Why pay transparency matters for compensation, retention and trust

We know that providing a livable wage, as well as compensation and benefits packages that are aligned with the needs of employees, can help improve business culture. 

So too, can pay transparency. 

Pay transparency is the practice of being open and sharing the wages, salaries, and other forms of compensation paid to staff among your existing workforce and potential future employees.

There are different levels of pay transparency. Some companies disclose salaries only to the individual who receives them. Others share benchmarking data so employee can compare their wages to others in similar roles, either internally or across the industry.

And at the most transparent end, some organisations publish all salaries and provide insight into how pay is determined. Not all companies are alike. So the approach to pay transparency may be different from one organisation to the next.

But as we endeavour to appeal to the best potential employees, retain our staff, and strive to make our workplaces as positive and productive as possible, pay transparency can be a crucial part of your business strategy.

The benefits of salary transparency

Boosts trust between employers and employees

Trust between workers and business owners is vital to ensuring your organisation is a positive place to work and that your top talent wants to stick around for the long term.

If trust breaks down, it can lead to negativity towards managerial practices, absences, and staff churn. After all, who wants to work for someone they believe is hiding information from them?

Showing your staff that you are paying them, and their colleagues, fairly can improve the overall culture of your business.

Staff are more satisfied and motivated

If your employees can see that they are being paid fairly, alongside those they work with day-to-day, and in relation to their managers, they are more likely to be satisfied and motivated.

Research from Gartner in 2022 found that only 32% of employees think their pay is fair, but that most of their perceptions about pay are not rooted in the actual compensation received; rather, they are in general doubts they have about their organisation’s efforts to pay them fairly.

This room for doubt about equitable pay can lead to widespread dissatisfaction in a workforce.

Of course, job satisfaction is important for staff working on daily tasks, but it affects motivation over the longer term too. Research from Indeed in 2021 found that 81% of employees say they are more productive if they are paid fairly.

If workers can see a viable career progression – with achievable salary increases, bonuses, and other forms of compensation – they will be more engaged with the work they are doing and more motivated to do the best job that they can.

Appeals to job hunters

Transparency in job adverts about pay, compensation, and benefits can help set you apart from the competition.

Data from Indeed backs this up. They found job seekers to be 68% more likely to apply for a job if the pay is listed. They are 60% more likely to apply if a company is transparent about salary bands for all jobs.

Your business can ensure it is appealing to the best new talent in the market by being up front and open about the wages you offer, as well as how you are working to pay people fairly.

Being clear about other forms of compensation and benefits, such as pensions and equity schemes, helps give you the edge over your competitors.

If you’d like to explore how share schemes could be part of your package, Vestd can help you set up and manage them – you can book a no‑obligation call with our team to find out more.

Helps address payment inequalities

A more transparent business culture when it comes to pay can also help your organisation be on the front foot when it comes to addressing wage inequalities.

Many organisations are working to combat wage inequality.

This is due in no small part to increasing pressure from such groups as The Fawcett Society and their work in regards to the Gender Pay Gap, as well as the Equal Pay Alliance, who demand action on the ethnicity pay gap, the gender pay gap, and the disability pay gap.

Wage inequalities still exist. But awareness about pay gaps is growing year-on-year, and as we will cover later, there are legal and regulatory reasons to address them.

Additionally, if staff have easy access to all the information available about the salary and compensation they are receiving, in relation to others, as well as how this is calculated – they are less likely to dispute any fairness.

What are the business risks of salary transparency?

Some business owners may have reservations about pay transparency.

In 2022, LinkedIn Market Research found that nearly a quarter of owners don’t currently share their wages with anyone, not even their friends and family.

In the accompanying report, George Anders notes that “senior leaders are less convinced that greater candour will make everyone’s life better,” while a majority are happy to maintain the status quo.

Leaders may be reluctant to provide transparency before addressing known issues of wage inequality. They may also have concerns about privacy.

And if they are operating at a level where they know the salaries they are offering are not as high as their competitors, it is understandable that they may be worried about being left at a disadvantage.

There may be hesitation among employees too. While greater proportions of entry-level do share what they are paid with others and are more likely to think more positively about pay transparency, this isn’t the case for all of them, according to the LinkedIn research.

They simply might not be used to discussing their salaries openly, and suddenly having this information made available to their colleagues may make them feel uneasy.

