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07 Aug 2023
by Ruth Thomas

Why pay transparency needs to reflect business values

If you say employees are your most valuable asset, make sure you pay them fairly – and make sure you are open about pay internally

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On 1 January, 2021, Colorado became the first US state to mandate the disclosure of pay ranges in job postings. To date, 14 other US jurisdictions have followed suit with laws enacted or waiting to take effect.

There are also amendments in play to some of these new laws which will require employers to disclose significantly more pay information to existing employees about available job opportunities and career progression paths to increase visibility in pay practices.   

Meanwhile, on this side of the Atlantic, while European legislators led the way with pay equity reporting laws, it was not until March this year that the European Parliament approved the Pay Transparency Directive, which requires member states to translate it into national law within three years – by 7 June 2026.

The directive introduces wide-ranging pay transparency measures including mandatory gender pay gap reporting, pre-employment pay transparency obligations and extensive employee information rights to pay data as well as a ban on pay secrecy clauses.

For the UK, this directive is the first major piece of European equality legislation since Brexit. If we do not follow suit, UK employees’ rights will significantly diverge. This will be a challenge when we know that other legislators around the world are paying close attention to this new directive, and it is likely to become the new ‘standard’ for pay transparency and equity globally.

Avoid rushing into compliance

This legislation has focused many to rapidly consider changes in their approach to pay, in some instances with mixed results. We have seen broad pay ranges on job advertisements, rendering them almost meaningless. Many have also failed to consider the impact of pay transparency internally, leading to dissatisfied employees.

A value-led discussion

For European employers there is some lead time to take a more considered approach, which should ideally start with asking what your goal is for increasing transparency. Is your goal compliance or to show that you value your talent? Of course, it can be both, but many early adopters of pay transparency did so because transparency was a core tenet of their company values.

Transparency has long been a business value adopted to increase trust with stakeholders.

Transparent companies typically share information relating to performance, internal processes, sourcing, pricing and business values. This in turn has led to increased employee retention, boosted sales and improved brand reputation and success.

There are compelling truths about pay transparency as it relates to your organisation’s values. Your core values should be reflected in your compensation philosophy. So, if you say employees are your most valuable asset, pay them fairly. If you value open communication, prove it by communicating salary ranges and pay rationale to your employees.

Some businesses are fearful of communicating openly about pay, but if your process is fair, you will have nothing to hide and the right pay framework should be easy to explain because it obviously aligns to how you attract, retain and reward talent.

Address pay risks

Even if wholly committed to a value-led approach, you still need to consider the risks of exposing current pay and practices. Decades of historical pay practices can affect where you are today.

Four steps for ensuring pay fairness:

  • Understand the factors that affect pay and make sure these are part of your compensation philosophy and pay policies
  • Ensure you have the job architecture and competitive pay structures that allow for appropriate comparisons between groups of employees both vertically and horizontally
  • Train managers and other stakeholders to have effective conversations with employees about their pay
  • Conduct proactive pay equity analysis to understand the impact of wage gaps and biases

At a time when pay fairness has become a multi-stakeholder issue and societal and employee expectations have shifted, it’s time to move beyond aspiration to reality and start putting principles into action when it comes to pay transparency.

Find out more about Payscale pay transparency solution by clicking here.

In partnership with Payscale

At Payscale we provide technology solutions and services for companies to manage their compensation data/survey participation, job/grade pricing, compensation reviews and pay equity analysis.

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