Is pay transparency good for business?

Pay transparency has always been a polarising topic, with many organisations treating conversations around salaries as a “taboo” subject. Although many of us have become accustomed to treating pay as a secret, more businesses are shining the spotlight on their employees’ salaries as they adopt a transparent approach.?

This may partially be credited to the increased popularity of pay transparency around the globe – with countries such as the United States implementing pay transparency policies. In an attempt to close wage gaps, certain US states have now mandated companies to disclose wage data in the workplace – which seemingly has had a domino effect. And while it’s not compulsory in Australia, many employers are embracing the concept as a business strategy to create an equal workplace culture.?

So, what do employees think of a transparent concept??

In Australia, 45% of workers believe more transparency around salaries would lead to better pay equality. Additionally, 37% of workers feel stressed about sharing their salary levels ( and 16% have already shared their pay with co-workers they trust).?

From this, Gen Z workers are the most likely to share their pay information at 39% , followed by millennials at 24%.?

What does this mean??

Given that Millennials are set to make up 75% of the workforce by 2025, this indicates a shift in employee attitudes towards a more transparent approach to salaries.?

Pay-secrecy or Pay-inequality?

While some organisations are utilising a transparent approach to create an equal, diverse and progressive workplace culture – others are steering clear entirely. It begs the question: are organisations hiding their employees salaries, or rather hiding inconsistencies in pay?

Through exposing salaries within the organisation, many are subsequently exposing discrepancies in pay. Therefore, for states mandating a transparency policy, businesses are rushing to rectify pay inconsistencies.?

In turn, we are seeing gender pay gaps narrowing, potentially due to the pressure felt from employers to present themselves as equal and diverse once their employees salaries are revealed.?

However, the true benefits of pay transparency go beyond this, as we will discuss further. We suggest evaluating the following pros and cons to determine if a transparent pay approach is right for your business.

Pros

A transparent approach can be extremely beneficial for those fostering an engaging, equal and diverse workplace. To reap these benefits however a strategy for rectifying discrepancies should be implemented first. Here are a few benefits businesses can achieve through implementing pay transparency.

Clear pay levels will pave the road for career progression.

Start by laying a foundation for how pay levels are set – and therefore what each pay level will encompass. This will ultimately provide employees with a clear understanding of how their pay is connected to their performance, skillset and results. Through highlighting the different pay levels – employees can directly see their pay in relation to their peers, managers and seniors.

Transparency can increase employee trust and morale. `

When employees see equal pay among their peers, we reduce the chances of jealousy, resentment and fatigue – as everyone is being paid accordingly. This enables confidence among colleagues, as they can see how their pay reflects their skills, experiences and results. Granted, if employees' pay reflects an amount similar to the average salary within Australia for their position, increased levels of engagement and morale are commonly achieved.

Motivational spikes

Although many employers see this as a daunting prospect –? disclosing senior salaries can actually be a driver for entry level employees. It provides a financial incentive for employees to strive for career progression within a company. The outcome is often a more driven and motivated workforce that isn’t disillusioned by salary expectations.

Goodbye to bias

Many employers are unaware of the stigma that pay secrecy can perpetuate in a workplace. When we hide employees salaries we create speculation towards gender, ethnicity, and other characteristic-based biases that fuel wage gaps. When businesses seek a transparent strategy, they are able to dissolve this bias as equal salaries are revealed.

Projection of a healthy workplace culture to candidates

As most of us know, workplace culture is at the forefront of most candidates' minds. Organisations displaying an environment where pay equality is emphasised, and honesty is valued, can offer assurance to candidates that they will be paid fairly.

Cons

Employers have long pushed back against pay transparency attempts. Common concerns from employers centre around a fear of workplace conflicts, reduced employee output and low morale from team members found to have below-average salaries. Here we explore the disadvantages of pay transparency in greater depth.

The ripple effects for businesses with pay problems

This ones rather obvious – if you have pay equity problems, pay transparency will bring these to light. This can be damaging in a range of ways, from staff turnover to disgruntled employees with the potential to damage your brand.? A common example here is employees being paid a higher salary than their colleagues when they have less experience. In this instance, consider rectifying discrepancies before disclosing salaries. This can be done using a formula where two employees with similar roles and comparable experience are being paid similar amounts.

Internal resentment could build

This is perhaps the biggest reservation for employers – if a pay transparency policy is implemented, employees will feel resentment towards their higher-paid colleagues. One large question organisations should ask before implementing a pay transparency strategy is whether their employees salaries are equally distributed.

Increased staff turnover

Another understandable concern for organisations, as discrepancies within pay may lead to jealousy among employees. In turn, this may result in an increased level of staff turnover, which can be costly.

Here it is essential for businesses to implement a strategy where guidelines are utilised for determining pay. This provides a career map of how progression can be achieved.

So, what is the cost of pay transparency?

For some businesses, pay transparency can lead to higher morale, employee engagement and retention – as pay levels are defined and career progression pathways are highlighted. Conversely, for other businesses, a strategy for rectifying pay discrepancies should be utilised prior to rolling out a transparency policy.?

Here are our four tips for maximising the positive impacts.?

1. Create a clear pay transparency policy
2. Communicate the pay transparency practice – and do it well
3. Be transparent with your salary determination criteria
4. Commit your business to growth.?

So, while pay secrecy has seemingly been ingrained in the Australian workplace – we can see an increase in companies adapting a transparent approach. With positive results flowing from the United States and the United Kingdom – perhaps Australia will soon follow suit.

Looking for a recruitment agency who understands the ins and outs of your business? With access to a large talent pool of top-talent candidates, reach out today.