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Justine Woolf

Innecto Reward Consulting

Client Director

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Why you must pay attention to pay transparency

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I wrote a blog earlier last year on pay transparency from an equal pay perspective and why being able to show employees that how you pay not only ensures that you are more likely to pay fairly (and avoid equal pay issues) but also how being open about pay has been shown to increase employee engagement.

A recent report by PwC has shown that the link between performance and salary was stronger in companies with a high transparency.

This doesn’t mean that if you simply publish your bonus plan you can demonstrate better links to performance but, by having to be open in the first place, companies are more open to scrutiny and, by default, are more likely to only put in place pay arrangements that can be shown to link to performance outputs.

I personally feel it is a shame that increased levels in transparency around pay have only really come about because of legislation.

In the case of executive pay, the evidence suggested by PwC has only happened in the last couple of years since companies have been required to provide fuller disclosure of executive remuneration.

Likewise, we are on the verge of a change in reporting equal pay when the new requirement to publish gender pay comes into effect in 2016. But will this create new levels of pay transparency the likes of which we have never seen before?

I personally feel it is a shame that increased levels in transparency around pay have only really come about because of legislation.

Whilst there will be a significant number of employers keen to explain their pay gaps and describe how they intend to eradicate them, there will equally be a significant number of employers who will do the bear minimum to comply with legislation.

While I hope deep down the groundswell of opinion may change this, my guess is that the prospect of poor feedback on Glassdoor won’t be enough to jolt some companies into action.

What’s stopping more openness and transparency?

  • So what is it that stops companies from being more open and transparent about how they award pay and bonuses?
  • Why have many private sector businesses for example shied away from publishing their pay ranges (if they have them at all)? 
  • Why has the battle for increased transparency had to be pushed through by legislation?

My experience is that it is down to a number of reasons.

One relates to competitiveness.

Many organisations believe that if they share details on how they pay, their competitors will be able to poach their employees or copy them. Whilst this may be true to some extent, simply paying more money does not always make another employer more attractive.

People generally leave organisations to further their careers, not purely because company Y pays an extra £500. Whilst the pound signs are the headlines, the culture of an organisation, what it’s like to work there, what benefits are offered play a big part in how best to retain employees.

Another reason is that pay decisions are not as fair as they should be.

The more discretion and secrecy surrounds pay, the easier it is to make decisions around pay that could be seen as unfair. I’m not saying there isn’t a place for discretionary decision-making, but it often goes hand-in-hand with inconsistent judgements, face-fit and favouritism.

If you aren’t being called to account on the way you make your pay decisions, you are under no pressure to justify your decision making and, therefore, not under pressure to potentially have to take steps to redress fairness.

The more discretion and secrecy surrounds pay, the easier it is to make decisions around pay that could be seen as unfair.

How else have we now come to the place where the top 2% of male top earners are paid £117,352 a year, while the top 2% female earners are paid £75,745 (according to the TUC) if it wasn’t through unfair decision making?

The fear factor

Another reason I think is fear.

Companies have made decisions behind closed doors for such a long time, there are many people actually afraid of having to lift the lid and explain why pay practices are so different, why they have people not paid at the same level as others and why pay hasn’t been as fair as it should be.

Managing historic pay practice is a big fear factor that holds pay transparency back, as does the potential costs to redress it.

Another reason is concerns on ability to manage expectations around pay.

The assumption is that if you publish pay ranges, everyone will automatically think they will be paid at the top. It’s not untrue in some respects – if you show me the top of my pay range is £100,000, why shouldn’t I think that I might be paid that one day soon?

But managing expectations around pay and the likelihood of being paid £100k comes down to how well you communicate with your employees.

If you are transparent about how pay works in your organisation you do have to have robust processes in place to manage pay and this also means giving line managers the confidence and accountability to manage.

So we have lots of reasons why companies are not as transparent as they could be.

Is the answer that we have to have legislation to make companies operate in a fair manner when it comes to pay? I sincerely hope not.

There are many organisations that are lighting the beacon and leading the way with transparency.

But there are also many many others who, for the reasons outlined above and others, choose not to be as open about pay as they should be.

Next spring this situation will change significantly with a new law requiring all companies with 250 employees to collate and publish data on their gender pay gap.

Companies in the private sector in particular will need to be ready to answer some tough and, potentially, very expensive questions on their past and current pay practices.

For now it looks like legislation is the only way to plant this seed of change but I sincerely hope that, once forced to lift the lid and change pay practices, increased transparency will be here to stay.

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Justine Woolf

Client Director

Read more from Justine Woolf
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