Companies have implemented modern policies to make the workplace more inclusive and transparent.
For instance, hybrid work and remote work arrangements are becoming the norm. On top of these, organisations are also increasingly adopting the concept of pay transparency.
Pay transparency simply refers to a pay communications policy wherein a company provides pay-related information to all its employees. Voluntarily.
While this relatively new approach actually help companies reach their goals in unexpected ways, there are some caveats to it too.
Importance of Pay Transparency
Most organisations implement pay transparency to attract and retain talent.
After all, new applicants, especially the younger generation, are demanding increased pay transparency in the workforce. Presumably, this is in pursuit of wage equity across the board.
Another reason is the possible legal implications. Companies that fail to meet relevant transparency compliance standards may face sanctions.
Of course, there’s also the threat of bad publicity. Any news regarding pay inequality at companies can result in pretty severe backlash, especially on social media.
However, this approach is not without its dark side.
Unintended Consequences of Pay Transparency
A recent global study suggests that there are some key caveats to consider when it comes to pay transparency.
Let’s take a look:
It Puts Certain People on the Spot
Since pay transparency is often an enterprise-level decision, the most affected are the employees’ direct supervisors.
Once the information is out there in the open, immediate supervisors are left to deal with the potential fallout. They will have to deal with and pacify disgruntled employees regarding significant pay differentials.
This oftentimes results in supervisors and managers compressing employees’ performance-based incentives to make them more similar to each other. And this can affect everyone’s motivation and performance in the long run.
It Prompts Employees to Negotiate Personalised Rewards
Since everyone can see what others are receiving, it’s expected that they’ll respond by seeking alternative ways to receive additional rewards.
For some, it includes seeking individual arrangements such as additional career development training, supplementary health benefits, as well as other idiosyncratic deals.
It Drives Supervisors to Fulfill Personalised Requests
And who would have to deal with these additional requests? The supervisor.
Since there are limited alternatives when it comes to financial rewards, the above requests are more likely granted by supervisors.
This way, the company can maintain or even maximise team performance. It would also reduce the risk of losing key team members due to pay dissatisfaction.
Unfortunately, left unaddressed, this overextension of requests can take a toll on your managing supervisors. Hence, important safety measures must be observed.
Enhancing the Success of a Pay Transparency Approach
Fortunately, you can help prevent the more unpleasant and unintended consequences of pay transparency. For instance:
Provide an Objective Performance-Reward Link
Provide clear metrics such as objectives and key results (OKRs) as a guide for both managers and employees.
This way, managers will have a more objective benchmark while employees will better understand how their work relates to the company’s specific target outcomes – and how they are compensated for it.
Facilitate Pay-Related Communication
Managers need to have a better understanding of the company’s compensation policy.
Without it, they’re likely to fall short when it comes to adequately communicating the underlying processes of your pay structure.
Hence, if you want your compensation system to work and be accepted by your employees, make sure your managers and supervisors understand it first.
Restructure Reward Systems
Pay transparency, as mentioned, fuels non-monetary requests such as additional training and upskilling.
Hence, it’s actually a good idea to consider formalising these deals even before employees demand it.
This way, these non-monetary privileges can serve as incentives that reward and retain loyal employees.
Having a hard time grasping how these all fit your company? We’ve got you!
Remote Staff has been assisting more than 3,000 Australian entrepreneurs like you with the help of our remote workers from the Philippines since 2007. So if you’re looking for skilled HR personnel to help you come up with an inclusive and effective pay transparency system, we’ve got you covered.
Call us today or schedule a call back and let’s get started.
