In and amongst the many other policy irons in the fire this year (negotiation for Fair Pay Agreements being underway, review of the Holidays Act, and changes to immigration settings), are calls for increased transparency from organisations when it comes to salaries, wages, and remuneration in general.
As the quest for workplace fairness and equality (unevenly) continues, businesses are increasingly evaluating the benefits and potential drawbacks of implementing various forms of pay transparency.
Close to home, our legislative cousins in Australia passed a law in December 2022 that prevents employment agreements containing “secrecy clauses” that prevent employees from talking about their earnings. It wouldn’t be the first time that the NZ government took a leaf out of Australia’s employment relations playbook (fair pay agreements, anyone?)
So, what do we mean when we talk about pay transparency? Who stands to benefit? Why is it cool, and why is it scary? Let’s dive in.
What is pay transparency?
“Pay transparency” is an umbrella term that loosely refers to sharing information about pay at your organisation. Some practices are reasonably common, such as posting the salary range for a job on the ad listing, sharing pay bands for roles internally, and providing aggregate salary information. Some are not so common, such as publicly sharing gender pay gaps and individual salary information.
Are we talking about the process for assessing and increasing pay rates?
Sort of. There’s a difference between saying to someone “Here’s how we’ve decided to increase (or not increase) your pay this year” at an annual pay cycle review, and “Here’s the information you can access any time about the pay rates of your colleagues here at Amazing Company Ltd”.
For information about managing pay reviews in a transparent way, check out this blog post.
Pay transparency here means making static information about pay within your organisation available and accessible.
Why does sharing pay information matter?
There are a bunch of very good reasons why pay transparency is a practice that deserves some consideration.
Externally, it has been (and still is) best practice to disclose the pay range of the role that you’re advertising for. This means that you only have candidates applying who understand and would accept the rate that you’re offering, rather than getting too far down the garden path with someone only to find out that they want 25% more money than you can afford to pay them; a heart-breaking experience for all involved.
Internally, you’re contributing to a few things:
Trust and engagement
Pay transparency can help build trust between employees and employers by promoting a culture of fairness and openness. When employees have a clear understanding of how their compensation is determined, they’re more likely to feel valued and engaged, leading to higher job satisfaction and increased loyalty.
A fairer workplace
Transparent compensation practices reduce the likelihood of pay gaps based on gender, race, or other discriminatory factors. By identifying and addressing any disparities, businesses can strive for internal equity, which contributes to a more inclusive and diverse workforce.
Retention and productivity
When employees feel like they're being compensated fairly, it positively impacts their motivation and productivity. Pay transparency can serve as a powerful tool to retain top talent, as employees are less likely to leave an organisation in search of better pay if they’re satisfied with their current compensation package.
Why should we care?
There’s a notorious imbalance of information when it comes to pay. Employers know exactly what they pay each of their employees, but their employees don’t have access to that information and are often bound by terms of employment that prevent them from discussing their pay with colleagues or staff for reasons of confidentiality.
This is unusual – in many (perhaps most) other commercial transactions, the parties involved have more information about the value of the transaction or relationship being negotiated. House auctions? You can see what other bidders are laying up. Choosing between internet providers? You can compare plans and choose the one that best suits you. Buying a car? Compare makes, and models, go for a test drive, and make an offer that best suits the value of the car you’re trying to buy.
But when it comes to pay, there’s an historic layer of confidentiality and secrecy that shrouds the whole thing, making for vastly different sets of information that risk disadvantaging the employee.
In an employment context like New Zealand where we’ve historically had strong labour and union movements and laws that work to distribute power more evenly between the employer and employee, our approach to pay stands out as being hidebound and a bit coy.
This is especially true given New Zealand’s gender pay gap, which remains stubbornly persistent despite the law changing in 1972 to prevent pay rates from being set explicitly because of a person’s gender. The gender pay gap in NZ is currently 10%, and it has been suggested that the largest drivers of that gap are unconscious bias and discrimination in decision-making.
