For Complex Compensation Plans, Pay Transparency Isn’t That Simple
Workspan Daily
August 24, 2023
Key Takeaways

  • Going beyond base-pay rules. Pay transparency laws typically require disclosure of a base compensation range for an advertised position, but some pay plans include other attractive components. 
  • Communicating the total compensation plan. Employers with more complex pay packages, such as those that include other incentives like equity, stock or bonuses, need to effectively communicate that value to enhance recruitment and retention efforts. 
  • Clarifying the value proposition. To promote trust, transparency and engagement, organizations should disclose all available components of their total compensation packages to job candidates in the context of presenting the employee value proposition and company mission.

More and more organizations are becoming transparent in their pay. Enacting pay transparency is fairly simple when data points include annual salary and hourly pay. But things get much more complicated when compensation packages include equity, stocks and bonuses.  

Employers such as startups and tech companies lean heavily on that type of compensation. Pay transparency regulations usually only require the base compensation range for a position. Employers with more complex pay packages need to effectively communicate those as well or risk hurting their recruitment and retention efforts.  

“For an organization that cannot post a competitive base salary, but offers very attractive incentive compensation, we tell our customers to include that in the job posting,” said LuLu Seikaly, senior corporate attorney, employment at Payscale. She explained that while Payscale knows it is hard for organizations to estimate what these dollars could be, the compensation software and data company encourages organizations to post percentage ranges for bonus and incentive compensation.  

“There are a lot of candidates that value this kind of compensation, much more than base salary,” she said. 

If the role is eligible for equity in the company, include that too, Seikaly said. While it may be difficult to post anything more specific, let candidates know of this benefit — and its approximate value. 

Nancy Romanyshyn, director of Total Rewards Strategy & Solutions at Syndio, says at a minimum, organizations should disclose all available components of their total compensation packages to candidates. Depending on the maturity of the rewards program — including incentive targets or stock ranges — it will promote trust, transparency and employee engagement. 

“Make sure to provide context,” she said. “Provide the ‘why’ behind the structure of rewards programs.” 

Planning for Challenges 

There can be complications in effectively executing this aspect of pay transparency. 

For example, a tech company may have different rewards based on the funding stage when individual employees joined with early-stage employees having more stock than later-stage colleagues.  

“Organizations need to do the work of analyzing their current compensation structure and validating there is compensation consistency to those policies,” Romanyshyn said. “Pay transparency creates opportunity for trust, but exceptions and outliers left out of the disclosed structure can negatively impact the current employee experience.” 

She added that manager preparedness and understanding of compensation philosophies and policies are essential to successful pay transparency. Training materials need to be kept simple, brief and meaningful — and free of “compspeak” for managers who rarely work with compensation planning. 

“It’s also best to talk about compensation in the broader context of the employee value proposition as it relates to the company’s mission and values,” Romanyshyn said. “The most effective messaging is consistent. Those messages are the same whether stated internally or externally.” 

Accuracy is another potential complication. Seikaly noted that organizations sometimes struggle to estimate incentive pay before base pay has been determined. 

“Even if an organization cannot put a number to these benefits, it is worth letting candidates know that this type of compensation exists,” she said.  

Such communications can help with recruiting, particularly for young job candidates who value equity and other compensation more than base salary, Seikaly said. 

“If you are an organization that cannot offer competitive base salaries, including the other incentives is important for attracting top talent. 

Make sure you’re realistic in posting incentives compensation estimates, Seikaly said, overstating those numbers can erode trust and make future hiring more difficult.  

"Candidates will no longer trust these organizations, and it will be difficult to continue attracting top talent,” Seikaly said. 

Romanyshyn adds with pay being the most important (and costliest) component of employee rewards, getting it wrong can be expensive — as well as damage employer brand, thus making it harder to recruit and retain top talent. 

Focusing on Communication, Education 

Employees pay attention to compensation information. According to Gartner, nearly 45% of employees look at third-party pay sites at least once a year. The same study showed that employees who understood how pay was determined ranked 10 percentage points higher than colleagues in trust in the organization and ranked 11 percentage points higher in perception of pay equity.   

“Transparency done the right way builds trust and provides clarity for employees around what behaviors, skills and performance are rewarded,” Romanyshyn said. “Transparency done right also focuses employees on the work needed to achieve the goals of the business.” 

Effectively communicating compensation plans will become increasingly important as more states and municipalities adopt pay transparency regulations, Seikaly said.   

“We are seeing that many organizations already include a list of generalized benefits that they offer,” she said. Employers know that base salary alone isn’t going to attract the best talent, so they have to put their cards on the table to show candidates why working for them is a good option, she added.  

“Education and engagement in ongoing discussions about total rewards — inclusive of equity, benefits and recognition – is the next phase of pay transparency,” Romanyshyn said.  “We’re seeing employers move from ‘what’s required’ (focusing on compliance) to ‘what’s desired.’”   

She added that by educating candidates and providing more information about the rewards offered, employers are sending a message to candidates about the organization’s commitment to transparency and trust, as well as conveying organizational values and a culture of shared success. 

Employers should also encourage job seekers and employees to research compensation, because if they’ve done their homework, an offer should be in line with what job seekers and employees are finding, Seikaly said. Plus, if there are differences, employers should be able to explain them. The result? An open exchange of information that builds trust. 

Pay transparency is likely to continue to expand, experts agree. “That trend will impact employee and job-seeker expectations to such a degree that job postings without salary ranges (and potential incentives) will receive fewer applications of lower quality when compared to those where total pay transparency is clearly communicated,” Seikaly said.  

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