Is pay transparency good for business?

Truthfully, pay transparency has always been a polarising topic, with many organisations treating conversations around salaries as a “taboo” subject. And while 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. One one side, implementing this approach as a business development strategy reaps many benefits. On the other hand however, employers are hesitant towards the development of jealousy among colleagues given they adopt this approach. But, what if increased transparency resulted in a happier, more efficient workplace?

 

Within Australia, 45% of workers believe more transparency on salaries would lead to better pay equality. Additionally, 37% of colleagues 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%. Given that Millennials are set to make up 75% of the workforce by 2025, this indicates a shift in attitudes held by employees around pay transparency, which may not exactly align with keeping pay a “secret”.

Pay-secrecy or Pay-inequality?

Companies around the world have been increasingly adopting pay transparency policies – with states in America forcing companies to disclose wage data within the workplace in an attempt to close wage gaps. And while it is not compulsory in Australia to implement a salary transparency policy – many organisations have embraced the concept as a business strategy to project a healthy, equal and diverse workplace culture. But, this begs the question, are organisations hiding their employees salaries, or rather hiding inconsistencies in co-workers pay?

 

Through adopting pay transparency policies and practices, an engaged and positive working environment is fostered – while narrowing the gender pay gap. And although this may achieve several goals for businesses in regards to company culture, and employee satisfaction, it may also have unintended consequences.

Pros

Each year, pay transparency becomes increasingly important to skilled professionals. This is largely due to the idea that keeping pay a secret will benefit those employees who are the best negotiators. In contrast, by having a transparent policy, individual salaries must be justifiable in the context of all others. What can this benefit?

 

Improved trust, morale and engagement.
Think about it, by understanding how pay levels are set, trust is improved as employees have a clear understanding of the correlation between their performance and their pay. This enables confidence among colleges, as they can see how their skills, experiences and results reflect their pay. 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
Through seeing senior salaries, the financial rewards of career progression is apparent for entry and mid-level roles. For ambitious employees, this will ultimately result in increased motivation to work harder to achieve remuneration for themselves – which is a great thing.

 

Goodbye to bias
Whether employers are conscious or unconscious, 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
When we have nothing to hide, our employees will reap the benefits. From improved workplace communication, to achieving a positive workplace culture – transparency is an extremely effective strategy for business development. Especially for high-talent candidates seeking a position, workplace culture is a detrimental factor. Displaying a company where pay equality is emphasised, employee engagement is evident and honesty is values will provide assurance to candidates that they would be paid fairly.

Cons

Employers have long pushed back against pay transparency attempts, with the argument that it will lead to workplace conflicts, reduced employee output and low morale from team members found to have below-average salaries. So, what are the cons?
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 colleagues. One large question organisations should ask before implementing a pay transparency strategy is whether their employees salaries are equally distributed.

 

Increased turnover
Another understandable concern for organisations, as an increased level of staff turnover can be very costly. Here it is detrimental businesses implement a strategy where guidelines are utilised for determining pay – therefore providing a career map of how progression can be achieved.

So, whats the cost?

No matter how you look at pay transparency, the benefits are obvious – however they do come with a risk. Businesses harbouring discrepancies in pay should seek to rectify inconsistencies if they intend to reap the benefits of transparency. Here are our four tips for maximising the positive impacts.

  • Create a clear pay transparency policy
  • Communicate the pay transparency practice – and do it well
  • Be honest about your pay analysis
  • Commit your business to growth.

So, while pay secrecy has seemingly always been ingrained in the Australian workplace – we can see an increase in companies adapting a transparent approach. This may be due to countries such as the United States and the United Kingdom banning pay secrecy clauses in employment contracts – but either way the results are clear.

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