Can Pay Transparency Improve Retention?

Tara Klein
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Salary has always been somewhat of a taboo to talk about, and conversations about it tend to happen behind closed doors and through whispered conversations. Although this has been and is still the norm for most companies, experts are starting to see that this approach may negatively affect employee engagement and retention. The truth is, with traditional pay strategies, there is a perception issue. Employees don't have a clear understanding of pay structure and therefore make a lot of assumptions about their pay and the pay of others. Some research even indicates that only half of employees think they are paid fairly! Imagine the impact that has on a business. In fact, PayScale Inc, completed a study to evaluate the relationship between pay and employee engagement and found that one of the top indicators of employee satisfaction was how a company communicated about compensation. The study also showed that how employees perceive the pay process in the organization, in terms of fairness and transparency, is 5.4 times more important to their satisfaction than how they are paid compared to the market. So, whether an employee feels they are paid fairly is more important to their satisfaction than how much they are actually paid!

With that information you can see why some organizations are flipping the switch on the pay discussion and moving towards complete transparency. So, what does pay transparency look like and what impact can it have on an organization?

1. Increased Trust

Whether there is complete transparency regarding the pay or just improved and open discussions about pay structure, the trust between employees and leadership will improve. In the traditional pay strategies, there is a lack of communication and a lot of misconceptions which leads to employees feeling under or unfairly paid. It can create distrust with the organization or even amongst employees.

Employees who understand how they are paid, and the overall compensation strategy of their company are more likely to feel valued. They will have more trust in the system, and the lines of communication are open for more effective discussions about pay.

2. Stronger Pay Strategy

If a company makes the move towards transparency in their pay structure, they must take a closer look at their pay strategy. This includes market comparison on salaries, evaluation of equitable pay, and justification and rationale for the compensation plan. This also means training both human resource personnel and managers to discuss pay properly. The transition requires significant effort, but the outcome can be beneficial.

With market fair pay, employees will be more engaged and less likely to look elsewhere for increased pay. Improved discussions and understanding will remove the negative stigma attached to pay conversations. This improvement on talent retention can have a significant impact on the morale and the bottom line of the business.

3. Control over your pay story

With today's internet resources, information about pay is posted and discussed. That data can come from previous employees or competitors, everyone but the organization's leadership. With pay transparency, the pay story of a company is told by the company itself. Full compensation package data is easily accessible and provided as part of the company's strategy. The organization can present a more accurate picture of their pay structure.

When attracting new talent, this story removes any questions or misunderstandings for candidates making the hiring process more effective. Potential employees have a clear picture of their future compensation with a company before they sign on which will increase the likelihood that employees will remain engaged after on boarding.

Moving towards complete transparency requires significant effort by the organization. The pay structure must be transparency ready which includes market research, equitable practices, and strategic justifications and rationale. Leadership and management must also be prepared to discuss the process and clearly convey and engage the employees in pay conversations. Employees and talent are one of the more important pieces of an organization and keeping them satisfied and engaged can have a significant impact on your business culture and productivity.


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