Navigating the Spectrum of Pay Transparency in your Compensation Strategy

Introduction 

As organizations strive to foster fairness, equity, and trust among their workforce, they face the decision of how transparent to be with their pay information. However, many organizations fail to recognize that pay transparency exists on a spectrum. Navigating this spectrum requires careful consideration of the organization's values and culture, as well as industry norms and emerging regulation. With any pay transparency program, the goal is to create an approach that works for your business and employee value proposition. 

This article explores the different approaches to pay transparency, highlighting the benefits, challenges, and considerations associated with each decision. By understanding the range of options available, organizations can make informed decisions and take steps towards creating a more transparent and equitable compensation program for their employees.

Interested in a deep-dive into rolling out a Pay Transparency program? Check out our playbook here.

Background: What is Pay Transparency and why is it important? 

Pay Transparency enables companies to build trust with their employees. 

It is not a one size fits all initiative, and does not sacrifice confidentiality for employees. Instead, it is an evolving program that allows an organization to be proactive about its compensation philosophy and commitment to fairness and equitable employee compensation.

Because of changes in employee expectations and new legislation, pay transparency is also a pressing issue in today’s business landscape: 

• As of May 2023, 7 states and multiple localities (including New York City) had enacted pay transparency legislations, with an increasing number of legislative bodies considering state-level legislation 
• 85% of Gen Z workers are less likely to apply to a job without a compensation band posted.
• 40% of Job postings on Indeed, up 137% over the past 3 years, now include salary information.
• 73% of US workers are more likely to trust organizations that share salary information in job postings.
• A study of productivity for academics before and after pay-transparency initiatives showed an 8% increase in overall productivity.

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As organizations respond to changing worker expectations, legal compliance becomes more widespread, and research continues to show that transparency drives better business results, organizations are likely to implement some level of transparency. However, companies have choices at their disposal to decide how transparent they want to be. Below, we outline the following “Tiers” of pay transparency: 

• Level 0 - Baseline transparency (this is “compliant” in most states) 
• Level 1 - Manager transparency 
• Level 2 - Employee transparency
• Level 3 - Progressive employee transparency 
• Level 4 - Full transparency  

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Not all organizations will be at the same level of transparency or even interpret each tier in the same way. However, it is important to first understand the requirements and benefits of each approach, in order to set an organizational aspiration of which Pay Transparency approach you intend to take. 

Not Transparent 

Deciding to pursue no pay transparency can negatively impact your company in a myriad of ways including:

• Providing negative employee experiences
• Creating a culture of mistrust
• Hindering talent acquisition and retention efforts
• Inviting legal risks
• Harming a company's overall reputation and long-term success

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Additionally, in some states, you can face a fine for not providing basic pay transparency on job postings in data reporting. Some states explicitly describe fines for non-compliance, which include:

• New York City - up to $250k for violation
• New York State - up to $3k fine for each violation
• California - up to $10k fine for each violation
• Illinois - up to $10k for the first violation
• Colorado - $500-$10k per violation
• Connecticut - undefined fine amount
• Nevada - up to $5k per violation

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Finally, even if you are not in a state that mandates minimum pay transparency, it’s worth considering a more transparent approach. Eleven states have some form of pay transparency proposals moving through their state legislatures so it may be time to start future proofing your compensation strategy for the broader roll-out of these laws. 

Level 0: Baseline Transparency (Compliance)

Description

An internally managed workspace for executives and HR teams to see compensation bands, which are shared on job postings and, by request, to employees.

Before growing into higher levels of pay transparency, organizations must start by having a workspace to manage their compensation bands. This workspace typically is a series of Excel files or a Google Sheets folder owned by a small group of executives or the HR team. Compensation bands have been built for external job postings, and band maintenance is a highly manual process with limited repeatability and adherence to compensation bands is likely inconsistent across the organization.

At this stage, your organization likely is beginning to think about pay transparency, and has an immature compensation strategy.

Level 1: Manager Transparency

Description

Managers have access to compensation bands for relevant positions in their organization. They may use these bands for discussions around promotions and career progression with their direct reports.

Benefits

Managers are your most effective communication pathways at an organization. Giving managers insight into employee compensation and compensation bands is a great start to drive more transparency within your organization. 

Additionally, when managers fully understand the potential growth trajectories of their teams, they are better equipped to develop talent. Giving managers access to compensation bands drives a stronger relationship between managers and employees to set clear expectations on compensation to drive better engagement and performance. 

Other organizational advantages for sharing compensation bands with managers include: 

• Decentralize compensation conversations. Rather than relying only on People and HRPB teams to have compensation discussions, giving managers access to bands  frees bandwidth for HR teams to work on more strategic aspects of a People function.
• Refine compensation bands. Managers are on the front lines of Recruitment decisions while speaking with candidates. Giving managers access to bands shortens the feedback loop on band adjustments to be market competitive. 

Requirements

• Develop a compensation philosophy. This philosophy confirms that bands were developed with explainability and consistency in mind, and ensures managers understand the foundations of compensation.
• Define your philosophy on manager access. While managers are critical in compensation communications, they are also employees themselves. Thus, you should define what level of access is most appropriate for viewing compensation bands. Options for manager visibility include: 

• All positions where a manager has a direct or indirect report 
• All positions up to (but not including) the managers position within a given career ladder 
• All career ladders where a manager has a direct or indirect report 

• Create your leveling framework. This doesn’t need to be a competency matrix at a position level (but it can be). At a minimum, it should clearly explain the global expectations of levels within the organization. 
• Implement a compensation platform. Administering advanced access policy that you have defined for your managers is difficult to maintain without the proper tooling. This platform should incorporate employee compensation data and support band analysis with standard metrics such as Compa-Ratio or Band Penetration. 
• Train your managers. Effective conversation about compensation bands and leveling with employees is critical. Do not assume that managers immediately know what (or what not) to say to their employees. Be thoughtful about equipping your managers with the right resources and FAQs. 

