In the last 25 years, there has been a seismic change in the compensation landscape. Where once details of pay were mandated by contract to be strictly private and confidential, we’re now seeing progressive companies like Buffer embracing complete pay transparency. Pay transparency can drive performance: organisationsorganizations such as Whole Foods champion pay transparency as a way to motivate employees to work harder and seek success and promotions. There is also a political rationale for pay transparency: publicly disclosing pay differentials can drive pay equity and highlight instances of disparity and inconsistency. But one of the most compelling benefits of pay transparency is that it contributes a sense of fairness and equity to an employer brand.
To explore this further, PageUp hosted a joint webinar with our partners Curo to discuss why pay transparency is becoming critical to the employee value proposition.
The employee value proposition
Employees are increasingly expecting some level of pay transparency from their employers, according to Curo industry principal Ruth Thomas. Thomas explains that communicating a sense of fairness in pay policies is crucial to an organisationorganization’s employee value proposition, which helps to attract and retain talent. This becomes particularly important in the information age, where sites like GlassDoor and Indeed make it easy to access detailed pay data that would otherwise be confidential.
3 key employee needs
To communicate a sense of fairness and equality as part of your employee value proposition, you need to address three key employee needs. These are:
- Employee understanding
- Belief in fairness
- Trust in pay practices
Understanding
A GlassDoor survey conducted in 2015 shows that 69% of employees wish they had a better understanding of fair pay rates for their position and skill set in the market. Often, this lack of understanding leads to a disconnect between employee’s perceptions of how fairly they are paid – and reality. In fact, a Harvard Business Review study showed that 64% of employees who were paid at market rate thought their earnings were less than market rate. Considering the employee-focused nature of the EVP, it’s crucial to cultivate an understanding of what a fair pay rate looks like in your organisationorganization.
Belief in fairness
It’s also crucial for organisationsorganizations to use pay transparency to cultivate a belief in the fairness of their pay, Thomas says. “When you look at why an employee leaves for reasons relating to pay, it’s not over the absolute value of what they’re paid – it’s the perception of whether they’re paid fairly relative to their peers and market.”
Thomas says that when it comes to an employees’ pay, there are three things they want to know:
- How their pay was determined
- How they can influence their pay
- How their pay compares with others
The difficulty with instilling employees with a sense of ‘fairness’ is that it’s too emotive to be quantifiable and it’s not proveable. Instead, organisationsorganizations need to demonstrate that their remuneration policies are equitable: that’s what really matters to employees. For Thomas, assessing pay fairness is far easier when employees have pay transparency. “What they want to know is that the system for awarding pay is fair. Pay transparency is a way of allowing that assessment of fairness,” she says.
Trust in pay practices
Pay transparency also establishes trust in pay practices, which Thomas says forms a crucial element of the employee value proposition. “Ultimately, transparency breeds trust between employers and employees,” says Thomas. For millennial employees in particular, breeding trust and transparency are key drivers of engagement. According to Thomas, pay transparency eliminates any friction or noise around how pay is determined. This creates a more open and trusting environment where people feel comfortable that their efforts and contributions are appropriately recognisedrecognized.
Pay transparency is crucial to cultivating a sense of equity and fairness in the workforce, which helps an organisationorganization stand out from the rest. OrganisationsOrganizations looking to hone their employee value proposition should consider how cultivating a transparent, open system of compensation can help to attract and retain top talent.
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