Article

Lessons on the path to pay transparency

March 26, 2019

By Casey Hauch and Stacey Rapacki

A new reality

We are designing pay programs in a new reality. With instant access to information all around us, crowd-sourced websites like Salary.com, Glassdoor.com and Indeed.com make it easy to access – and compare – compensation. We’ve moved from a traditional environment where talking about pay is taboo, to a new reality where employees are sharing information about pay and benefits freely with each other. Organizations need to get ahead of these conversations.

New pay fairness legislation and requirements for disclosure continue to shine a light on the topic. Social demands to reward employees based not only on market competitiveness but also on internal equity and gender pay equality are in the news. The result – everyone is talking about pay – from social media users, to shareholders and activists, to government regulators. There can be risks associated with this constant conversation if you aren’t proactively talking about pay inside your organization. Managers can feel in the dark and employees may form their own perceptions about why they make what they do and how your organization designs pay programs. Layered on top of this is the concept of relativity, where employees’ perceptions may be influenced by what’s around them, resulting in a limited and subjective view of pay.

This new reality of free-flowing, personalized information has created a shift where employees expect to be treated like consumers by their employers. After all, they are consumers of the organization’s Talent Value Proposition, including pay, benefits and other programs. As such, demands on transparency are increasing and employees are looking for the why, what and how when it comes to their pay.

Now is the time to talk about pay differently. Or talk about it, period.

Go beyond design

Compensation and rewards program design is critical to effectively attract, engage and retain talent, but it’s only one piece of the puzzle. How leaders position pay messages and prepare human resources and managers to talk about pay to unique segments of their employee population is key to ensuring clarity, engagement and connection to purpose.

Willis Towers Watson fielded a global survey called Getting Compensation Right to capture employer perspectives on emerging trends and issues for compensation and rewards. One of the key themes that emerged was building a culture of pay transparency.

Figure 1. 2018 Getting Compensation Right Survey key themes

Progress bar: Clarity | Differentiation | Technology | Fairness |Transparency

When it comes to pay transparency, organizations fall somewhere along a spectrum from staying totally silent to openly disclosing salaries. When considering which transparency strategy makes sense for your organization, it’s important to keep in mind that there is no best practice, it’s about the right fit. Start by understanding where you are today, what your employees expect and what makes sense for your business and talent strategy. Once you have a clear picture of where you want to be, you can then begin to build a roadmap to get you there, through sound design and comprehensive communication and change management. Therein lies your transparency strategy.

Figure 2. The transparency spectrum – design and delivery

Transparency spectrum for design and delivery, from totally silent to fully transparent. How pay is determined, salary ranges are set, salary ranges/scales, individual's percent in range, setting standard salaries by level or making salaries public

Your pay transparency strategy should take into account your Talent Value Proposition, which represents the overall deal you offer your employees in exchange for their contributions, as well as your total rewards philosophy. It needs to be aligned and integrated with your organization’s purpose, vision and values to ensure your employees understand their impact and how they are rewarded. These are the makings of your pay transparency narrative, or “pay story” and will help the messages you create take root.

Figure 3. The transparency spectrum – the story

Transparency spectrum from totally silent to full transparent: Communicate with leadership, communicate with HR and managers, share metrics and progress, articulate your philosophy and pay strategy to employees, make your journey public

Talking about pay means much more than a once-a-year discussion. Once organizations have developed their pay story, they need to consider all stakeholder and audience groups and what roles they play in communicating and embedding the right messages in the employee experience – from talent acquisition to performance management. For example, leaders set the tone for a culture of transparency and must connect messages to business strategy and organizational purpose, while managers need to be equipped to have pay conversations with new hires, high-potential candidates and their direct reports.

Figure 4. Your pay transparency strategy checklist

Pay transparency strategy checklist

Support for your pay story

Our global research of employee perspectives on total rewards indicates only half of employees know how their total compensation compares to the typical employee at their organization, and only half think they are paid fairly. Having a clearly articulated pay story that starts from the top and is cascaded throughout the organization will help to create clarity, build confidence and trust in leadership and managers, and ensure employees understand how they’re rewarded.

Having a clearly articulated pay narrative that starts from the top and is cascaded throughout the organization will help to create clarity, build confidence and trust in leadership and managers, and ensure employees understand how they’re rewarded.

