Editor's Note: Today we feature Step One of Margaret O'Hanlon's Classic "Three Steps Towards Pay Transparency" series. Look for Steps Two and Three to follow in the next weeks.
I mentioned that I'd write a series on three steps that can get you started on pay transparency:
-Determine your mindset
(a.k.a. willingness to change).
-Choose the outcomes
(a.k.a. what you'll ask leadership to approve).
-Identify your ROI
(a.k.a. how much HR will commit to pulling this off, what return that will buy you and how close it will get you to your outcomes).
We can skip the drama and intimation of revolution that comes with the term, "pay transparency," if we realize that most employees define pay transparency as, "A better understanding of what fair pay is for an employee's position and skills."
While some employees would say that definition doesn't really achieve the endgame they envision -- open book management -- if your employees developed a better understanding of what fair pay is, they will acknowledge the progress you have made.
That's why I'm proposing that the first step towards pay transparency is determining your mindset, in other words, your willingness to change. Being willing to invest more time and money into building a better understanding among employees and managers of fair pay can be a big advancement for some companies. And if you want to reach the extreme of the pay transparency continuum by applying open book management, clarity about pay practices is a sound place to start.
What does clarity entail? In terms of compensation design and administration, "management discretion" is the antonym to clarity and "pay transparency." If you live with a group of leaders who want to keep pay decisions behind closed doors, your efforts to move toward pay transparency need to start with them.
If you have a more traditional approach to salary administration, here are some suggestions for content that will give your exempt employees the clarity that leads to a better understanding of what fair pay is.
- You understand what employees mean by fair pay and how well it aligns with your company's practices. You understand where employees have a point, and where HR and employees need a meeting of the minds.
- Employees know their salary range, and the salary range above them (so they know what high performance can translate into).
- They know and understand how their midpoint was determined, acknowledging that it is a judgment based on well designed research.
- They are ready to acknowledge their midpoint and the design of their salary range because they can see how the salary range offers an opportunity to increase their salary while they grow in their job.
- They can acknowledge this because they understand how increases are budgeted for, determined and they believe in the way the increase budget has been determined.
- They can see the difference (because you have explained it to them) between your pay data and the data on sites like PayScale.
- If they are being paid below midpoint, they feel confident that they know how to reach midpoint, and can rely on receiving this level of pay (middle third of salary range) at the same time that their performance deserves it.
- Their senior management and manager can explain how increases are budgeted for and determined, and can give a business reason for the current year's determination which employees will accept as valid.
- If they find out what their colleagues are making, it can be explained using the basics listed above.
- If they want to make more, they can get specific recommendations for the next steps in their career path.
- If you offer incentives, payment is based on communicated measures not management discretion.
- There is someone in HR who is always available to answer pay questions.
So, for many companies, you can make solid advances toward pay transparency simply by explaining to employees how you manage pay right now. Managers should be able to back up the info presented by HR, but all of the information indicated in the above bullets should be easily available to employees.
If you are inclined to overlook even this first step toward pay transparency, I have a few suggestions. Look up your last survey's results on pay understanding and satisfaction -- be candid about how much better they can be if you provide a better understanding of what fair pay is for an employee's position and skills. Your employees (especially Millennials) are waiting impatiently for that clarity. Just ask around.
Margaret O'Hanlon brings deep expertise to discussions on employee pay, performance management, career development and communications at the Café. Her firm, re:Think Consulting, provides market pay information and designs base salary structures, incentive plans, career paths and their implementation plans. Earlier, she was a Principal at Willis Towers Watson. A former Board member for the Bay Area Compensation Association (BACA), Margaret coauthored the popular eBook, Everything You Do (in Compensation) Is Communications, a toolkit that all practitioners can find at everythingiscommunication.com. She is a member of U.S. Masters Swimming.
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