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Top 6 Benefits of Pay Transparency

, , , |By Jason White

Whether employees talk among themselves about pay or approach managers directly to ask about their comp, it’s natural for them to seek transparency in how they are paid. But these days, pay transparency isn’t just about meeting employee needs for clarity. Pay transparency is also increasingly becoming mandated at the state level. Moreover, your company’s investors and other critical stakeholders may be interested in how you communicate your comp practices to candidates and employees.

This post will explore why pay transparency matters for your company and the key benefits you can expect from incorporating it into your comp program.

What Is pay transparency?

Pay transparency is the sum of your actions to communicate your compensation philosophy and practices to candidates, employees, and other important stakeholders. It can take many forms and doesn’t necessarily involve sharing individual employee compensation with the entire company or the public.

Pay transparency is about more than sharing raw numbers. Instead, it’s about telling the story of your compensation practices so employees and candidates understand their pay within the broader context of your workforce and the market. Ideally, this takes the form of sharing pay ranges—not individual salaries—with employees. As Thanh Nguyen, co-founder of OpenComp, wrote in a Forbes article, “ ... pay transparency doesn’t mean that every employee must know what every other employee earns; rather, it means employers provide an understanding of pay decisions and compensation ranges at each level.”


6 benefits of pay transparency

Without pay transparency, employees are in the dark about the competitiveness and fairness of their compensation. Instead of understanding where they stand, they may rely on gossip or anecdotal information that can be even more misleading.

Research has found that many employees talk about compensation with their coworkers, especially those in younger generations. A recent Bankrate survey found that 40 percent of millennials and 42 percent of Generation Zers reported sharing their salary information with coworkers. Some employees will likely continue to share their compensation with others, but you don’t want this to be the only source of information employees have about your company's pay practices.

Instead of having employees rely solely on incomplete or overstated information from coworkers, you can give them more context about their pay by building wage transparency into your comp program. As a result, employees will have access to more accurate information and can more clearly understand their pay.

Here are six of the top benefits of pay transparency you can expect in your organization.


1. Gain internal trust and retain talent.

Pay transparency opens the door to fairness in pay practices. By communicating pay ranges and the salary growth opportunities within each range, you show employees that your comp program is based on fairness and consistency rather than special deals for specific individuals. With added consistency, employees gain trust in the organization and its goals for fair and competitive pay.


2. Demonstrate financial planning abilities that build trust with your board of directors.

The headcount plan is the financial plan in most companies. Given that compensation is likely your company’s largest expense, investors and board members naturally want to understand how you manage that expense. By operating a transparent compensation program—inclusive of a compensation philosophy and clear pay structures—you can keep key stakeholders informed about your strategy for navigating economic uncertainty with an informed, data-driven approach to the largest area of your business' spend.


3. Support compliance with equal pay transparency laws.

Several states and municipalities—including Connecticut, Maryland, Colorado, Washington, and soon New York City—require employers to share company pay ranges with candidates and employees at various stages of the hiring process. Incorporating pay transparency practices helps you comply with applicable laws where you hire. Moreover, by applying transparent practices even when not required, you can demonstrate that your company is ahead of the pay equity curve.


4. Bring salary data science to merit and promotion cycles.

When you have a compensation strategy that aligns with well-defined pay ranges and competitive salary data, pay negotiations become less necessary. And if you clearly communicate your compensation strategy to candidates and employees, you may be able to limit or even eliminate salary negotiations.

Instead of operating by exception and creating individual deals, you can make pay decisions that align with your compensation plan. That way, you can make efficient compensation offers and keep pay consistent across job levels.


5. Strengthen the overall evolution of your compensation program.

Pay transparency requires a thoughtful approach and a commitment to treating compensation as salary data-driven science, not just a set of decisions based on gut feelings or guesswork. By committing to increasing transparency in your pay practices, you are also committing to finding reliable benchmark salary data, establishing a compensation philosophy, and creating the salary bands you plan to communicate to employees.


6. Attract and retain talent.

Amid the Great Resignation, modern employees have many options for where they can work. As a result, organizations across just about every industry face high turnover. In a recent survey conducted by Time is Ltd. and Ascend2, 76 percent of HR leaders said they are experiencing more year-over-year turnover since the start of the pandemic.

Several studies have found that job candidates and employees expect more transparency in job postings and from employers. When you incorporate wage transparency into your pay practices—for example, by providing information about pay ranges for different roles or role levels—you help candidates and employees see their immediate and long-term compensation potential with your company. With this additional information, employees may be less likely to look elsewhere for the salary transparency they desire.


Steps to achieve pay transparency

Pay transparency requires company commitment, and it doesn’t happen overnight. Before you begin to share information with candidates and employees, you need to ensure the comp data you share is based on the right benchmarks and determine how you will share the information.

Take the following steps to build pay transparency into your compensation practices:


Use the right compensation benchmarks.

Use reliable compensation benchmarking data based on information reported by employers, not employees. You can also benefit from using compensation software that:

  • Automates pay range creation.
  • Refreshes benchmark data quarterly (or more often).
  • Allows you to filter comp data, making it easier to compare the roles in your company with the same roles in other high-growth companies.
  • Empowers you to model scenarios, develop headcount plans, and surface insights about the best path forward with fresh, reliable comp data.
  • Offers diversity, equity, and inclusion (DEI) evaluation tools to help you monitor pay equity on an ongoing basis.

Establish a compensation philosophy.

Craft a statement that explains how you approach compensation and tie all pay decisions to that philosophy. If you follow your comp philosophy consistently, employees will trust that your program is fair and equitable.


Address employee preferences for transparency with pay ranges.

Educate employees about pay ranges and opportunities to elevate their pay within their job range. Some companies share information about the current pay range and the one above so that employees can see the potential trajectory of their pay over time.


Develop headcount plans you can trust.

Even though headcount is the largest source of spend for most pre-IPO business, building headcount models has remained a tedious, time-consuming, and manual process, full of room for human error. OpenComp’s Headcount Plan Feature brings financial analysis, comp data, and pay ranges together so you can gain an accurate view of spend over multiple years with minimal effort.


Equip HR recruitment staff and people managers.

Everyone responsible for hiring and people management should have the tools and information necessary for clear, transparent comp conversations with candidates and employees.


Support company growth with greater pay transparency

Pay transparency supports a culture of trust and helps you attract and retain talent. It is an essential pay practice that contributes to your company's continued growth.

With the help of relevant comp data and a compensation philosophy to guide your actions, you can begin sharing the pay information employees need for a positive employee experience. To get started, sign up for free or request a demo of the OpenComp compensation tool and see how it helps growing companies like yours move toward greater pay transparency.


Jason White is OpenComp's Principal Compensation Consultant.