On November 1, 2022, New York City enacted a pay transparency law that requires employers to list salary ranges in job ads, promotions, and transfer opportunities. Thanks to this new law, employees will now know what a will job pay before they apply for it. And NYC isn’t the only place embracing pay transparency; currently, there are 30 states in the US with some form of pay transparency laws on their books, and that number is expected to increase in the coming years.
Regardless of whether or not your organization falls under any of these laws, defining your company’s approach to pay transparency is essential. An unclear strategy could lead to muddled results, confusion, and even drops in employee morale and engagement if not handled intentionally. One of the best approaches to take when it comes to pay transparency? A people-centric one.
Below, we’ll take a closer look at everything you need to know about taking a people-centric approach to pay transparency — what it is, how it benefits your company and your employees, and how to make this strategy work at your organization.
What Is a People-Centric Approach to Pay Transparency — and Why Is It Important?
As the name suggests, a people-centric approach to pay transparency is one that centers your employees. Rather than approaching pay transparency thinking about how to do the bare minimum to comply with pay transparency laws and regulations, looking at it with a people-centric lens means considering how to create a more transparent compensation strategy that better supports your employees.
67% of US employees and 64% of UK-based employees want more transparency from their companies about pay practices.
Taking a people-centric approach to pay transparency benefits both your employees and your organization. One significant benefit of a people-centric approach to pay transparency is that employees want companies to offer more transparency: According to Lattice’s recent compensation survey, 67% of US employees and 64% of UK-based employees want more transparency from their companies about pay practices. But many companies don’t offer it.
Embracing pay transparency — and, more importantly, putting your employees at the center of your pay transparency strategy (and your compensation strategy in general), can help your company stand out in a competitive labor market and attract and retain top talent.
“Every organization is trying to build some level of differentiation about what they offer in the market — and so taking this sort of a [people-centric approach to compensation]…really does help create that differentiation,” said Chad Atwell, Lattice’s Principal Compensation Advisor.
This strategy can also help your employees better understand your company’s compensation structure. “Clarity is another [benefit] — being able to really make sure that employees understand how these [compensation] decisions are being made, what’s incorporated, and what they can do to potentially impact those [decisions],” Atwell continued.
When employees have clarity about how their compensation is set — and what they can do to increase their compensation — it can lead to higher levels of trust (the more transparent you are with your approach to compensation, the more trust you’ll foster with your employees) and initiative (when employees understand exactly what they need to do to increase their compensation, it can help drive motivation).
Approaching pay transparency with your employees at the center of your decision-making can be hugely beneficial, both for your employees and your organization. Here’s how to put it into practice.
How to Take a People-Centric Approach to Pay Transparency
1. Be strategic about your level of pay transparency.
When determining your company’s approach to pay transparency, one of the first decisions you’ll need to make is how transparent you’re going to be. There are different levels of pay transparency that range from totally opaque (keeping all compensation information completely private), to totally transparent (making all compensation information public). Many approaches to pay transparency fall somewhere between these two extremes — for example, only sharing salary ranges with employees for their specific roles or departments.
If your organization has a clear strategy around compensation and you can explain to employees exactly how you came to your compensation decisions, full pay transparency can be effective. “When an employee has full transparency into a process — and they can understand how their compensation is determined — they can trust the process and feel that they are fairly compensated,” said Aaron Olman, cofounder of HR consultancy People On Point.
But full compensation transparency isn’t the right strategy for every company, and in certain situations, moving forward with full transparency can actually do more harm than good.
“It’s up to leadership and HR to decide how transparent your organization is going to be.”
For example, say your company recognizes that there are some issues with pay equity in your organization, but you haven’t yet figured out a strategy to deal with existing pay inequities. If you decide to release your salary ranges anyway, especially without giving your employees any context, “you’re setting up your managers for some really rough conversations,” Atwell cautioned. Upset employees will want to know why they’re being paid less than their colleagues, managers won’t know how to answer those questions, and employee engagement and retention could take a big hit.
On the other hand, if you were to take a people-centric approach to pay transparency in this scenario, you would work on addressing those inequities first. That way, when you share salary ranges, you can let employees know what you’re doing to fix any compensation issues and ensure that every employee is paid fairly.
