Employees and job seekers increasingly expect clarity on compensation and parity. Yet, only about a third of respondents in a recent survey considered their organization to be excellent (12%) or above average (22%) when it comes to pay transparency. Organizations that fall short are missing out on significant benefits. Pay transparency ensures that your current and future employees understand how your organization values various roles. Being transparent means everyone can see the skills, competencies, education, and experience level required for them to increase their earning potential. A transparent model helps you stay ahead of the competition when it comes to attracting and retaining top talent.

Transitioning to a transparent compensation model won’t be easy, but the potential benefits will likely make it worth your while. If you’re keen to make the change, the following best practices will help you implement your pay transparency policy.

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1) Conduct a Compensation Audit or Analysis

Before you dive head-first into pay transparency, it’s important to know where your current compensation practices stand. You’ll do yourself no favors if you showcase your salary ranges and incentive packages and later discover (likely due to a barrage of angry workers’ complaints) that your current pay scales aren’t equitable.

Start your journey to transparency with a compensation audit to detect and correct wage discrepancies before you publicize your pay policies. Leverage your compensation management software to gather and analyze data about your employees’ salaries, demographics, skills, and competencies. When you perform a pay audit or analysis, make sure you’re looking at employees’ compensation from every angle. Be sure to consider the following for each position at your company:

• Base salary
• Benefits
• Sign-on and performance-based bonuses
• Shift differentials

Look for patterns in your workers’ total compensation data to see if there are any wage discrepancies. If discrepancies exist, determine whether or not the gaps are due to differences in the employees’ experience or skills as opposed to factors like gender or race. Take the necessary steps to correct any wage disparities to ensure your organization is equitably compensating its employees. Your compensation audit will also tell you whether or not you’re paying employees a competitive wage that aligns with market rates in your industry.

Compensation audits should happen at regular intervals to ensure your organization is upholding equitable pay practices. As you shift your compensation model to improve equity and transparency, you should support your changes with external salary research. Data from outside sources will validate your compensation model. It also shows employees and candidates that your organization is committed to aligning its pay practices with industry standards. Consider using official government databases like the U.S. Bureau of Labor Statistics as a starting point for your market research. Reputable surveys and reports from industry leaders can also offer valuable insights to inform your compensation model updates.

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2) Know the Law

While pay transparency certainly benefits employees and organizations, there are also legal ramifications in many states, provinces, countries, and even specific cities for companies that do not disclose compensation information. The requirements for pay transparency depend on factors such as where your organization conducts its business and employees’ geographic locations. It’s crucial to understand which laws and regulations will impact your business so you can take the appropriate measures to ensure you’re maintaining compliance.

As of August 2024, there are 10 states in the U.S. that have enacted pay transparency laws, and various cities and municipalities have their own regulations even if their state does not. For example, Ohio doesn’t have a state-wide policy regulating pay transparency, but two of its largest cities, Cincinnati and Toledo, both have local laws that impact organizations operating within their borders. Across the sea, the European Union’s Pay Transparency Directive will officially require member nations to integrate pay transparency laws into their legislation by 2026. As part of this legislation, organizations operating in the EU with more than 100 employees must identify, report, and explain pay gaps greater than 5% in an effort to improve pay equity. This reporting process is scheduled to begin in 2027.

These legal shifts align with broader societal demands for improved diversity, equity, and inclusion (DEI) in working environments. Even if your organization is still on the fence about enacting pay transparency policies, it’s highly likely that evolving regulations will force your hand. It’s better to prepare for these policies early while you have time to make refinements. Compliance experts or your legal team can help you stay abreast of pay transparency requirements that may impact your organization.

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3) Adopt a Pay Transparency Philosophy

If you treat compensation transparency as a legal or compliance issue, then you’re much less likely to convince your organizational leaders of its value. While you’ll need to meet compliance requirements, challenge your organization to go beyond the bare minimum. Embracing pay transparency is the perfect opportunity to strengthen your employee-employer relationships, enhance your DEI initiatives, and give your company a competitive advantage over the competition.

Think of pay transparency as an employee value proposition to promote fairness and trust in your compensation process. Your pay philosophy should help you define what “fairness” means within the context of your organizational structure and should be incorporated into your overarching goals. Create a compensation philosophy that aligns with your mission, values, and culture, and communicate your pay transparency initiative across your organization.

Your managers oversee employee performance and potentially have control over their direct reports’ raises and bonuses. Be sure to equip managers with the tools they’ll need to make sound compensation decisions, including how to identify and avoid biases. You need to ensure that your managers and other people leaders are prepared to answer employees’ questions and address any concerns related to your pay transparency policy.

