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The Importance of Internal Pay Transparency

By Joy Lynn Hyer, SPHR, SHRM-SCP, CCP, Senior Compensation/Survey Analyst
Published January 31, 2023

transparent glass piggy bank against pink background with callout: Employers that have a comprehensive pay transparency strategy in place will have an advantage over those who do not. Because pay equity perceptions have a strong influence on employee engagement and retention, employers should strive to be more transparent and communicative with employees regarding compensation. While pay transparency for many private employers may seem like an impossible task, those who are not open about their pay practices will likely have trouble recruiting, motivating, and retaining employees. 

When organizations keep their pay practices secret, employees are likely to believe that they’re not being paid competitively, even if they are. Employers that have a comprehensive pay transparency strategy in place will have an advantage over those who do not. 

Here are some steps to developing a transparency strategy:

  1. Start with a compensation philosophy that outlines your desire to have pay practices that are fair, equitable, consistent, and market driven. 
  2. Develop and implement a comprehensive, market-driven compensation system. Assign each position to a pay grade with a minimum, midpoint, and a maximum. Keep in mind that the midpoint is indicative of the market rate for each position.
  3. Compare each employee’s current pay with the midpoint of their newly assigned pay grade to determine how far above or below the market rate each is.
  4. Consider the experience, tenure, professional certifications or licenses, and the performance of all incumbents in the same job. 
  5. Address any inequities that may exist as quickly as possible and before any employee communications are distributed. 
  6. Review your budget to determine what market adjustments can be made.
  7. Decide which employee questions and concerns you would like managers to be able to answer and train them in having effective compensation conversations with their direct reports.
  8. Draft an organization-wide communication with SMART objectives (Specific, Measurable, Achievable, Relevant, and Time-bound ) that are audience appropriate (there may need to be more than one notice depending on various work groups) and tied to your business.

Taking the time to educate employees on your compensation philosophy, local labor market, and other factors that affect pay will have a positive effect on employee perceptions of fairness, trust, engagement, and overall job satisfaction. HR Source members with questions can contact us through the HR Hotline online or at 800-448-4584.