Salary transparency is coming, are you ready for it?

Pay transparency can be a polarising topic. Advocates claim that it can help even out gender pay gaps, save potential employees time when applying for roles and encourage more suitable applicants, however critics suggest that it can increase unhappiness and even cause conflict between employees.

Regardless of opinions, major steps are being taken towards making pay transparency law. In Australia the government delivered The Workplace Gender Equality Amendment Bill 2023 which means organisations with more than 100 employees will need to report on gender pay gaps with the results will being publicly released. A further push towards pay transparency was made law in December 2022, with a bill to amend the Fair Work Act (Secure Jobs, Better Pay) that bans pay secrecy clauses in employment contracts. This means employees can discuss their pay with anyone, without facing penalties.

Pay transparency has been a big topic on a global scale as well. New York became the largest US state to require employers to disclose the pay range for jobs they advertise and in December 2022, the European Union reached an agreement that gives workers the explicit right to ask how their pay compares to their colleagues’, as well as being able to ask the pay range for any advertised job, no matter the company size.

In New Zealand, calls are still being made to follow in the footsteps of these global changes, with pay gap reporting currently only required in public service.

The benefits of pay transparency

There are several advantages of implementing policies around transparent salaries.

It’s important to employees

Our annual Hays Salary Guide that surveys thousands of workers across Australia and New Zealand finds that pay transparency is important to skilled professionals – yet few employers say they are transparent with all employees about how salary levels and increases are set. 

Keeping salaries secret often only benefits those employees who are the best negotiators. In contrast, pay transparency means each individual’s salary must be justifiable in the context of all others. So, even if salary increase budgets are tight, transparency helps staff see that the overall value of their increase is in line with a general trend across the organisation.
 

Trust, morale and engagement improves

Salary transparency not only helps to improve understanding in how pay levels are set, but it improves employee trust in the organisation. By being open about how pay levels or bands are set, everyone can be confident that their salary aligns with their skills, experience and results.  Pay transparency also helps to raise employee morale and engagement, since staff recognise that their salary is fair and objective.
 

Business can be strengthened

While reporting is just the first step for closing the gender pay gap, there are several benefits that will directly affect businesses who stay on the leading edge. Companies that commit to addressing the gender pay gap will enable quantitative insights that allow for further inclusion, reduce legal risk and wage trust exposure as well as strengthening an organisation’s employee value proposition. All these factors help to build goodwill and improve attraction and retention strategies.

Candidate attraction improves

In a competitive market, employers need to stand out to attract and retain top talent. By offering salary ranges up front, it can help strengthen your organisations EVP, while also giving jobseekers the information that they need. In an absence of this information, they will often turn to online review sites, which, depending on each person’s overall employee experience, may not provide the full context of what your true employee experience offering is.

How to implement pay transparency

Undertake an initial review

Employers must be prepared for employees to start discussing their pay with their colleagues. Before releasing salary data to all of your teams, review employees’ pay to both identify any gaps and the reasoning for it should any be found.

Revealing previously undisclosed pay information can create tension and resentment if employees learn a colleague with less experience earns a higher salary. This can lower morale and engagement, which is why an initial review will allow managers to be on the front foot of any challenging conversations.

Explain pay scales

Sharing information about how salaries are determined can boost engagement and trust for workers that they are being paid fairly. 

To make the context for salaries clear, share the data, formula or rationale used to calculate pay levels. Also share any other factors you use to determine salary, such as years of experience, additional duties outside the job description, performance results and successes. By sharing these details, and applying them equally, employees understand the full picture and see that their salaries are justifiable.

Compare pay levels at your organisation to typical salaries in your industry and location. For detailed salary information on current pay for thousands of roles, download our Hays Salary Guide. 

Prepare for the possibility of turnover

If employees are still dissatisfied with their compensation, even after you’ve discussed the guidelines for determining pay, their motivation, engagement and productivity can fall. Some employees could start exploring their options in the market, especially as other businesses salaries will be easily accessible for them. Consider creating retention strategies, especially for key capabilities before enacting any open book policy on pay.

As a small business, decide if it’s right for you

Moving towards a transparent salary model can be a big undertaking, which could be especially onerous for smaller organisations. Determining salary ranges isn’t a simple process and some may not even have a formal process when it comes to job descriptions and position hierarchy. What is a simple, well meaning, change on the surface can become a significant program of work in the case of a smaller organisations.

Ultimately, transparency can improve trust in employees that they're being paid fairly, close pay gaps and eliminate unconscious or conscious bias in salary decisions. However, transparency may not be for every business, so make an informed decision that’s right for your organisation.