When it comes to pay transparency and equity, times are changing. In 2023, New York will become the fourth state to require job postings to list salary ranges. By enforcing transparency, these kinds of laws seek to improve pay equity and decrease pay disparities across demographics like gender and race.
“Transparency doesn’t equal equity, but the spirit of these laws is to help our world become more accountable and more equitable,” said Gianna Driver, chief human resources officer at Exabeam.
What can organizations on their compensation transparency journey do to grow in this area, and how should they be thinking about pay equity?
On the second webinar in Lattice’s four-part series Compensation Conversations, Driver offered her expertise in answer to this question alongside Liz Kofman-Burns, cofounder of diversity, equity, inclusion, and belonging (DEIB) consulting firm Peoplism. Keep reading to learn from Driver and Kofman-Burns about finding the right approach to transparency for your organization and gaining leadership buy-in for transparency at every level.
Finding an Approach That Works for Your Business
Some organizations approach transparency by using a “spectrum” framework. The framework ranges from very flexible — where pay is kept secret — to very transparent, where all employees can know what everyone makes.
Compensation Transparency Spectrum
This spectrum can help company leadership gauge their current approach and assess what steps they could take to become more transparent. Driver acknowledged that while organizations may feel they should be on the right — or “very transparent” — side of the pay spectrum, total pay transparency isn’t appropriate for everyone. Instead, leaders need to decide what level of pay transparency is right for their company.
“I would encourage leaders to look at this [spectrum] and figure out where you want to be, what feels appropriate, and then focus on all of the back-end work that’s going to make that possible,” said Driver.
How can leaders find where they want to be? Kofman-Burns weighed in on two statistics detailing the current state of transparency and equity.
1. In over half of companies, only HR and finance teams know employee pay bands.
According to the Lattice 2023 State of People Strategy Report, at 54% of companies only HR and finance teams have visibility into employee pay bands.
What holds companies back from greater transparency? Kofman-Burns said that perhaps the primary reason more companies aren’t transparent is that they can’t articulate or justify defined pay levels across the organization. If a company wants to be transparent, managers need to have pay rationale to share with employees — and they need the training and upskilling to converse with employees about pay.
People really underestimate how much the next level pays, which has important implications for equity.
Kofman-Burns also said that one of the keys to turning the tide on transparency is to increase employee awareness of the pay band for the position above their current role. “People really underestimate how much the next level pays, which has important implications for equity,” she said.
She went on to explain that employees who have insight into the pay band above their current role tend to work harder and are more likely to express interest in advancement opportunities.
2. Over half of employees agree that gender, age, or race affects pay at their companies.
A Lattice survey of over 3,000 employees found that more than half (51%) agreed — including 28% who strongly agreed — that demographics like gender, age, and race affect pay at their companies. Kofman-Burns said that this perception of pay inequity is representative of many employees’ sentiments.
“Certainly a pay equity analysis is an important first step to start addressing that sentiment,” she said, but it’s not a magical solution to compensation inequity at your company.
A pay equity analysis studies compensation data — including salary, bonuses, and company equity — to determine whether people in similar roles are being paid equitably. After adjusting for factors like tenure or performance ratings, you have your adjusted pay gap. But that’s when the real work of addressing pay inequity begins.
What’s more, companies that do take steps to adjust any pay gaps may find that employees still believe that compensation is inequitable. If senior leadership is predominantly white and male while women and people of color fill lower-paying roles, there is still more work to do.
Kofman-Burns recommends starting by examining performance management processes and providing managerial training on how to give feedback and promote without bias.
Addressing Pay Negotiations
One gold standard best practice for pay equity is not allowing compensation negotiation. But Kofman-Burns knew from experience that for many executive teams, that stance can be a tough sell due to fear of the unknown — specifically, the risk of losing out on talent to competitors.
When an organization doesn’t allow pay negotiation, it eliminates the possibility of someone’s pay falling outside of established pay bands. This keeps pay ranges consistent across demographics and mitigates the inequity that negotiation can naturally bring. “Women and people of color are less likely to negotiate, and if they do, they’re treated differently,” Kofman-Burns said. For example, a 2022 Glassdoor-Harris study on pay transparency found that nearly a third of employed women do not negotiate pay, out of fear of being denied or losing their job.
A non-negotiation policy can be a strong stance for an employer’s brand. “When you tell people, ‘We don’t negotiate because we really care about equity, and this is one of our commitments,’ that goes a long way for people who care about equity, which is a lot of great candidates,” she said.
