Pay transparency is a hot topic in the UK, with gender pay gap reporting regularly in the news, CEO pay ratio reporting a recent legal requirement, ethnicity pay gap reporting under consultation in the government, and the never-ending debate about putting salaries on job ads.
But is it really that important, and what are the reward implications for organisations who would like to unleash their darkest deepest salary secrets to the world?
This article discusses the legality of pay transparency, the pros and cons of a transparent pay structure, and looks at how to think about pay transparency in relation to your reward strategy.
Is Salary Transparency Illegal?
Right now, salary transparency is not illegal in the UK. In fact, legislation is moving in the other direction, with clarity and transparency around wages becoming more of an expectation.
Gender pay gap reporting is one such example, with mandatory reporting (and public display) of pay gap figures for organisations with more than 250 employees. In addition, from January 2019, UK listed companies with more than 250 employees have been required to publish the pay ratio between their CEO and their average worker, not only on the company website but also in the annual report to shareholders. There are currently proposals to introduce ethnicity pay gap reporting too; however, the government has not yet responded to these.
Despite these moves towards increased transparency, there is no current legal requirement for employers to be any more transparent about pay.
There are also no laws against it. Gone are the days that pay secrecy clauses can be enforced on employees. Water cooler conversations about pay have been common for many years, and while clauses might still exist in employment contracts, in reality, these are almost impossible to enforce meaning employers can effectively no longer legally oblige employees to keep quiet about their pay.
Is Pay Transparency Required?
While the laws right now don’t require (or prohibit) pay transparency in the UK, this topic is trending, with some particularly high-profile examples in the spotlight. A report into pay inequality at the BBC published by the Equality and Human Rights Commission stated that “…every employee should be able to see that their employer’s pay processes are structured, well documented, transparent and kept under review.”
Most countries have equal pay laws. But there are countries that are well ahead of the UK in their approach to pay transparency. In Norway, all citizen’s earnings are publicly available for anyone to see. This system has been functioning since the early 1800s. In Sweden, companies with more than 25 employees must have an equality action plan, and worker pay details are publicly available throughout the country. At the forefront is Iceland, which consistently have one of the closest pay gaps in the world. While not perfect, their success seems to be rooted in a combination of robust legislation (it is illegal to fail to have and implement a plan to address gender pay inequality) and a historical legacy of strong women in senior public roles (the first female president was elected here in 1980).
Aligning Pay with the Reward Strategy
A company’s stance on pay transparency is an important component of the reward strategy of an organisation.
It helps clarify pay structures, how reward and promotion decisions are made, and gives employees a clear path of progression, setting expectations for managers and staff.
Employees are more likely to trust salary or bonus decisions when they understand how an organisation manages rewards and promotions. This open approach to salary transparency is more likely to attract and retain high-quality staff and create a positive company culture.
Despite employers’ best intentions, bias can creep in when hiring and managing people. However, when pay structures are clear and pay equity is a priority, salary transparency can help to identify and minimise the occurrences of pay inequality.
Transparency in pay clearly has benefits for the recruitment process, too. Organisations committed to pay equity are often more appealing to top talent, and pay transparency is more likely to attract and retain a more diverse workforce.
The removal of salary disclosure during the hiring (or promotion) process can also be helpful in ensuring pay equity. Given the gender pay gap that we know exists, a woman is more likely be on a lower salary than their male counterpart, and working from their current salary to establish the salary in the new organisation will simply perpetuate this gap. Research also shows that women are less likely than men to negotiate higher salaries.
By taking away the disclosure and negotiation factors in the hiring process, and getting clear on what the role is worth to YOUR organisation regardless of what salary the candidate is currently earning, and you’re already taking steps to address the gender pay gap.
When pay transparency can be bad
Are there downsides to pay transparency? It depends on how you look at it.
One thing is certain; if you are committed to increased pay transparency for your organisation, you must be prepared to rectify any pay inequality that may be identified as a result. That may mean a significant shift in how your company approaches pay structures, performance, recruitment, and remuneration.
If you publicly disclose salaries, there is a risk that staff may look elsewhere if they find out they are being paid less than the market rate.
There’s also a chance that competitors could try to poach your employees with more competitive compensation offers.
Transparency only really becomes negative if there is a lack of understanding among employees. If someone doesn’t clearly understand why they’re making less than a co-worker, naturally, they will be frustrated.
If your employees don’t know how compensation is determined (or don’t agree with the methods used), there will likely be tension within your company. But don’t think that silence is the answer either. A lack of information can often be even more damaging.
Belogolovsky summarises the potential challenges of pay transparency well:
“I believe that the real issue is not whether pay should be transparent or not but rather whether the compensation system is equitable, well managed and well communicated. Neither a transparent pay policy where employees can compare salaries nor pay secrecy is a solution for an unfair system. In practice, however, at least some degree of pay transparency is necessary in order to convince employees that the organisation’s compensation system is equitable and fair.” [source]
In short, it’s essential to work on the bigger picture of pay structures and pay equity and reach a point where, as an organisation, you are comfortable communicating how these decisions are reached to your staff.
Got some questions about how pay transparency could work in your organisation? Then contact me today for expert knowledge and support.