Where should I start if I want to dip my toe in the pay transparency waters?
At the “pay transparency that your grandmother would recognise” end of the spectrum are plenty of aggregate ways of sharing pay information without outing anyone in particular.
Aggregate pay rates:- “We employ 15 Baristas, and their average hourly rate is $23.50 per hour.”
- “Across our entire retail network, the average annual salary is $52,000 per annum.”
- “The average annual earnings of employees at Cheeky Monkey Ltd is $65,000 per annum.”
- Our CEO earns 7.8 times the salary of our lowest-paid employee.”
- “Our lowest-paid mechanic earns $24.00 per hour, and our highest-paid Mechanic earns $33.25 per hour.”
- “Our lowest paid employee earns $50,000 per annum, and our highest paid employee earns $185,000 p/a.”
None of this is: “Saquib earns $75,000 and Aroha earns $80,000” - the intention is to provide employees with enough information to understand what they can expect to get paid at this organisation.
Alright, hit me with the black belt level of pay transparency!
At the most extreme end is total pay transparency, where individuals are named along with their remuneration info so that anyone internally or externally can look up their earnings.
This was the approach taken by Whole Foods in the 1980s when CEO John Mackey decided to share all pay information for every employee (including himself). "I'm challenged on salaries all the time," Mackey explained. "'How come you are paying this regional president this much, and I'm only making this much?' I have to say, 'Because that person is more valuable. If you accomplish what this person has accomplished, I'll pay you that, too'."
If you’re anything like me, the idea of any of your colleagues or team being able to look up your pay information made you squirm. This level of openness is uncommon, but it does illustrate the point that it can be done – and Whole Foods has been doing it for nearly 40 years.
This is freaking me out. Am I being overly concerned?
Not at all. This kind of information sharing is bleeding edge HR practice, and there are good reasons to be concerned about whether this is right for your organisation or not, such as:
Privacy and discomfort
Sharing salary information may infringe upon an employee's privacy and lead to discomfort or even resentment. Some individuals may prefer to keep their compensation details confidential, fearing negative reactions or unintended consequences resulting from comparisons with their peers.
Unintended consequences
Transparency in pay may unintentionally create tension and dissatisfaction among employees. Discrepancies in compensation, even if justified by individual performance or experience, can breed feelings of unfairness or demotivation among those who perceive themselves as underpaid. You should also expect challenges or questions around how you have decided pay and remuneration - be prepared to respond to these.
External comparison challenges
Full pay transparency can expose a company to external scrutiny and potential competitiveness issues. Competitors might leverage the disclosed salary information to poach talent by offering higher salaries, potentially disrupting the organisation's stability.
What should I do if I want to move forward with more transparent pay practices?
So glad you asked.
Cultural readiness
Before implementing pay transparency, businesses must assess their organisational culture and readiness for such a shift. Transparent practices require a culture of trust, fairness, and open communication. It's essential to ensure that employees are receptive to and prepared for the changes that come with pay transparency.
We recommend a 6 to 18 month programme of build-up before sharing salary information that goes beyond aggregate or ratio-sharing. This involves discussions with your team about what you want to change, what information you want to share and why, and giving them opportunities to question (or challenge!) this change in your business practices.
It’s critical to share why you’re doing this – do you want to make sure you’re accountable for gender and ethnic pay gaps? Are you seeing these practices increase in your industry and you want to stay abreast of the changes? Lay out your reasoning and explain why you want to do this.
Legal and compliance
Businesses must navigate the legal and compliance aspects associated with pay transparency. Depending on the jurisdiction, there may be specific regulations that govern this information - so tread carefully, otherwise you’ll end up fighting several fires at once!
With over 1,300 clients in NZ and Australia, MyHR is well-versed in supporting organisations large and small with remuneration policy and practice. Get in touch with us to learn more, or book a free demo.
