Imagine having an awkward conversation with a colleague who is getting paid more or less than you, to do exactly the same role. This pay gap between genders, individuals, races, or socio-political standings is now under intense scrutiny. Employees expect fair pay compared to their peers, and employers are taking notice.
But changing global workplace practices aren’t just down to employee demand for transparent salary ranges – it’s also down to the changing legislation that is governing salary transparency and helping to close historic pay gaps.
Changing pay transparency legislation
Pay transparency is the practice of openly disclosing the salaries of both existing staff and new hires to foster trust and move toward pay equity. This usually takes the form of a set pay structure depending on the role or skills of the person, but in some circumstances pay transparency can exist for individuals on different salaries to their nearest peers.
In the US, California, Colorado, Connecticut, Maryland, Nevada, New York City, Rhode Island and Washington have recently enacted laws that mean pay ranges must be disclosed on both job postings and on request. This means that employees who have the same job title, in the same location, are more likely to receive equal pay.
Ultimately, there may eventually be national legislation across the US, and the EU has recently announced a directive about pay parity, with the ultimate requirement that all organizations in the block list salaries publicly. However, despite the introduction of new pay transparency laws around the world, it seems global organizations are still split when it comes to their approach to transparent salaries.
According to Aon, 44% of organizations in the US will only disclose salaries and salary information where required, with just 31% planning to disclose salaries at all levels regardless of legislation. So what are the main reasons for this split in opinion?
The pros and cons of pay transparency
The pros:
The biggest challenge facing HR, payroll, and employees is eliminating unfair pay discrepancies and ensuring a level playing field for all applicants and employees. Pay transparency helps with this significantly, with anyone able to view and question their peers’ salaries and ensure their efforts are being rewarded fairly for equal work.
This open and honest policy works especially well when it comes to things like pay reviews. With a clear, target-based pay structure that doesn’t deviate, employees know what they’ll earn, and when they can expect a pay rise. This removes awkward conversations for both employees and employers, and avoids any potential for confusion or disappointment if a pay rise isn’t aligned with the worker’s expectations.
The cons:
Having a transparent pay structure that is completely rigid does mean that organizations are in danger of being outbid on salaries by their competitors. If a particularly desirable candidate is offered a role elsewhere, and their existing employer wants to make a counteroffer, then this can’t be done confidentially. If it happens, then it also opens the door for other current employees in similar positions to negotiate better pay.
There’s also the risk of tension between job positions and levels within the organization, with workers able to question salary gaps between levels, or increased salaries for certain skill sets that employees may not value themselves.
The challenges of transparent pay for HR & Payroll
Although simple at first glance, going ahead and disclosing salaries is actually a complex task. On top of the potential for disruption and demoralization, individual perks, benefits, and add-ons may make it difficult to find true parity. These could include legacy benefits, additional healthcare vouchers, or even individual performance bonuses – all of which make it very difficult to establish a level playing field.
Then there’s the fact that existing payroll and HR systems or teams may not be set up to work effectively when it comes to changes to legacy software, integrations with payroll, or updates to the way people are paid.
That being said, there are plenty of benefits to pay transparency to counter these challenges:
- The opportunity to create a ‘pay philosophy’, influenced by talent strategies and company culture
- More defined roles and responsibilities for each salary bracket
- The ability to apply market data to calculate and implement consistent salary parameters
- A chance to carry out a comprehensive payroll audit to target and rectify any discriminatory pay inequities
- A culture of open communication and trust in an organization
- More meaningful connections and integrations between HR, Payroll, and Finance
How to create effective pay transparency
- Plan for successful change: Approach pay transparency just as you would any other employee benefits policy. Create a strategy that makes it easier for payroll and HR to integrate. This is a great opportunity to engage with a partner that specializes in preparing systems and teams for changes to payroll.
- Ensure thorough communication: Like many business problems/opportunities, the chance for something to go wrong often lies in poor communication. Talk about the reasons for and benefits of pay transparency both company-wide and at an individual level.
- Honesty is the best policy: At face value, salaries and salary negotiations are an opportunity for employers and employees to be transparent, either about others’ pay, or their skills and experience!
Summary
Regardless of legislation or policy, pay transparency is a global conversation that continues to gain traction.
As we strive to remove the gaps that exist not because of skills, but simply because of factors like race or gender, organizations need to keep pace and realize that pay parity isn’t a nice to have, it’s an expectation. Being ready for this change and seeing it as a ‘when’ rather than an ‘if’ is a strategy that needs to be at the heart of every organization.
Learn how CloudPay’s Global Payroll expertise can support your teams as they work towards a transparent salary strategy.
