Human Resources News & Insights

Pay transparency: A new tool to boost employee engagement

For many companies, discussing salaries has always been taboo. Some firms even required new hires to sign an agreement swearing they wouldn’t disclose their pay to co-workers. 

This “loose lips sink ships” approach is largely illegal, of course: Employees are generally free to talk about pay rates as part of their rights under the National Labor Relations Act.

Nonetheless, for years, companies held salary information very close to the vest.

But times are changing. Many firms have now gone to a policy of transparency in matters of compensation.

2 separate approaches

Stephanie Thomas, program director of the Institute for Compensation Studies at Cornell University, writes that pay transparency comes in two flavors: salary disclosure and pay process transparency.

1. Salary disclosure: In this approach, the company distributes a spreadsheet listing employees, their titles and their salaries.

This approach can be tricky. There are always going to be cases where an employee asks, “Why is Stephanie paid more than me? We have the same title and the same duties.”

Whole Foods explains the rationale for adopting its policy in a statement on its website:

“Salary information for all –including the company’s leadership – is available to all inquiring team members. Wage transparency helps promote inclusiveness and ensures our compensation system is fair.”

2. Pay process transparency: The second approach explores how compensation decisions are made, and explains to individuals why they’re making what they are and what they need to do to earn more.

This involves having detailed discussions with employees, either individually or in a group, about the overall compensation plan – salary ranges and midpoints, goals and objectives that need to be met, performance metrics, etc. Most companies prefer this approach because it focuses the conversation away from rankings of employees toward individual performance.

Both approaches signal a new trend in employee engagement – helping workers understand the inner workings of their organizations.

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