Report: Most U.S. Organizations Lack Pay Transparency Strategies

Even though pay transparency is becoming a requirement for organizations around the world, only 19% of U.S. companies actually have a pay transparency strategy in place, according to Mercer’s latest Global Pay Transparency Report.

The report surveyed 1,144 organizations worldwide, including more than 300 in the U.S. Globally, 77% cited compliance as a key driver for having a pay transparency strategy, while 53% and 51%, respectively, stated it aligned with corporate values and increasing employee satisfaction.

“Some organizations prefer to take a ‘less is more’ approach when developing or communicating certain strategies for a variety of reasons, and pay transparency has been one of those cases where they haven’t historically gone beyond what has been required,” said Tauseef Rahman, a partner in Mercer’s career practice. “Acknowledging that the environment and expectations have changed is key.”

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How Employers Can Better Train Managers to Talk About Pay

Challenges Employers Face

Despite a lack of strategy, 63% of U.S. organizations in Mercer’s report stated they plan to share pay information both internally and externally over the next two years, but 37% of U.S. employers (and 34% of global respondents) reported a lack of manager capability with understanding and explaining compensation programs and practices to employees as their biggest hindrance.

“In many organizations, compensation has been a black box,” said Kelly Voss, the head of rewards and career advisory, North America, at Aon. “Managers may have a poor understanding of how the compensation program works, which can make them reluctant to discuss pay with employees. Transparency requires managers to understand the program to be able to explain pay decisions effectively to employees and make good decisions when determining pay.”

Additionally, many HR leaders are not confident their programs are “ready for the public,” said Tom McMullen, a senior client partner at Korn Ferry.

“Decisions that make sense behind the scenes often don’t make sense in public view,” he said. “We often hear that ‘managers are not capable,’ which is a fair concern, but organizations may not have spent much time enabling those managers.”

McMullen said employers can start with a readiness assessment by asking whether the job architecture, titles, salary structure and pay ranges are ready to be shared in a more public lens.

Creating a Strategy

According to Aon’s Voss, a strategy can simply mean clarifying the tactics organizations are willing to adopt to comply with the law and managing the type of questions they are likely to get from managers and employees.

To prepare for any questions, Voss advised employers to create talking points for managers on what information they are required to provide and what information should remain protected.

“Organizations must have a compensation strategy before willy nilly posting salary ranges on job postings,” added Lulu Seikaly, a senior corporate attorney at Payscale. “Using market data to benchmark roles, putting together salary ranges for each role and running pay equity checks prior to posting a salary range in compliance with pay transparency laws are the bare minimum organizations must do.”

Total rewards professionals also need to determine exactly what is being posted for open positions — whether it’s the entire pay range or the minimum to pay range midpoint, said Jim Hudner, a managing director at Pearl Meyer.

“With cultural and legal attitudes toward pay transparency and pay equity changing, it’s the ideal time to evaluate holistically your approach to developing and rewarding talent,” Voss said. “[Aon research shows] failure to attract or retain top talent is the fourth-biggest risk facing organizations globally. Creating talent development and reward programs to attract, retain, develop and motivate the people who will drive your success should be a top priority.”

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