If Pay Transparency Is So Important, Why Doesn’t Everyone Have It?

Pay transparency has become an increasingly important issue for both companies and workers in recent years. In a recent beqom survey, nearly half (45%) of US employees, and 37% of UK employees, said they would seek a job at a company that disclosed a lower gender pay gap than their current employer.

Pay transparency involves making information about compensation practices, including pay ranges, criteria for pay, and the process of determining and approving pay, visible to employees, management, and regulators. 

While there are many benefits to pay transparency, it is not always easy to achieve. However, with the right tools and strategies, companies can successfully implement pay transparency and reap its many benefits.

Why pay transparency is so important

Pay transparency is vital for a number of reasons, both for employees and companies as a whole. Here are just a few reasons why:

One of the primary benefits of pay transparency is that it promotes greater fairness and equity in the workplace. When employees have access to information about how pay is determined and what the pay ranges are, they can better understand whether they are being paid fairly and can identify any disparities that may exist. This can help to reduce feelings of resentment and increase employee engagement.

Increases trust and morale

Pay transparency also increases trust and morale among employees. When employees feel that the company is being open and honest about pay practices, they are more likely to feel valued and respected. This can help to build a positive work culture and increase overall employee satisfaction.

Attracts and retains talent

Pay transparency can also be a powerful tool for attracting and retaining top talent, especially in competitive industries. A reputation for pay transparency is important for a strong employer brand. When job candidates have access to information about pay ranges and criteria, they are better able to assess whether a company is a good fit for them. Likewise, when employees feel that they are being paid fairly and that their contributions are recognized, they are more likely to stay with the company long-term. And this trend is likely to continue; beqom’s 2023 Leveling the Paying Field report revealed that nearly three-quarters of Millennials (73% UK, 72% US) are more willing to work at a company that discloses its gender pay gap figures yearly.

Reduces risk

Transparency around pay reduces the risk of pay disputes and legal challenges. It provides the basis for visibility, traceability, and accountability in the making and approving of pay decisions, while enabling compensation reporting and analysis, and thus is the foundation for compliance and good governance.

Brings other benefits

The steps taken to provide pay transparency generally involve standardizing, streamlining, and automating compensation processes, which bring with them a host of other benefits, such as reduced costs, greater operational efficiency, and an improved user experience for managers and employees, not to mention HR. 

What are the obstacles to pay transparency?

Despite the many benefits, there are several obstacles that can prevent companies from implementing pay transparency. Here are a few:

Lack of Standardization

In some companies, compensation practices are not standardized, which can make it difficult to provide pay transparency. For example, if different managers have different criteria for determining pay, it can be difficult to communicate this information to employees in a clear and consistent way.

Companies can standardize their compensation practices by developing clear criteria for determining pay and ensuring that all managers are following the same process. They can also provide training and support to managers to help them understand the importance of standardization and how to implement it effectively.

While it can take some effort to standardize, inconsistent compensation practices can lead to confusion and perceptions of unfairness among employees, which can result in reduced employee engagement and increased turnover.

Resistance from Management

Some managers may be resistant to pay transparency because they are concerned about losing control over the compensation process or revealing information that they consider to be confidential. This resistance can be difficult to overcome, especially if managers have a strong influence on company culture.

To overcome resistance from management, companies can involve managers in the process of developing and implementing transparent pay measures. They can also provide training and support to managers to help them understand the benefits of pay transparency and how it can help to create a more equitable and productive workplace and aid in bringing in needed talent.

If there is a lack of buy-in from management, it can be difficult to implement pay transparency measures effectively, so it’s important that managers understand that transparency can benefit them through increased employee engagement and reduced turnover.

Data Management Challenges

Providing pay transparency requires a significant amount of data management, which can be a challenge for companies that do not have the right systems in place. For example, if compensation data is stored in multiple systems or in spreadsheets, it can be difficult to ensure that the data is accurate and up-to-date.

Companies can address data management challenges by implementing a centralized compensation management system that provides a single source of truth for compensation data. They can also establish clear data governance policies to ensure that the data is accurate and up-to-date.

