Employers, Let's Talk Money: How to Increase Pay Transparency (2/2)

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Pay transparency has become an increasingly popular topic in recent years, and employees are regularly being urged to discuss compensation as a way of bringing discriminatory practices to light. Instead of waiting for your employees to start discussing their pay with co-workers, you can, and should, play an active role in increasing pay transparency in your workplace.

Employers can facilitate trust in the employment relationship by providing information that assures employees they are being paid fairly. If gaining employees’ trust isn’t enough of an incentive, think about your bottom line: unhappy or suspicious employees will be the first to start job shopping, increasing your turnover costs. Additionally, you can help prevent unequal pay litigation, threatened by former employees or those who have one foot out the door, by being more transparent about your compensation calculations. Pay transparency can even increase the appeal of your company to potential job applicants and increase current employees’ productivity and job satisfaction.

Now that you’re committed to bringing pay transparency to your workplace, what’s the first step you should take? Here are a few best practices that can help ensure your company is transparent in a healthy way, and that you reap the benefits of this newfound openness:

  • Ban pay history questions for applicants. To battle pay discrimination as early as the hiring process, some states, cities, and companies are implementing policies that ban pay history questions for applicants. Using compensation from a previous job as a baseline may exacerbate discriminatory wage gaps that already exist. Although legislation banning employers from engaging in this type of questioning was recently vetoed in Illinois, lawmakers may attempt to pass similar legislation in 2019.

    But how do employers decide how much to pay employees without using previous pay as a baseline, or simply asking employees how much they expect to make? Employers should conduct market research and try to compensate employees in an amount that reflects what their skill set is worth in their industry. This will fluctuate based on your resources and the ability to match competitors in the market, but it serves as an important point of reference when trying to attract top talent. If possible, employers should aim to have a pre-determined compensation range for all roles which can be shared with applicants and current employees.
  • Conduct internal pay audits and utilize outside experts if necessary. Employers must continue evaluating their payroll after employees have received their initial offers. Ensuring equity in pay is an ongoing process, as people receive promotions, raises, bonuses, and other opportunities for increased earnings. Managing this process can be achieved through internal pay audits and, depending on the size of the organization, the use of outside experts and professional auditing resources. If similarly situated employees are being paid different amounts, you should make sure there is an objective and non-discriminatory reason for the discrepancy.
  • Steer clear of “unofficial policies.” Employers should be aware of laws surrounding pay transparency and tread carefully. Many employees refrain from exercising their legal right to have conversations surrounding pay with their co-workers because they fear possible repercussions if their employer finds out. The National Labor Relations Act and many state statutes prohibit employers from having official pay secrecy policies. However, employers should also avoid any unofficial actions or internal messaging that signals to employees they will be retaliated against or otherwise subjected to adverse employment actions for discussing pay. Regardless of whether these “unofficial policies” lead to legal liability, it is not worth the hassle and cost of litigating to find out.

Focus on transparency in a way that makes the most sense for your organization.

Streamlining and monitoring pay practices should enable you to be more transparent with applicants and employees, but keep in mind that creating more pay transparency will look different for every organization. It might seem like the easiest way to attain total transparency would be to publish pay information in a place that is secure and accessible to employees. But this is unlikely to be realistic for most organizations, and may even create tension among employees. Instead, most employers should be prepared to provide applicants and employees with information explaining how compensation is determined and what employees can do to increase their earnings, making clear that opportunities for pay increases are equally open to all who qualify.

You could increase pay transparency simply by sharing data with employees that reflects what they are making comparable to other jobs and employees in the field. As an employer, you can give general information to your team, but make clear that you welcome one-on-one conversations about pay as well. If you have concerns that employees might be a flight risk, but either can’t afford to increase their compensation right away or have legitimate reasons for not doing so, you should share these reasons with your employees, and give them goals they can strive for in order to reach the next level of pay.

Your employees will appreciate the personal attention you are willing to give them, as well as your honesty. Most importantly, employees who know why they are paid above—or even below—market wages are more likely to be satisfied with their job and to stick around for a long time.