While Driver acknowledged that a non-negotiation stance is indeed the most equitable approach, she noted that some scenarios necessitate negotiation. For instance, when a company is hiring for a critical role and a dream candidate has another offer on the table, negotiation may be essential to obtain that top talent.
“Business realities make it such that sometimes I do think flexibility is needed because that’s going to allow organizations to get the talent that we need,” Driver explained.
Kofman-Burns said that when organizations need to make rare exceptions to a non-negotiation policy, documenting pay decisions is a must. Keep track of any cases when you do allow negotiation, conduct an annual review of those instances, and assess whether they align with the company’s compensation philosophy.
4 Steps for Executive Buy-In
Pay transparency and equity are complex topics that can lead to major evolutions of company policy. As a result, gaining executive buy-in is a key step when making changes.
Driver cautioned that working with company leadership is not a one-size-fits-all process, but she shared four steps to help facilitate these relationships.
1. Start with a compensation philosophy.
“A [compensation] philosophy, simply put, is your company’s approach on where you want to be from a cash standpoint, [as well as] equity and benefits,” Driver said. The compensation philosophy also establishes where the organization will pay based on role types, such as compensating technical roles at a particular percentage of the market rate.
A compensation philosophy ensures that your organization has a starting point for pay conversations and offers a foundation for the explanations managers need to be transparent. As more transparency regulations roll out, compensation philosophies will only become more important.
For people teams, compensation philosophies serve as the framework for conversations about transparency with executives.
2. Involve executives in setting pay bands.
To some degree, everyone fears change — and executive teams are no exception. Indeed, in Lattice’s 2023 State of People Strategy Report, leaders shared they were particularly concerned about employees’ possible reactions to increasing compensation transparency.
That’s one reason why Driver advised involving executives in developing pay ranges for roles. “Involving your executive team in the development of the ranges is really helpful because it makes it less scary for them,” Driver said.
Executive involvement empowers leaders to be part of the pay structuring process. It also gives them confidence that, when pay is transparent, their compensation structure and philosophy are the best ones for the company.
That collaboration can help executives feel less anxious and more at ease about pay as it becomes more transparent.
3. Define pay transparency for executives.
Absent the guidance of the people team, some executives might think that the “more transparent” side of the pay transparency spectrum simply means sharing everything with everyone.
“That’s not what pay transparency actually is,” said Driver. To secure executive buy-in, people teams can build trust with leaders by improving executives’ understanding of what pay transparency actually entails. This is another way of removing the unknown and instilling confidence in leaders that greater pay transparency is the best way forward.
4. Share how the people team will support the executive team.
Driver’s final step for gaining executive buy-in for pay transparency is offering resources and explaining what those resources will be.
The people team should sit down with leaders to share what kinds of workshops, FAQs, or internal reference guides will be available to the executive team. That way, when employees ask challenging questions about equity or the company’s compensation philosophy, leadership won’t feel alone — instead, they’ll feel prepared and informed.
Preparing Managers for Transparency
Facilitating pay transparency across an entire company begins with empowering and training managers to talk about compensation with their team members. According to Kofman-Burns, this takes a two-pronged approach: the process and the people.
First, managers should be able to lean on a clearly defined process for talking to employees about pay. This starts with having job descriptions list the competencies that employees perform in the role daily. Those job competencies, in turn, steer performance review conversations, which can lead to promotions and raises.
[Employees] want to know that there is a path and that they’re learning and growing in their career.
“Then, it’s this virtuous performance management cycle…managers understand how things work and can have those conversations,” said Kofman-Burns.
In addition to processes, another important step is training managers to have pay conversations. Managers have a major day-to-day impact on employees, so they should know why equity is important, how to give actionable feedback, and how to talk about career growth to help their team take the next step to increase their pay.
“We find that sometimes it’s not really compensation that employees care about so deeply. They want to know that there is a path and that they’re learning and growing in their career,” Kofman-Burns said.
A More Transparent Future
It’s an exciting time in the realm of pay transparency and equity — but there is still significant change to come. Legislation related to base pay is only the first step in this evolution, but Driver predicted that those laws will extend to variable pay and other benefits in the future.
But, even in the absence of pay transparency laws, companies that want to put their best foot forward will communicate clearly about compensation — to their current employees and to future talent. In that way, they can contribute to a more equitable world of work for everyone.
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This article is based on a webinar hosted by Lattice, the second in a four-part webinar series, Compensation Conversations. Join us for one of the upcoming sessions, or watch any of the four sessions on-demand.