When it comes to pay transparency, you need to adhere to relevant laws and regulations. But beyond that, it’s up to leadership and HR to decide how transparent your organization is going to be. Be sure to consider your employees’ perspectives and needs and weigh them heavily in your decision-making processes.
2. Be purposeful with your pay components.
Part of pay transparency is helping employees understand not only what they’re being paid, but why your company came to those compensation decisions. “It is important for companies to provide the methodology behind the results,” Olman said. “How someone’s compensation is determined is just as important as what their compensation is.”
But a significant component of being people-centric in your approach to pay transparency, and to compensation in general, is “really understanding what you’re trying to promote or achieve through these different [compensation] channels,” said Atwell. In doing so, you can make sure that your compensation strategy not only supports your employees, but incentivizes them in a way that aligns with your organization’s goals.
Take bonus structure, for instance. If your goal is to improve employee retention, you might make bonuses tenure-based. With this strategy, your most loyal employees will get a bonus, which is a win for workers, and it incentivizes employees to stay with the organization, which is a win for the company.
On the flip side, if your goal is to improve employee productivity, you might make your bonuses performance-based, which encourages employees to work harder. This will help your company reach its goal of improved productivity, and reward your employees for their hard work.
Use pay transparency as an opportunity to examine and analyze your current compensation structure, including salary ranges, bonus structure, and any additional employee benefits, like stock options or wellness stipends. Make sure that you have a clear strategy behind each component, and that the strategies you have in place are aligned with both your company values and goals, as well as what’s best for your employees.
3. Ask your employees for feedback.
If you want to take a people-centric approach to pay transparency and compensation as a whole, one of the best things you can do is get your employees involved in the process and ask for their feedback. “Start…having employee conversations around what [employees] think about transparency and what they’re hoping to see from the organization,” Atwell advised.
Getting employee feedback can help you take a more people-centric approach to pay transparency in a few different ways. First of all, surveying employees will enable you to know where there are gaps in your employees’ understanding around compensation — information that can, and should, drive your strategy around pay transparency.
“Companies should survey their employees so they can better understand what their employees’ current knowledge of their own compensation is,” Olman noted. “This will set a baseline for comparison and help provide direction on where [leadership] needs to focus as the company becomes more transparent with pay.”
Surveying employees and asking for feedback about compensation also “gives [workers] a little more ownership of what the company is actually trying to do [with its compensation strategy],” said Atwell.
After surveying your employees, you may find, for instance, that your workforce wants more compensation in the form of stipends, such as education or home office stipends. (These are especially popular with Gen Z workers, who, according to our recent compensation survey, are twice as likely as older workers to cite stipends as a crucial part of their compensation package.) Once you roll out those stipends, not only will your employees be excited that they got the compensation changes they asked for, but they’ll also appreciate that the organization listened to their feedback — and, crucially, took action on it.
Bottom line: Taking a people-centric approach to pay transparency is about creating a strategy that works for your people. So make sure you ask employees for their input and feedback at every step of the process.
The Link Between Pay Transparency and Performance
There’s another reason taking a people-centric approach to pay transparency is so important: It’s linked to performance.
A people-centric approach to pay transparency essentially gives your employees a roadmap of how, from a compensation standpoint, to get from where they are to where they want to be. This can incentivize employees to work harder — which will lead to better performance.
“The more transparent you are with your approach to compensation, the more trust you’ll foster with your employees.”
Plus, when you center your employees in your compensation strategy, it shows them that you’re invested in their success. This helps to build a happier, more engaged workforce — and when employees are happier and more engaged, they perform at a higher level.
Thinking about your approach to pay transparency is an important part of creating an effective compensation strategy. By taking a people-centric approach to compensation, you can ensure the decisions you make — including those around pay transparency — serve not only your organization, but your workforce, too. This approach will ultimately lead to better outcomes, both for your employees and your company.
Need more insights into how to create a compensation strategy that works for your company and your employees? Download our eBook HR’s Guide to Setting a Compensation Strategy for everything you need to know about making pay practices more holistic, transparent, and equitable at your organization.