Pay transparency

26th June 2023

Staff member Julia

Julia Hanna

When we raise the topic of pay transparency with clients, we’re often met with a sharp intake of breath.

But, while it’s not only the right thing to do, it’s a legal requirement in many jurisdictions and may soon be a legal must in the UK too.

So, what is it, why does it matter, and how should we be responding?

Pay transparency in its simplest form is being open with current and prospective employees about how you manage pay and reward.

The degree of transparency can vary; from sharing the factors used to make pay decisions to publication of pay structures. But the aim is to ensure that employees understand how and why decisions are made, and managers are clear and consistent in their approach.

Fair and equitable pay is one of the major drivers of engagement (Josh Bersin 2022). There’s plenty of research demonstrating that the more transparent we are about pay, the more that pay is perceived as fair.   Transparency:

The recent EU Directive (and legislation in the US) powerfully combines the concepts of pay transparency with the established principles of equal pay.  The EU rules promote pay equity and transparency by:

Crucially, the burden of proof of pay discrimination now falls upon the employer rather than the claimant.  With sanctions including compensation of back pay, legal costs, and fines for violating the Directive.

Although we are out of the EU, we shouldn’t be complacent, the UK launched a pilot in 2022, so expect legislation to come our way.

But even more importantly, the case for pay transparency is clear, it’s the right thing to do, has positive impacts on both engagement and pay gaps, and employees expect it.

Often, pay transparency feels daunting. Here are 5 steps that we share with clients:

  1. We always start with having a clear and succinct reward strategy that can be openly shared. This isn’t a list of policies, but sets out important factors such as pay stance and rationale about how you’ll reward your people. It’s future looking and aligns with your organisational strategy and culture.
  2. Develop a clear framework to determine internal career levels, and share this with employees so that everyone knows not just the level of their role but why it is that level.  Ensure that your methodology is checked for bias and uses gender neutral language.
  3. Conduct external pay benchmarking to ensure you’re paying competitively, and use it to develop a simple and transparent pay structure that is easy to use and communicate. Combining the raw data into a pay structure will reduce inherent bias in the data, and take internal equity for like sized roles into account.
  4. Communicate, communicate, communicate.
    1. Be clear about the factors that you’ll use to determine pay awards. Share these with employees.
    2. Train managers. Don’t just assume they’ll make great reward decisions. Guidance and support are likely needed.
    3. Employees need to feel the openness, make this part of your ongoing reward messages.
  5. Check your progress. Conduct equal pay audits, deep dive into your gender pay data to see what’s driving your gaps, widen your pay gap reporting to ethnicity, disability, social mobility etc. Investigate gaps that are greater than 5% and take action.

So, particularly in these challenging economic times, and with quiet quitting on the rise, employers who are transparent about pay are creating the right culture to thrive.

Image courtesy of Denise Fernandez

How we can help

At Verditer we are specialists in creating a transparent approach to pay and reward. Do get in touch if you’d like our help.

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