So, is there ever a reason why organizations wouldn’t want to tell their pay story? Some of the barriers and objections that can make it challenging are:

  • Your program is too complex and it’s difficult to explain
  • Your pay program design is in flux and not final
  • Pay equity results are not something you want to make public
  • The factors that drive payouts are confidential
  • There are discretionary elements of pay that not all employees are eligible for.

These are all real factors that require careful planning and thought, and often why developing a pay transparency strategy is a journey. Even so, saying nothing is no longer an option. Each organization’s path will look different depending on your business and talent strategy, total rewards philosophy, program design, and where you are and want to be on the pay transparency spectrum.

Where and how to start?

Talking about pay is not always easy, and obviously, cultures don’t change overnight. First, acknowledge that your organization is on a journey. Then, use this three-step framework as your starting point:

Progress bar: Know > Align > Go
  1. KNOW where you stand. Your immediate opportunity is to determine where you fall on the pay transparency spectrum and where you want to be.
    • Conduct a stakeholder analysis, understanding who they are, what you need from them and how to engage them
    • Develop a listening strategy to gather input from managers and employees about their perceptions and understanding of pay
    • Audit your existing communication to identify opportunities to embed more transparent messaging on pay
  2. ALIGN with your talent strategy and priorities. Consider how your pay programs and philosophy align with your culture, purpose, values, inclusion and diversity roadmap, and Talent Value Proposition, and help connect the dots for employees.
  3. GO! Set a conscious pay transparency strategy, including design, delivery and communication. Outline a short- and long-term plan to get you where you want to be, and identify any quick wins. Take into consideration:
    • The talent lifecycle from recruiting to onboarding to career development
    • Your communication and change management strategy including how you’re reaching the right people with the right messages at the right times, identifying the behaviors you want to change and measuring progress
    • Technology to support how you deliver and communicate about pay

Remember, each organization will have a unique path based on where you fall on the pay transparency spectrum. The sweet spot will be somewhere in between what you have to do based on the new reality and what makes sense for your organization.

What leading organizations are saying

Earlier this year, Willis Towers Watson gathered leading HR professionals to share ideas, challenges and solutions around pay and building a culture of transparency. Three lessons emerged from our discussion:

Lesson 1: Ensure your pay program design is transparency-ready

Before you can truly be transparent about pay, you need to “get your house in order”. Consider the following:

  • Do you have a pay philosophy and is it articulated?
  • How do the programs in your pay portfolio work together? What is the purpose of each program?
  • Are programs designed to deliver the intended messages about how employees are rewarded? Are those messages aligned with your business strategy? Employee value proposition? Talent strategy? Total Rewards strategy?
  • How, if at all, are your pay programs (e.g., base salary increases, bonus funding and payouts) aligned to your performance management process? To individual performance? Company performance? Are they driving the intended behaviors? Are you able to articulate this?
  • What are you doing to address pay fairness? Have you conducted any pay equity or pay fairness diagnostics? Are you comfortable speaking to the outcomes and to where you are in your pay fairness journey?
  • Can you describe the complexities of incentive funding, especially as the funding aligns to organizational performance?

Lesson 2: Focus on managers and understand what they need

Organizations face challenges engaging managers, yet it is managers who bring pay programs to life for employees in their day-to-day interactions. Today, many organizations communicate to managers about pay at a point in time, such as during year-end. If we want to make it real and authentic for employees, we need to move past simply informing to building capability, establishing alignment and changing behaviors by preparing and holding managers accountable for driving the messages home.

One organization told a story about how they successfully reached managers by appealing to them as high-performing employees. The organization educated managers about their own pay as a way to embed general knowledge about the program, especially during key points in the performance management cycle. Typical moments that matter may be during annual reviews or new hire conversations, but you should also consider regular manager check-ins, promotion and development conversations, and discussions surrounding quarterly earnings reports.

Lesson 3: A top-down approach sets the tone and cultivates champions throughout the organization

Leadership clearly plays an important role in setting the stage for pay transparency. Participants agreed that it can be challenging to fit in pay messaging alongside other initiatives, yet, several shared that when leadership led the pay conversation with a clear, consistent narrative, it helped employees internalize information around pay and its value.

A comprehensive pay change management and communication strategy should start with leaders as your key stakeholders and sponsors of your pay story. It’s important that they clearly articulate your organization’s business strategy and what that means for success, both for the organization and for individuals. Tying in your pay story to your organization’s larger purpose makes it clear that talking about pay openly, alongside other major corporate initiatives, is a top priority for the company.


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