A Business Case for Pay Transparency

Despite the significant benefits, most organisations don’t communicate with employees about pay. We surveyed over 500 organisations in the UK and only 12% said that they publish pay ranges for their employees to see.??

Even when organisations have done all the work to put together pay policies and pay ranges they choose not to communicate this with employees. Why are organisations so reluctant to reap the benefits of transparency and give employees what they are seeking?

In my experience, HR teams are often advocates for pay transparency but it can be a struggle to convince the leadership team that this is good for the organisation. In this week's newsletter, we will look at how an HR team can build a business case for pay transparency.

1. Retention Is Cheaper Than Recruitment?

In many organisations, HR is neglected. There’s often one HR person responsible for managing hundreds of employees, and as a result, employee engagement scores plummet. Employee turnover continues to rise, and recruitment costs escalate.??

Research from Oxford Economics found that the average cost of replacing a single employee is over ￡30,000. This includes loss of productivity, advertising, agency fees, HR and management time. The cost goes up as we look at more technical and senior roles that take longer to recruit.?

Even if you feel that this estimate is on the high side, there is no doubt that retaining your key employees is more cost-effective than replacing them on a regular basis.

There is a wealth of research on the positive correlation between employee engagement and organisational turnover and growth.

Leaders of successful organisations realise this and proactively invest in HR to look after and engage their people. If hiring an extra HR person enables you to retain only two more people a year, they will have covered their cost, but the truth is that having a larger HR team with the capacity to focus on employees adds so much more value to the business. Not just to the people who may be thinking of leaving, but all your colleagues.

Research shows the link between pay transparency and employee retention. Employee surveys and research consistently show that employees are seeking greater transparency. Therefore, organisations can save significant costs by retaining top talent and saving recruitment costs.

2. The Exponential Benefits of Communicating Pay

New research from Josh Bersin has discovered that well-communicated pay equity is almost 13 times more important for employee retention and engagement than high levels of pay and benefits.

The research highlights that organisations that communicate pay equity effectively are more likely to:

• Meet or surpass financial targets.
• Attract and retain exceptional talent.
• Drive effective innovation.
• Achieve higher levels of customer satisfaction.

While increasing salaries may seem like the obvious solution to retain and engage your team, it can often be unsustainable and impractical. Instead of spending thousands on raises or bonuses, consider investing a fraction of that cost into building a sense of fairness and purpose.

Because at the end of the day, most employees just want to know that they are being treated fairly.

3. Double Job Satisfaction

A Payscale survey found one of the top predictors of employee engagement is an organisation’s ability to communicate clearly and honestly about pay. Even when employees were paid below the market rate, if someone took the time to talk to them about pay and explain why, the survey showed job satisfaction numbers more than doubled—rising from 40% to 82%.

Yes, even when people are paid less than the market rate, they are more satisfied when their organisation is transparent about pay.

What does this tell us? Having a fair pay and reward framework is only part of the solution. It also needs to be communicated clearly.

In the absence of transparency, how do people know that the process is fair? They may form their own perceptions.

Pay and reward transparency is more than just a passing trend—there’s hard data to back up its benefits.

4. Generation Z Value Transparency Over Pay

Gen Z is made up of people born between 1995-2010. In the US, they are predicted to make up 30% of the workforce by the year 2030.

According to a study by Deloitte , Gen Z values salary less than any other generation. They are also intrinsically drawn to companies that take a moral and ethical social stance, which is reflected in their policies and how they treat their employees.

You only need to look at Gen Z’s consumer habits, favouring brands who are known for their sustainable credentials and moral compass, to know where their priorities lie. If this generation chooses not to buy from brands that ignore the pressing issues of our time, they aren’t likely to work for them either.

If you’re not catering to this generation through transparent practices, you’re soon going to run out of top candidates and employees.

In summary, to convince our business leaders we have to build a strong business case that pay transparency and equity is the right thing for our organisation not just from an ethical perspective but to drive better business results and lower costs. Ultimately, that is what's going to convince many leaders that either remain sceptical about pay transparency or want to retain control of making pay decisions based on their gut feeling. While they may ignore please from the HR team and employees, it's hard to ignore extensive data and research showing better business results.