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Pay transparency is one of those HR topics that splits the room.
Some bosses swear it’s the secret sauce for trust and talent attraction, others see it as a time-bomb lobbed into office politics potentially triggering side-eye from staff wondering why their pay packet doesn’t match that of someone else.
Post a salary band on a job ad and you might lure more candidates, but you could be creating an entirely other headache.
Whichever, side of the divide you favor, Augustus Vickery, Director, Advisory in Gartner HR, has advice that might land heavily in your inbox.
The case for proactive pay transparency
“The overall recommendation from Gartner is for CHROs to be proactive in driving the pay equity and transparency strategy for their organisations," he says. "Whilst there are different regulatory and compliance requirements to ensure fairness and be transparent about pay with employees, the single most compelling reason for organisations to take action is because of the impact of equity and transparency on employee and business outcomes.”
So, the stakes aren’t just about compliance or regulators breathing down your neck. They’re about hard metrics on performance and culture.
“When employees perceive fairness in their pay, they are more engaged, they have higher trust in their organisations, they have higher Net Promoter scores, and most importantly they put forth higher effort and demonstrate up to 20% higher performance in their roles. A foundation of fairness and transparency in pay practices enables a clear focus on why pay is differentiated.
Because paying fairly doesn't mean paying low performers more or paying people more because of their ethnicity or gender - it simply means being clear on the criteria for why some people are paid more than others, and making pay decisions in line with that criteria.”
CHROs need clear pay criteria
This is where the S potentially hit the F. It seems fair pay doesn’t necessarily mean the same pay. It actually means clarity.
“Depending on the legal framework in their countries of operation, organisations can pay employees differently based on several reasons: their relevant experience, skills, qualifications, and performance. The mandate for transparency and fairness simply means if organisations do intend to pay differently based on those criteria, then it has to be done consistently and applied to all employees.”
Cue a new type of boardroom chat. Less about pay rates and more about whether the logic behind them still holds water.
“This is the foundation of the conversations that leading CHROs are having with their executive teams, addressing key questions like; are the pay differentiation criteria defined in our pay philosophies still the right ones? Or should we adjust them? Which criteria are we able to use consistently and objectively with our employees, based on the data we have available? And which criteria can we not use at present because we don’t have the data, or processes needed to apply them consistently to all our people? And this really is the essence of effective pay equity and transparency strategies - being proactive and focused on business benefits, and co-creating the criteria to differentiate pay in with senior business executives.”
Culture of co-ownership matters
The worst way to do this, argues Vickery, is to turn it into a compliance ritual and the best way is to let managers use their own discretion, based on pre-agreed guidelines.
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Real examples from large organizations
“Leading organisations are focused on creating a culture of co-ownership at the senior leadership level, which then empowers decision makers across the organisation to make fair pay decisions. This is in contrast to the common, compliance-led approach, which is often about limiting the discretion of leaders and managers in decision making. Because when we limit discretion, we create incentives for leaders to find work arounds, and for them to take the view that pay fairness is all about compliance and someone else’s job.”
The other upside of that approach is that leaders who get to own the strategy are also better at talking about it.
“When leaders and managers are supported to co-own the pay equity and fairness strategy, they become much more confident in communicating with their people, because they understand the strategy. Employees don't want pay equality - they know that there are good reasons for pay to be differentiated - especially if they’re high performers themselves. Employees need to know just a few key pieces of information in order to perceive their pay as fair , specially that the organisation intends to pay employees fairly based on clear criteria. What the criteria for determining their pay is. How they can grow their pay over time through their contributions.”
That doesn’t mean ignoring history. Legacy pay gaps need cleaning up. But smart CHROs are treating that as just the start.
“Unexplained or legacy pay gaps from the past need to be closed, certainly, But the best CHROs are using the equity and transparency mandate to drive a renewed focus on employee performance and business benefits for the future.”
Three essentials to achieve pay transparency
Revalidate compensation philosophy and principles with the HR leadership team
Engage business and executive leadership teams on pay principles and philosophy
Revise salary ranges, job structure and compensation policies according to refreshed pay philosophy