It’s also important to educate your talent acquisition teams on your organization’s pay transparency philosophy. Your recruiters should be able to explain pay ranges to applicants and help clear up any discrepancies or misunderstandings regarding compensation.

Clearly communicate the following information to ensure your workforce understands your organizational expectations and policies for pay transparency:

• How pay ranges are established
• Geographic and market considerations that impact compensation decisions
• How your organization’s pay scales compete with market averages
• Which data sources are used to determine market competitiveness
• How pay ranges are established for remote-capable roles versus in-person positions
• How your organization evaluated its existing compensation model to identify and correct any wage discrepancies among current employees

4) Establish and Share Pay Bands for Each Position

Many compensation transparency regulations require organizations to provide salary ranges, but establishing pay bands does more than simply help you maintain compliance. Establishing pay bands ensures that your organization has a clearly defined set of expectations and qualifications for each position that help you maintain pay equity. Aligning jobs with specific skills and competencies as well as experience and education takes the guesswork out of compensation by giving you a framework for making employee pay decisions.

Pay ranges can also help you stay competitive in the market. Many top applicants won’t bother applying for roles if the job descriptions don’t include salary information. Jobseekers know their value, and top talent will look for opportunities with companies that offer competitive total compensation packages. Recent research from SHRM found that 82% of U.S. workers are more likely to apply for roles that include salary ranges in the job posting.

Including pay information in job listings also helps your business attract top talent. The same SHRM report found that 70% of businesses saw an increase in applicants after including pay ranges in their job listings, and 66% of companies felt the quality of applicants increased. By providing compensation information upfront, you’re less likely to receive applications from people who don’t align with your organization’s current needs. Just be sure that the ranges you provide are in good faith. Arbitrary pay ranges can turn away potential candidates and make people lose trust in your organization. List salary ranges that are fair for the work you’re asking people to do.

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5) Create Consistent Guidelines and Criteria

In addition to establishing salary ranges, every position within your organization should have clearly defined criteria for performance ratings and pay increases, especially if compensation increases are tied to performance reviews. Employees should know how performance ratings impact their salary increases. They should also know how much of an increase to expect based on the criteria your organization establishes. By creating compensation increase guidelines, you can ensure that your pay practices remain fair and equitable across your organization.

6) Ensure Employees Understand Their Benefits

While base salary is often the main focus of pay transparency conversations, it’s important to also ensure that your employees understand the value of their total compensation and awards. Benefits beyond base pay might include:

• Paid time off
• Healthcare and other insurance packages
• Retirement contributions
• Company equity
• Performance-based raises and bonus commissions
• Wellness programs
• Student loan repayment plans

Many employees might not be aware of some of the benefits that are available to them, meaning they don’t know the full value of their total compensation package. It’s important to communicate these benefits and how employees can access them as your organization transitions to more transparent pay practices.

Be aware that it’s not enough to merely outline what benefits are available. Being transparent means giving your employees access to tools and resources that help them take advantage of their benefits and reach their full earning potential. Part of this means fostering a culture of open communication between managers and direct reports. Encourage your managers and employees to have open discussions about employees’ career goals, performance, and compensation. Equip your managers with tools and resources that can help them guide their direct reports toward skill-building resources and education so your employees can take full advantage of the opportunities available to them.

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7) Set Goals and Seek Feedback

Once you start to implement more transparent pay practices, you’ll want to assess the business impact of your new compensation policies. Choose measurable goals like increasing time to hire or streamlining your performance review process and compare your results from before and after implementation. If you’ve successfully implemented your transparent pay policy, then you’ll likely see improvements in other areas of your organization.

One way to track progress toward your goals is to gather feedback from your workforce throughout your pay transparency journey. Survey workers at various stages of your switch to transparent pay to see how your organization’s changes are impacting various demographics and employee groups. You can also seek feedback from job applicants and new hires during the interview or onboarding process to assess how well your transparency initiatives resonate with external stakeholders.

Gathering feedback at regular intervals gives you additional insights and data to shape your compensation initiatives. Use worker feedback to address confusion, correct misunderstandings, and improve your initiatives so you can continue to attract and retain top talent.

Technology That Supports Your Equitable Compensation Strategy

Making the switch to transparent pay practices will take time and effort, but the benefits far outweigh the costs. Especially when you use fit-for-purpose tools designed to help you get top results. PeopleFluent Compensation can help. It’s a comprehensive solution that gives you data-driven insights into your compensation landscape. So you can strategize effectively and reward your people fairly.