Many of these challenges can be addressed by clear communication about the benefits of pay transparency.

A strong business case should be made to owners and managers about how addressing inequalities and being more open about salaries can make for better staff retention and productivity.

Likewise, communicating the benefits of pay transparency to staff along the lines of better business culture and financial wellness can help bring about alignment there.

It is also important to remember that pay transparency isn’t a one-and-done thing. It can be introduced gradually, alongside efforts to close wage gaps and other financial wellbeing initiatives. And it can be evaluated and improved as time goes on.

Legal and regulatory considerations

In the UK, there isn’t a specific law about pay transparency. But there is some legislation for businesses to consider:

• The Equality Act 2010 ensures that men and women should be paid the same wage for the same work.
• Companies of a certain size are also required to report on pay gaps. Organisations employing 250 staff or more must report on their gender pay gap every year.

It’s important to remember that privacy laws, as well as specific pay transparency legislation, can differ from region to region and country to country.

Steps to implement transparency without disruption

1. Where on the pay transparency scale does your organisation sit today?

An excellent starting point here is Michelle Gyimah’s five degrees of pay transparency from her course Inclusive Tech: Closing the pay gap.

From Level 1 (minimal transparency) to Level 5 (full transparency), it’s a great place to start when trying to understand where your business sits currently:

• What – Tell your employees how much they'll get paid every month.
• How – Share market data helps employees see where they fall compared to others.
• Where – Compensation plan with a breakdown of salary, salary benefits and the cost of the whole benefits system, along with a specific pay range for each employee.
• Why – Clear processes on how pay is decided; train managers on how to hold these conversations, which should occur on a fairly regular basis.
• Who – A totally transparent pay system, where everyone has access to everyone else’s salary.

Data is also fundamental here. Industry benchmarking and competitor research will help you understand how your salaries compare to others in your niche. How open are brands like yours in their job adverts when it comes to wages, pensions, etc.?

Internal data is crucial too. Conduct an audit of current salaries to highlight wage gaps and inequalities. What needs to change? What are the core aims of your best practice pay transparency strategy?

2. Buy-in from managers

In order to build your pay transparency strategy, you will need to get buy-in from leaders within your organisation.

As we have seen, managers and business owners may have reservations about having to be open about their wages, as well as anything that may cause their business to be at a competitive disadvantage.

The key here is being able to provide evidence about the business value of pay transparency.

How has it helped other businesses improve their productivity and retain their staff? What are the main causes for staff churn within your organisation currently? And what is the sentiment about pay, compensation, and benefits more broadly?

Any manager likely wants a better business culture for the organisation they are working in. But any changes when it comes to something as important as pay and privacy need to have solid, data-led research behind them.

3. Communicate strategy with the wider organisation

Communication is hugely important in the lead-up to rolling out your pay transparency strategy.

All staff need to know how things will change, but also how it will benefit them. Communicate to them about how more openness and honesty about pay will better address pay gaps and lead to better wage equality.

4. Implement

Implementing your pay transparency strategy is not about launching and leaving it. Organisations need to build evaluation into the initiative over the short and long term.

After all, businesses grow and evolve. The needs of staff, where financial wellness is concerned, can change. And legislation around pay and compliance is always being rewritten too.

Conduct annual pay audits (once or twice a year is recommended) to analyse your successes and challenges. Are pay rates becoming fairer? What is the sentiment among employees? Are churn rates and staff absences going down?

And then, adjust your strategy accordingly. Optimise your pay transparency initiatives to keep in line with the needs of your staff, as well as broader trends across your industry.

Pay transparency is not one-size-fits-all

When it comes to sharing employee salaries and working towards more transparency in the workplace, it is important to remember that not all organisations are the same.

What works for one company may be of less relevance to another. And pay transparency is not the only way to improve business culture or make a workforce happier.

Today, many employers – and their employees – are seeing the benefits of pay transparency. But it must be introduced in a measured way, that is backed up by solid data, and is communicated well to staff at all levels.

This minimises the risk of disruption from any changes and increases the chances that these changes will be seen as a positive step forward by everyone in the business.

Curious how your approach to pay and equity stacks up?
Book a free call with one of our equity experts to explore your options and start building a robust, future-ready compensation strategy.