Level 2: Employee Transparency

Description

Employees proactively have access to their salary band and understand where their current total compensation is positioned relative to that band. 

Benefits

Sharing compensation bands with employees exceeds the growing regulatory requirements for pay transparency in states with legislation. However, it also presents an opportunity to build trust with employees by showing your commitment to fairness and equality in the workplace. Additionally, it allows your organization to future-proof your compensation strategy and build a culture of transparency and trust. 

There are many benefits for rolling-out band transparency, including: 

• Employees become more confident in their current pay and how the band informing their pay was created.
• HR teams ensure a consistent narrative between external job postings (that are typically required by law to denote a salary range) and internal compensation discussions.
• Organizations reduce ad-hoc compensation change requests through higher employee confidence in their pay. This can be an important driver for retaining your talent.
• Improving retention contributes to reduced talent-acquisition costs and builds a more efficient organization.

Requirements

Before sharing band data with employees, organizations should consider a phased approach, where they begin with manager transparency (see Tier 1). Once they have achieved relevant feedback from leadership and managers, they should undergo sufficient preparations for a successful employee-level launch, which includes:. 

• Refine any compensation bands based on feedback from the leadership and management teams. Ensure the structure is fully developed for all positions (and potential promotions or new departments) within your organization’s job architecture.
• Conduct an audit of current employee compensation against their bands. Identify employees that are below, or above, their band and make a plan for addressing those compensation discrepancies either before (or after, if absolutely necessary) the launch.
• Define and share a global leveling framework and support that rollout with relevant training for managers and employees. Organizations that share bands without a framework run the risk of employees losing confidence in the compensation bands and leveling decisions. By aligning on a global-leveling framework first, you will equip managers with talking points for leveling decisions which will drive consistency and confidence in the company’s compensation strategy.

Level 3: Progressive Employee Transparency

Description

Employees have access to their salary band and the band in the level above their position. Other variations on this transparency might include visibility into their salary band in different locations, or all salary bands within the relevant career ladder.

Benefits

Sharing this information helps develop a strong culture around employee engagement, growth, and performance. When employees know what they are working towards, they are further motivated and confident in their desire to stay in an organization. Employee satisfaction and productivity is also likely to increase, improving the company’s ability to achieve business goals.

Requirements

This level of pay transparency requires a more robust leveling framework, and equipping people managers to have meaningful conversations around career growth.

• Build department specific leveling frameworks & competency matrices, and audit employee levels for accuracy. Each department should have specific expectations of their employees along with the categories used for measuring performance. These expectations and categories should be developed and informed by managers so they can clearly set expectations for growth. 

• Train managers to explain expectations for employee growth and evaluation. Competency matrices are not enough on their own. Managers need to communicate expectations, support growth, and display their own ability to measure performance.

• Drive consistency in the merit cycle approach. Employees need to understand when their levels are subject to change. Without a consistent approach, employees may view the next level of compensation band as a goal without a target date, thereby demotivating them to perform and grow. 

Level 4: Full Transparency

Description

All compensation bands are visible to all employees in the organization.

Benefits

This is one of the strongest signals a company can make to show its commitment to pay equity. Organizations that have rolled-out full transparency with compensation bands have found significant cultural improvements in trust, fairness and equitability, as well as employee performance according to studies published in the Academy of Management.

In this environment, employees are motivated to perform their potential and it  becomes easier to attract new talent by highlighting a strong culture of transparency and compensation visibility. 

Requirements

Organizations that choose to adopt a fully transparent approach to compensation bands should ensure they have adequate planning and preparation. Achieving this level of transparency has the potential to drive high retention and employee morale. This is typically a CEO led decision, so once you have achieved leadership alignment, you can get started by doing the following: 

• Run a full pay equity analysis to identify any inequities that exist in the organization. Take action on these in advance of rolling out your transparency program. Additionally, you should define a regular cadence for running pay equity analyses in your compensation philosophy (this is typically on a semi-annual or annual basis). 
• Define a consistent approach for refreshing compensation bands. It’s vital to ensure market swings in compensation are addressed but don’t cause organizational whiplash. Create an approach for handling these factors and stick to your approach when refreshing bands (refreshes are usually performed 1-2 times per year) 

• Develop a culture of transparency and psychological safety to support this transition. In any organizational change, it’s critical to think through the levers to effectively implement change. This might be include: 

• Role-modeling what it means to be transparent from the leadership team 
• Clarify why this level of transparency is important for the organization and what it represents in terms of an organization’s commitment to equity 
• Train managers and employees around what it means to operate in a more transparent organization 
• Reinforce this level of transparency with regular manager and employee feedback 

Conclusion

Regardless of where your organization currently is, creating a roadmap for how you are going to address pay transparency will be a critical component to a successful People strategy in the coming years. From new legislation to continued changes in employee expectation, pay transparency is an initiative that companies can no longer ignore. Those that are thoughtful, and intentional, about how pay transparency fits into their compensation programs will be better equipped to attract, retain, and motivate talent.

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Learn more about how Assemble improves pay transparency outcomes 

Check out our playbook on rolling out pay transparency

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