A Valuable Strategy: Salary Transparency

October 17, 20169:26 am945 views
A Valuable Strategy: Salary Transparency
image: hrmasia.com
Salary transparency is often seen as a valued strategy that firms should aim for. But what limitations does the policy have, and how can HR balance the good and the bad aspects to drive the organisation forward? HRM finds out.

In the past, hiding pay information from staff was a strategy leaders believed reduced pay dissatisfaction among the workforce.

Today, with the compensation information floodgates open, workers have access to real data which allows them to decide which companies they want to work for.

With the rise in technology, employees now have access to online platforms like Glassdoor and Jobstreet that offer crowd-sourced information about compensation regimes searchable by job, industry and even across international markets. Individuals can look at equivalent jobs in their organisation and competitors – both locally and globally – and study where their individual salaries stand.

A recent study by The Wall Street Journal revealed that 60% of millennial workers, and 53% of older staff use these sites.

On top of these readily available resources, employees can also seek other methods to discuss their salaries.

The same Wall Street Journal survey discovered that millennial workers are more likely to discuss their pay with parents (71% stated this) or their friends (47%).

Some 38% of them also stated that they were less likely to talk about pay directly with their co-workers.

In comparison, older employees are substantially less likely to discuss their salaries with co-workers (only 19% said they might do this), friends (24%) or parents (31%).

See: Brimming with Ideas, Innovation and Creativity: Candid Q&A with Reed Collins, Ogilvy & Mather Hong Kong

Significant impacts

Apart from making salary negotiations easier, pay transparency can have some other major benefits for both employees and employers.

First, it can help to ensure that equal workers are paid fairly for equal work. If there are fewer secrets surrounding salaries, it becomes harder for any pay inequity to arise.

Secondly, it boosts productivity. When employees feel valued, they are more likely to be more engaged at work and less likely to think about whether they are being underpaid.

These were two key findings from a recent study entitled, PayScale 2015 Compensation Best Practices Report.

It discovered that one of the top predictors of employee sentiment – measuring the workforce’s overall satisfaction – was a company’s ability to communicate clearly about compensation.

Open and honest discussion around pay was also found to be more important than typical measures of employee engagement, such as career advancement opportunities and employer appreciation.

More importantly, most employees do not actually know how they are being paid relative to the market.

This is especially evident with the fact that 45% of people who are paid above the market rate, believe that they are paid on level terms, while 64% of those who are paid at the market rate believe they are underpaid.

Interestingly, three percent of those who are paid below the market level believe they are overpaid.

“Employees have a better understanding of how their compensation package is derived at from the job level they are pegged, to where they are positioned in the salary range, to how their salaries are kept competitive through the annual market data refresh,” explains Christina Moh, HR Director, Asia-Pacific at Elsevier.

According to her, pay transparency allows employees to have a clear understanding of how salary benchmarking is done in the workforce and, promotes trust and appreciation of the company’s efforts to stay competitive to the market.

Satyakam Mishra, Head of HR at Bata, adds that pay transparency has a healthy impact on employees.

“Organisations should be transparent enough to share the grade or band structure as it motivates employees who aspire for higher positions,” he says.

Drawing the line

But while these HR professionals see salary transparency as an admirable organisational quality, others note that it does come with a price.

Ravi Bhogaraju, Global Head of HR Textiles and, Head of HR Asia at Archroma, says organisations are typically transparent about their principles, but not as open about numbers.

“Being transparent about number increases the risk of a never-ending debate on how much and why some people are paid a certain way, and others are not,” he says.

The HR department may also find itself in arguments with employees or vice versa.

Moh shares that there can be instances where HR will have to manage employees who have unrealistic expectations of where their salary position or competencies are.

On the other hand, employees may find that their managers are not strong or mature enough to manage a good explanation of their own individual salary position.

She also says that if the limitations are not handled well, it can deepen the level of mistrust in the system, and not resolve it.

“It goes into a bigger black box then before salary transparency was in place,” Moh says.

This could also potentially increase the perception that staff are not paid fairly for the work they do and therefore, increases the chances of turnover significantly.

Bhogaraju also adds that transparency can potentially disrupt the flow of the workforce.

“It can be a huge distraction as employees tend to obsess over the numbers and morale can be impacted,” he explains.

“Overall, this could lead to a loss of focus and productivity.”

Factors of discontent

There are two predominant types of unhappiness that may arise when employees are unsatisfied with their compensation.

Bhogaraju says the first is when employees feel they are undervalued. To them, this is evident on the paycheck they receive.

The other is when they feel that they are not compensated in line with their peers, where staff may feel a sense of injustice.

Moh further reiterates this point. She says that when staff feel their responsibilities do not equate with their pay, or there is an insufficient differentiator between a high performer and an average performer, employees will believe they have been unfairly treated. Another issue is when staff hear of peers leaving to do the same job but with a higher package.

HR’s role

At Elsevier, manager workshops are held to give managers a good grasp of how compensation and benefits packages work and help them deal with difficult questions that staff may ask.

This is followed by workshops on the employee side to help staff understand the overall compensation philosophy of the organisation as well as the processes behind benchmarking and salary positioning.

“HR needs to be consistent in applying the compensation ‘rules’ as consistency breeds more trust in the system and removes the conversation from ‘haggling’ to applying the principles of compensation,” Moh explains.

To avoid undesired situations, Mishra stresses that HR has a fundamental role in facilitating transparent communication at work.

“HR need to ensure there is 100% uniformity in terms of compensation structures and all employees are aligned with the salary structure of the company,” he says.

“Any changes in the salary plan or structure need to be communicated effectively through employee communication or town hall meetings.”

Bhogaraju adds that HR can also help to clarify if, and to what degree, the organisation wants to be transparent about salaries.

“Transparency for the sake of transparency can hurt the organisation, and morale can drop drastically,” he explains.

“Once clarified at a leadership level, HR plays a vital role to educate line managers and the employees about appropriate salary-related communication.”

“It is important that HR is enabling, but the messaging needs to be managed through the line functions and the leaders.”

Bhogaraju says managers should understand that employees seek a number of things in their jobs: support, value, regular feedback and the opportunity to grow in their careers.

“If managers truly care about their team members they should provide a holistic interaction with them by understanding them, their situations, their aspirations, and how they can support them in different areas,” he explains.

“If you don’t care, then irrespective of how much you pay them, they will not want to stay in the organisation for long.”

Do your employees negotiate?

Salary negotiation is not as common as one may think.

According to Glassdoor’s Salary Negotiation Insights Survey, close to three in five (59%) US employees accepted the salary they were first offered at their current job without any negotiation.

Women were less likely to negotiate than men.

Sixty-eight percent of them accepted the first salary they were offered, compared to 52% of men.

Notably, older workers – aged 45 to 54 – negotiated their salary less than younger workers.

Of this group, 66% accepted their initial salary offer without negotiation. This was in comparison to 55% of those aged 33 to 44, and 60% of those aged 18 to 34.


Conducting quality conversations with staff

When it comes to employees’ pay, clear communication is critical.

Christina Moh, HR Director, Asia-Pacific at Elsevier, shares her top four tips for managers conducting difficult salary conversations with their staff.

They are:

  • Understand the strengths and development areas of your staff
  • Understand their aspirations and their motivations. Not everyone is looking for more pay when the basics are being met; employees tend to shift their focus to a higher level of need such as learning opportunities and challenges
  • Support their professional development, not just within the current role but also, for their future role
  • Identify the key talent in your team and how to develop their potential further. This can come in the form of projects and informal mentorship

The article first appeared on HRM Asia


Read also: Best Practices for Improving Employee Job Satisfaction Quickly

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