at least in general terms, the people, data resources, analytical methods, and decision-making processes involved in managing the employer’s compensation programs. While this discussion is a far cry from the “full transparency” noted above, it does involve sharing enough information for people to understand their employer takes the “pay” matter seriously, knows what they are doing, and has committed resources to achieving their competitive position.
4. Where possible, employers should also ensure that written plan documents and/or policy statements are prepared, updated, and distributed to all involved. These documents should be simply stated yet detailed enough that participants understand how things work and what to expect. When in doubt, some town-hall sessions to explain these documents may be prudent.
5. Employers should also ensure that any managers and supervisors involved in making compensation-related decisions, including periodic performance reviews, are thoroughly trained and conversant in the organization’s compensation philosophy, approach, and the particulars of all compensation plans applicable to those they supervise.
6. Finally, while digital communication is great for many issues, “pay” is serious and requires some “eye-ball to eye-ball” interaction. So it is recommended that you conduct periodic meetings with staff members, at all levels, where compensation issues and topics are proactively addressed and discussed.
Clearly, this process requires making some decisions in advance about what information will be shared and what will not, and unfortunately there is no single answer that is appropriate for all organizations. But somewhere between complete reluctance to talk about pay (which is where many employers remain today) and full transparency lies a middle-ground where you can provide enough information to enable a meaningful conversation with employees, yet avoid violating individual confidentiality and trust, and/or putting yourself in a difficult spot with customers and other stakeholders.
 PayScale, Escape to Comptopia: 2016 Compensation Best Practices Report, A PayScale Research Report, 2016 (see: https://hub.payscale.com/i/645228-payscales-2016-compensation-best-practices-report)
 PayScale, The Most Underemployed Jobs, http://www.payscale.com/data-packages/underemployment/most-underemployed-jobs
 Aon-Hewitt, Workforce Mindset Study, Aon pic, 2015 (see: http://www.aon.com/human-capital-consulting/thought-leadership/talent/2015-workforce-mindset-study.jsp )
 Society for Human Resource Management, Employee Job Satisfaction and Engagement Survey:
The Doors of Opportunity Are Open (Executive Summary), 2017
 Roy Maurer, Salary is Most Important Part of Job Ad, SHRM Online, August 6, 2018