One of the top issues that company leaders face these days is pay transparency. Employees now expect a greater degree of insight into how their salaries, raises and bonuses are determined.
Boyd Davis, global head of compensation at cloud software company Unit4, believes that leaders must share more information and data with employees to demonstrate that they're being paid fairly. In a Q&A with SHRM Online, he argues that companies should be openly explaining to workers how salary changes are determined.
Q: I imagine that the term "pay transparency" might rattle a company executive. What does the term really mean?
Davis: They may be concerned that transparency means publishing all employee salaries, and they're worried about the implications. Salaries are just one part of total rewards, and the data could be easily misused or misinterpreted. However, pay transparency is unlikely to go to that extreme for most organizations. There are some jurisdictions mandating the publication of pay ranges in job postings for transparency, and many organizations don't have set ranges, so executives could be concerned about compliance. I believe leaders should look at transparency differently. Most employees—up to 85 percent—believe they are underpaid, when most organizations invest substantially to compensate their employees competitively. This disconnect is highly damaging to employee engagement and can create retention challenges. All organizations can make their decision-making around the rewards process less opaque and do a better job empowering managers to help make and communicate compensation decisions. Using effective tools with relevant data is a critical step toward this goal.
Q: What happens if a company embraces pay transparency and employees discover that they are being paid less than someone doing a similar job?
Davis: Employees usually know more about their peers' compensation than managers would like to admit, independent of any pay transparency initiative. The most critical step in avoiding problematic conversations is to make sure any pay disparities aren't driven by implicit or explicit bias, or by favoritism or rewarding behavior that doesn't contribute to an organization's mission. In short, make good compensation decisions based on data rather than personality. Compensation should be linked to skills and contributions and measured against the availability and cost of those skills in the applicable labor market. Of course, everyone in the same role should not be compensated equally because no two people possess identical skills and deliver identical results. The key is to ensure that those who aspire to higher pay are motivated to develop their skills and make more impactful contributions because they see their organization linking those traits to rewards. If no one knows how pay decisions are made, they are more likely to focus on the process and not their own development.
Q: There is pressure on companies to not ask applicants what they currently earn. How do you feel about that?
Davis: I don't believe there should be rigid rules put on the discussion between an applicant and a hiring organization related to the compensation negotiation. Having said that, job seekers should be clear that the hiring organization is responsible for describing the compensation for a role and what factors may influence that compensation. A potential hire should feel perfectly comfortable in declining to answer any question regarding current pay level; they can and should focus the discussion on the total rewards of the position they are seeking. An organization that tries to bully candidates in the compensation discussion will lose out on the best talent. Leading organizations have shifted the focus to demonstrated skills, not signaling factors like graduating from a certain school or attaining a compensation level or title. Those data points are marginally useful in illuminating the actual skills the candidate brings to the table.