Should organisations be more open about pay with employees?

As Australia has been making strides to acknowledge the importance of gender equality, with more legislation just around the corner, it is time to proactively integrate pay transparency into your company culture and business operations, writes Damien Andreasen.

Conversations around pay transparency have been gaining momentum in Australia, especially considering the recent gender pay gap revelations from the Workplace Gender Equality Agency (WGEA).

While the WGEA uncovered that the median base salary gender pay gap nationally is currently at 15 per cent, that figure only paints half a picture of what’s going on in organisations across Australia. The number increases to 19 per cent after taking into account bonuses, commissions and overtime — amounting to a stark difference of $18,000 a year.

It doesn’t stop there. The WGEA also found that 62 per cent of median employer gender pay gaps are over 5 per cent in favour of men, while over half of organisations have a gender pay gap of over 9 per cent.

These figures have obviously left employees asking how pay decisions are made. And who can blame them? Pay is the foundation of every relationship between employee and employer. Organisations have traditionally remained tight-lipped on discussions about pay with anybody who’s not in the leadership team, but clearly, the gender pay gap revelation has eroded significant trust between employees and employers.

So, where do organisations go from here? Should they make a concerted effort to make compensation more transparent?

Pay transparency isn’t one-size-fits-all

There’s an argument to suggest that being transparent about your approach to pay decision making is an important step in building trust with your people at every stage of the employee life cycle. But that doesn’t necessarily mean that transparency is an on/off switch – where either everything is a total secret or everyone knows exactly what everyone else makes. In reality, pay transparency can work along a spectrum, and where you fall on that spectrum should reflect your overall company culture and approach.

At the conservative end of the spectrum, the HR and finance teams might be the only ones that know the pay ranges for jobs in your organisation. But as you move along the spectrum, you can involve more and more people.

For example, you could make the salary range for each job role available to people in those roles, which would help employees see how they’re currently doing against a company standard. Next, you could make salary ranges available to managers so they can take more ownership when making hiring decisions about the roles they need to fill. One level up from this would be making salary ranges available to people for the job level up from their current position to motivate them towards working hard for a promotion. You could even go one step further and make the salary ranges available of all job levels to all employees for near-total transparency.

The point is – there are different ways you can create transparency in your organisation and choosing what works for your business is key. But providing some kind of visibility is likely to cultivate a strong organisational culture of career progression and fosters strong motivation at work.

Pay transparency is nothing without pay policy

Employees are eager to learn more about how compensation decisions are made, but without a well-defined, effectively communicated policy supported by capable managers, even the most well-meaning efforts can lead to confusion, misunderstandings, and potential workplace strife.

First, determine your compensation philosophy – a foundational statement that explains how pay decisions should be made in the organisation. Establishing a unified approach to pay helps to guarantee that no one within your organisation is left to navigate and second-guess compensation decisions in isolation. It serves as an invaluable resource for decision-makers, including recruiters, people managers, and compensation specialists, guiding them in making fair and informed choices throughout hiring and performance management processes.

Next, use reputable market data to set pay ranges or bands that fairly reflect the jobs in your organisation and determine how current employee pay compares to market ranges. Making use of both internal and external compensation information will help you not only gauge your readiness for embracing increased pay transparency but also help pinpoint any existing pay gaps and inconsistencies that you’ll need to calculate the cost to adjust.

Finally, when you’re ready for program rollout, remember to engage executives and managers in the training and rollout. Get buy-in from your executive team for changes and communication plans, and partner with your finance department to implement any necessary adjustments you’ve identified. Most importantly, train your managers, who are the first line of defence when it comes to employee questions about pay, on how best to articulate your compensation philosophy and your approach to transparency.

As Australia has been making strides to acknowledge the importance of gender equality, with more legislation just around the corner, it’s time to proactively integrate pay transparency into your company culture and business operations. Creating a strong foundation of trust and transparency will pay off (pun not intended) not just in better relationships with your employees but also in company performance and reputation in the market.

By proactively embracing this shift, Aussie businesses can rebuild the trust they once had with their workforce, improve recruitment and retention, and ultimately achieve a competitive edge.

Damien Andreasen is the vice president (APJ) at HiBob.