Pay Strategy Before Transparency

The journey of pay transparency is a buzzing topic online these days with articles, including news briefs, thought pieces, opinion articles, and more. Pay transparency as a mandate has rapidly expanded into new local and state legislation, organizational best practices, and more in the last five years or so.

What is pay transparency?

Generally speaking, pay transparency is widely accepted as the practice or sharing of decision-making and influencing factors regarding employee compensation and reasons why an organization pays employees what it does. Pay transparency does not automatically mean all salaries for all employees in the entire organization are accessible to and by all employees (although this approach may be right for some employers).

Pay transparency is not limited to only current employees in a specific organization either. According to Indeed.com, 43.7% of jobs posted to their site in February 2023 included pay range information, an increase from only 18.4% in February 2020.

In the recent past, pay was a highly guarded secret and only a select few (HR and Finance) knew how and why compensation decisions were made. While it has been federally legal for employees to talk about their own pay without fear of retribution from employers since 1935 via the National Labor Relations Act, until recently there has been no mandate on employers to provide the reasoning or decision-making behind why their employees make what they do. Compensation overall is a highly important factor in the workplace and still a deeply personal and/or potentially sensitive aspect of employment for many people. Employees want to be fairly compensated for the work they are performing, and more than ever, they also want to know how decisions about their pay are made.

Before we can make it to the point of sharing compensation rates or decisions, we need to address how the organization approaches pay from a strategic perspective. Some areas to consider when planning a compensation strategy include: strategic positioning in relation to competitors, what is offered in addition to base pay (e.g. sabbaticals, specific benefits, equity, RSUs, etc.), and the unique characteristics or expectations of employment in the organization.

Organizations that do not have a standardized approach of applying compensation decisions, or that don't have an underlying compensation philosophy or strategy to guide these decisions, are at risk of not only being behind the curve in terms of offering competitive compensation in an extremely tight labor market, but also at risk of being unable to effectively comply with legislation that is rapidly being proposed at local and state levels across the U.S. without significant catch-up work. The good news is it is never too soon to begin developing a compensation strategy and philosophy.

Why create a compensation philosophy and strategy for your organization?

Creating a compensation philosophy can be straightforward; for example "we pay X because Y." In some cases, however, it can be quite difficult to know where to start or to know what to include or leave out. Partnering with a consultant can offer development support, if needed, and provide guidance on what is most important to share.

Pay transparency of any degree can only be achieved through the ability to explain and defend how pay decisions are being made. It would be highly unlikely for an organization with no compensation structure or strategy to embrace a high level of pay transparency. Being transparent about the lack of structure when making pay decisions would likely cause a slew of other issues and could bring a negative impact to employee satisfaction and trust in their employer. On the other side of the argument, if there are strategic, equitable and intentional decisions being made about compensation decisions, the benefit of sharing those strategies could bring an additional layer of trust and esteem to the organization on behalf of both current employees and potential employees who may be looking for their next role. 

If pay transparency has been on your mind and your organization is without a compensation structure or formalized strategy, please don't hesitate to reach out. We'd love to help empower you to be well-positioned to comply with the rapidly changing landscape of pay transparency.