How to Embrace Compensation Transparency

The quest for transparency in compensation has become a paramount concern for both employers and employees alike. About one-fifth of U.S. employees are covered by compensation transparency laws, and many companies without requirements are opting for transparency policies because of the benefits they bring to recruiting and retaining talent.

There is no “one-size-fits-all” process for developing compensation packages. Each should be designed based on the company’s philosophy and the data around employee preferences and priorities.

A thoughtfully crafted compensation package will not only increase employee retention but also attract talent. Building a compensation package is more than doing a quick Google search, which often provides data that is too generalized and difficult to defend. By emphasizing the importance of internal frameworks for determining compensation and educating employees on how these decisions are made, organizations can ensure that discussions about pay are based on reliable information and include consideration of the other benefits and rewards program investments the organization makes on behalf of its employees.

Understanding the reasons why employees choose to work for your company sets the stage for cultivating a compensation philosophy that aligns with your company’s values.

If you’re planning to implement compensation transparency but aren’t sure where to start, you’re not alone. For companies beginning the transparency journey, it’s not merely a matter of unveiling salary ranges; it’s a strategic endeavor that requires introspection, data-driven decision-making and clear communication. The key to building a successful and transparent program is to make decisions with intention and be ready to explain the “why” to employees.

Establishing Compensation

Consider the following steps when building your compensation package.

Identify your organization’s unique philosophy. Consider what would make your prospective employees most drawn to working with you. For instance, if the salary range is on the lower end, are there other benefits such as your PTO policy that would attract talent?

Define your market for talent. Central to the journey of strategic compensation packages is the process of market analysis and benchmarking.

Drawing from research and data that consider factors such as revenue size, employee demographics and geographic location allows you to gauge what compensation is reasonable and competitive. Define the market range based on the role itself, rather than the specific individuals filling it. By leveraging the full spectrum of pay and being ready to articulate the rationale behind where employees fall within it, organizations can provide clarity on how current pay decisions are made and illuminate additional compensation opportunities within employees’ current roles or through career progression.

For this step, it may be worthwhile to collaborate with a consulting firm that can provide access to their compensation survey library and build salary ranges. Combine this data with your company philosophy, and you are well on your way to building a competitive pay structure that is sustainable.

Identify gaps. Take time to discover what gaps exist in your current pay structure and take steps to address them. For example, is your company experiencing pay compression or high turnover? If so, focus on narrowing gaps and ensuring legacy employees have compelling reasons to stay and grow within the company.

Communication

There is a reason that compensation falls under human resources and not finance; it is contingent on aligning employee expectations with organizational realities. Remember that transparency is a journey, and it starts with building a pay structure you can explain the “why” behind.

Tell your story. To ensure your company has consistent messaging, consider selecting a spokesperson from your executive team to lead the conversation about the rewards programs — including compensation, benefits, retirement, paid time off and other rewards — that make the company attractive to employees.

Set expectations early. Encourage open dialogue with candidates early in the hiring process to provide a transparent picture of compensation expectations. Articulate the rationale behind compensation decisions, emphasizing the broader spectrum of benefits beyond monetary rewards.

Foster ongoing communication. Set regular discussions within the organization about compensation, emphasizing the importance of aligning employee expectations with organizational realities. Provide platforms, like annual reviews or informal leader check-ins, for employees to ask questions, share concerns and gain clarity on compensation matters.

By aligning philosophy with market realities, addressing disparities, and fostering open communication, organizations can use transparency to attract, retain and engage top talent.

Topics Talent