Getting a handle on compensation data has benefits well beyond enabling transparency, in terms of accuracy, efficiency, security, reporting, and compliance. Inaccurate or outdated data can lead to incorrect compensation decisions, resulting in inefficient use of the compensation budget as well as perceptions of unfairness among employees.

Fear of Legal Action

Some companies are concerned that if they disclose too much information about pay, they may be at risk of legal action from employees who feel they are being unfairly compensated. This fear is often based on a lack of understanding of the legal requirements for pay transparency and the benefits that it can provide.

Companies can address this concern by ensuring that they are complying with all relevant laws and regulations related to pay equity and transparency. They can also communicate clearly with employees about their compensation practices and the reasons behind them.

The flip side is, if employees feel that they are being discriminated against or are not being paid fairly, they may be more likely to take legal action. This can result in costly legal fees and damage to the company's reputation. Transparency—linked of course to actual fair pay practices—can reduce this legal risk.

And guarding salary information may be a futile effort anyway. Employees are increasingly aware of what others within their organization are being paid. According to beqom’s recent report on fair pay and transparency, 3 in 5 (60%) US respondents and more than half (56%) of UK respondents said they knew what their colleagues brought home. 

Lack of Resources

Finally, some companies may feel they don’t have the resources to implement pay transparency effectively. It may seem like a big project for HR to standardize pay ranges and for IT to manage all the people and pay data. Providing change management around pay practices may require significant communication and training efforts, which can be expensive and time-consuming. 

To overcome the resource constraints that may prevent companies from implementing pay transparency measures, companies can prioritize their efforts and focus on the most important areas first. Perhaps more importantly, they can look for ways to streamline their compensation management processes and leverage technology, and vendor resources, to automate the tasks involved.

While it may take some investment of resources to standardize and automate compensation processes to provide pay transparency, the return on investment can be significant, both in cost control and in terms of recruiting advantages, increased employee engagement, reduced risk, and lower turnover.

How Compensation Management Software Provides Pay Transparency

Compensation management software can be a powerful tool for providing pay transparency. Here are just a few ways that dedicated compensation software can help:

Manages compensation data

Compensation software can help to pull together all the data needed for calculating and reporting on pay. This data may come from many disparate sources, such as from the HCM, finance, payroll, sales, and operational systems. It may include the metrics that are used as drivers of compensation. Having all of this data in one place enables easy reporting and analysis, enabling pay equity and transparency efforts, and supporting compliance. At the same time, this data helps you understand more about your workforce and how to optimize your pay strategies. 

Standardizes compensation practices

Compensation management software makes it much easier to standardize pay scales and compensation practices, helping employees to understand how pay is determined and what the pay ranges are. This can help to reduce confusion and ensure that all employees are treated fairly. A flexible compensation system will allow you to standardize globally while retaining the agility to adapt to local markets. 

Provides a traceable process

Compensation management software also provides a traceable process for determining and approving pay. This helps to ensure that decisions are made fairly and that there is accountability throughout the process, supporting good governance, audits, and compliance.

Enables fairness analysis

Finally, compensation management software enables companies to analyze the fairness of their pay practices. This can help to identify any disparities that may exist and take steps to address them. For example, if it is determined that women are consistently being paid less than men for similar work, the company can take steps to close the gap and ensure that all employees are being paid fairly.

A worthwhile investment

Pay transparency is vital for promoting fairness and equity in the workplace, increasing trust and morale among employees, and attracting and retaining top talent. While implementing pay transparency can be a challenge, compensation management software can help to provide the necessary tools and strategies to make it a success. By standardizing compensation practices, providing a traceable process, and enabling fairness analysis, compensation management software can help to ensure that all employees are being paid fairly and that the company is able to attract and retain top talent.

If you're interested in learning more about how compensation management software can help your company achieve pay transparency, beqom can help. Contact us today to schedule a chat or a demo and see how our software can help you achieve your pay equity and transparency goals.