As awareness around the importance of pay equity grows, a complementary aspect of it is the concept of pay transparency.
Definition of pay transparency: The degree to which employers are open about what, why, how and how much employees are compensated, and are allowing employees to share pay‐related information with others. This concept can extend beyond base pay to include variable pay and other rewards components as well as other facets and/or means to rewards (e.g., promotion, recognition, development, performance assessment).
As a result, pay transparency is becoming a priority at organizations. According to a survey of 478 WorldatWork members, 67% reported that pay transparency is increasingly important at their organization.
The “Pay Transparency Study,” conducted with underwriting support from Mercer, also revealed that 4% of organizations see pay transparency as of the highest importance. Despite this, only 14% of organizations have approached pay transparency beyond a “moderate” level.
“As organizations address potential areas of unintended bias with pay systems, it’s reassuring to see that pay transparency is becoming more of a priority,” said Scott Cawood, president and CEO of WorldatWork. “Workplace equity is a complex issue, with pay transparency just one facet. This survey, along with other recent research, illuminates how critical it is for compensation and total rewards professionals to stay current on the evolving conversation in order to effectively build strategies that foster workplace equity at their organizations.”
Among the reasons for the increased awareness around pay transparency is the demand from employees amid a tighter labor market as well as the increased focus on the employee experience, said Tauseef Rahman, principal at Mercer. Legislation has also moved the needle, beginning with California’s AB 168 law, which prohibits private and public employers in the state from seeking a candidate’s pay history. The law also requires employers to give applicants pay scale information if they request it.
Currently, there are 17 states that have enacted similar legislation, which illustrates the need for employers to be more transparent about compensation within their own organizations, Rahman said.
“It could create a situation in which external candidates have greater information than internal employees,” Rahman said. “You don’t want to run the risk that a hiring manager finds out about the pay range for the position they’re hiring for from the person they’re interviewing.”
Additionally, the survey also revealed that more than 60% of organizations said managers are not trained to effectively deliver pay communications.
“It’s not surprising, because even before pay transparency became so important, managers generally haven’t been great at talking about compensation with their employees,” Rahman said. “So, what it’s doing is increasing the expectation for a manger to have a dialogue about pay and careers. And, understandably, it’s increasing the pressure on HR to equip managers to smartly and correctly talk about these things.”
Other Key Findings:
- 42% of employers do not share information about how jobs are valued and compensated within the organization.
- When pay equity adjustments are made, 53% of organizations explicitly communicate to the employees that the increase is the result of a pay equity adjustment; 30% bundle it with other pay increases without explicit communication on the adjustment.
- Compliance runs the gamut: 22% of organizations are not subject to pay transparency regulations, 32% are subject to minimal laws that affect practices, 38% have few laws to comply with but are considered manageable, and 9% are subject to several laws and are considered difficult to manage.
“Pay transparency, along with pay equity and pay strategy, plays an important role in delivering an authentic employee experience, which directly impacts employee engagement,” Rahman said. “As organizations strive to balance business demands with changing workforce expectations around pay, it poses challenges as well as opportunities for both employers and employees to thrive in today’s economy.”
About the Author
Brett Christie is a staff writer at WorldatWork.