The awkward realities of pay transparency

The benefit, perhaps, of being an advisor to HR professionals rather than being an actual HR practitioner, is that those that provide HR theory don’t then have to take them into the real workplace.

Perhaps it’s why Augustus Vickery, a director at Gartner’s HR practice, argues that if someone new is brought into an organisation, to do the same job as others that are already there (but at a higher rate of pay – perhaps because the market is now tighter), everyone else should get uplifted to that level of pay too. To him this notion makes perfect sense.

“Often, once people are hired, pay gets de-prioritised,” he asserts. “But in this situation [of the new person being paid more], organisations will now be underpaying the people’s they’ve got,” he continues. “This is bad, because those people will leave, and the cost of replacing them will be even more than the pay uplift they didn’t get. Basically, there’s a cost to pay inequity.”

When put like this, the argument for greater transparency (certainly from workers’ perspective), looks attractive. It’s why the government (in the past few weeks), has indicated that it now wants to give employees greater rights to quiz bosses about pay. But try asking HR practitioners to persuade the business to uprate everyone else pay – just because now, market conditions have changed, and for skills shortage reasons, a new entrant will cost more to entice.

This working example – argue other experts – neatly reveals the problem with the idea of pay transparency in a nutshell. This is that it sounds great on paper [and is well known to help gender, pension and ethnicity gaps], but as the above example already shows, the reality is that organisations’ pay is complex, and can be impacted by lots of external reasons. It’s why, say experts the government might well say pay transparency is needed – but working it out is a whole different kettle of fish.

Good… in theory

“Pay transparency is a no-brainer at one level,” says Chris Kirby, Lace Partners’ Senior Manager (HR Transformation team), “and all employers would like to be able to say it exists, they are working towards it. But it’s also highly nuanced.”

He says: “When staff turnover is low, for example, should someone new coming in – even at the same level – be paid the same as someone else who’s been there a long time, with accumulated rises, and has many years’ experience?” He continues: “The government talks about transparency in terms of creating trust. What HR practitioners will tell you, is that in cases where differences ‘are’ revealed – and even for valid reasons – it often creates distrust.” He adds: “To bring everyone up will be extremely costly to employers. My view is that privately, I rather think many companies hope this government proposal will just drift away, because the machinations of pay transparency are so complex.”

Pay transparency is not pay equity

“It’s just not realistic that everyone should be paid the same,” echoes Caroline Fischer, Country Manager, job platform, Welcome to the Jungle. “And while there is broad support for the idea of pay transparency philosophically, on a practical level, most HR teams aren’t there yet,” she says. “Uplifting everyone is impractical, and could be financially detrimental.”

So if the government did proceed to try and implement it, what would be the implications for HR professionals, and how could/should they respond?

“Proposals to force businesses to disclose pay structures and salary bands will legitimately create concerns that it could reduce organisations’ flexibility in pay decisions, complicate recruitment, and disproportionately affect small businesses lacking a HR infrastructure,” says Lisa Patmore, partner at law firm Dorsey & Whitney.

She adds: “Universally, employees rarely accept performance-based justifications for pay discrepancies; many just assume discrimination. And while transparency can empower employees and clarify progression, I’ve personally seen employers pressurised into moving employees into a higher grade, with an increased salary band, even though they were not performing well in their role.” She adds: “In another instance, two employees nearly came to blows because one of them believed that the other employee - on the same grade - was not working at the level they were.”

According to Justine Woolf, director of reward consulting firm, Innecto, wider problems come into play, such as the ability of HR to access market data on what roles ‘ought’ to be paid at, plus the systems required to coordinate pay transparency. “Transparency requires a whole load of underpinning systems to all be working together – which small firms don’t have,” she says.

What Woolf adds, and what most commentators agree with, is the fact there are, what she calls “consequences to sharing everything,” because pay transparency isn’t pay equity, but many employees conflate the two.