The different levels of compensation transparency

Pay Transparency
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As the European Commission is calling for increased pay transparency, this topic has become even more important to tackle. However, each company may have a different view of what transparency means in practice and what is to share.

Let’s dig in a bit deeper to answer the question and understand the multiple levels of compensation transparency.

What is pay transparency?

Compensation transparency refers to the practice of sharing information about compensation with employees and / or candidates. This is translated by all your actions to explain, share and train people around your compensation practices.

However, transparency does not necessarily mean all employees know each other’s individual compensation, and can vary in levels from company to company.

Overall, pay transparency is greatly tied to your company’s culture and is more than sharing figures. It it about making your compensation philosophy understandable and providing a framework to guide your employees and managers on compensation decisions.

Levels of pay transparency

Pay transparency varies in forms and shapes, and as a basis of comparison, the level of transparency can be determined by the level of information that is being shared:

  • Level 1: Nothing is shared, employees only know their own compensation.
  • Level 2: Employees know their own compensation and the surroundings of the company’s compensation philosophy.
  • Level 3: Compensation policies are shared among employees and managers. People understand the factors that determine their compensation and how increase decisions are made during compensation reviews. Managers may also have access to their own team’s compensation ranges to review internal pay equity.
  • Level 4: Employees know how they sit in their compensation range. They may also get access to the next level’s compensation range to get a sense on their future career growth. Alternatively, employees may know all the pay ranges within their job peer group.
  • Level 5: Employees know all pay information from every job group.

While a non-negligeable proportion of companies do not share any information, those who structure a compensation philosophy are communicating relevant information to train managers on compensation discussions and promote internal equity during reviews.

Key questions to gauge your practices

Instead of asking first how to be more transparent, one of the key questions to ask is how prepared is the company compensation-wise to be transparent. This can be translated into different considerations:

Compensation foundations

First, you need to review how strong are your compensation foundations. Stronger foundations can result in having a unified / shared compensation philosophy in place, established pay ranges or inequities being reviewed periodically.

Consistency in compensation decisions

If you are have a good grasp of your compensation structure, next step is to assess how confident is your company in their comp philosophy. Are practices coming from your philosophy are applied consistently? Are potential pay gaps being reviewed and corrected during compensation cycles? Are increase decisions tied to factors like performance or position within the pay band?

Manager training

Most importantly, your compensation philosophy is a structured tool that your managers can use to take more data-driven and consistent pay decisions. Thus, assessing whether managers are being already trained to discuss compensation topics with their team outside and during compensation reviews is key to know.

Building a compensation philosophy

Structuring a consistent compensation strategy may take some time in practice, but it is a very important part of ensuring your pay decisions are being driven from factors decided at a company level. Your philosophy outlines the path a company applies when deciding on compensation topics, and you can decide the level of transparency based on your company’s culture.

Performance and Rewards

One way to promote a consistent compensation philosophy is to look at how performance is being graded and if decisions are being made consistently across your company. Then, these grading can be linked to compensation decisions during compensation reviews, bonus rounds or promotion decisions.

Leveling structure and ranges

Providing a clear career path linked to a compensation leveling structure will also help employees anticipate their future growth, while providing managers with the right framework. Thus, implementing compensation ranges that are relevant to your company will safeguard consistency in your pay practices.

When you are confident that the framework you established is working well, It will be also easier to share more information towards employees and candidates when relevant.

Shared recommendation policies

When running your compensation review cycle, having clear sets of recommendations based on performance ratings and position within the pay band will allow to identify inequities and support managers decide on compensation change accordingly.

This will allow to get everyone adjusted with explainable criteria and naturally promotes internal equity, especially when managers may be used to increase all their employees in the lower or upper side of the pay range.

Considering your own context

Pay transparency comes in different shapes, but most importantly is to know what your organization needs to better recognize employees and there is not just one path. However, making sure your employees are not left in the dark when it comes to compensation is a good way to avoid misinformation.

Giving the right context, communicating on your compensation philosophy, the factors that determine compensation increases and training managers on navigating compensation topics are key to strong compensation programs.

Support company growth with consistent pay practices

Greater understanding of compensation decisions helps building a culture that retains talents, and is a great asset that contributes to your company’s development.

With the help of the right tool, you can streamline your compensation practices and monitor pay equity in a consistent way.