5 leaders weigh in on how to make pay transparency work

There’s a growing sentiment that pay transparency does more harm than good because it contributes to coworkers feeling undervalued when they discover they make less than their colleagues. So how can a company ensure pay transparency serves its intended purpose constructively?

We’ve gathered perspectives from executives across various industries, including CEOs, HR experts, and others. Here are their thoughts about the pros and cons of pay transparency—and how to implement it effectively in your company.

Reexamine your pay philosophy

When it comes to any kind of transparency in the workplace, including pay transparency, I am a huge advocate for thoughtfulness—meaning considering how to provide transparency in information and processes, which also considers reactions and motivations, versus just providing information without context, which can do more harm than good.

Pay transparency is less about learning what your colleagues make and more about understanding how pay is determined within the organization. If you are worried about the reactions of your team, first answer the question: How do we determine pay at our organization?

If you don’t have a strong answer here, that’s the place to start—building a clear and robust compensation philosophy that you can transparently communicate to your team and use to empower frontline managers to answer questions that may come up.

If you have a strong compensation philosophy in place, make sure you are using that to lead conversations around transparency and pay with your team. This moves the conversation away from a comparison between individuals to a comparison to your policy.

Stephanie Lemek, founder and CEO, the Wounded Workforce

Measure pay to manage equity

There’s a great expression: “You can’t manage what you can’t measure.” Pay transparency is primarily about measuring, not managing. Let me explain.

The vast majority of employers want to pay their employees fairly. Yet, the vast majority of employers, for the vast majority of roles, do not really know what “fair” is. Compensation for most jobs within most employers is largely within the control of the manager, and that can lead to wide and unfair discrepancies in pay within a place of employment. If you’re in sales and working for one manager, and your coworker is also in sales and working for another manager, it is quite likely that you and your coworker are paid differently, even if you’re essentially doing the same job and performing at the same level.

One way to minimize these disparities is through pay transparency, which, when taken to its logical conclusion, means that all employees know how much all other employees are paid. If you see that your coworker is paid more than you but isn’t performing as well, you have some good data to use when asking for a raise. Similarly, your manager or others within the company can use that data to help ensure that all employees are paid fairly, but that’s an additional step. Simply gathering payroll data and then sharing it does not mean that any action will be taken, or that the action taken will be correct.

So, pay transparency is a step toward pay equity. They’re not the same and should not be thought of as being the same. But pay equity is far harder to achieve without at least some degree of pay transparency.

Steven Rothberg, founder and chief visionary officer, College Recruiter

Share pay ranges, not exact salaries

Many employees and executives assume that pay transparency means that everyone knows each other’s exact salary. Typically, that’s not the case; instead, what’s shared are pay ranges. Employees can see their position in the pay range and understand the pay growth potential in their current role. This visibility can prompt healthy conversations between managers and employees about performance and what’s needed to get a pay increase.

The fear that employees are talking about their salaries and that managers aren’t equipped to talk about pay decisions can be addressed by ensuring that everyone understands how salaries are set and the link between performance and pay decisions. This is best practice regardless of where your organization is on the pay transparency journey.

Marca Clark, senior director of talent and organizational development, New Relic

Roll out thoughtfully

I don’t completely agree with the idea that pay transparency does more harm than good. However, I do think it’s important to acknowledge that transparency isn’t a one-size-fits-all solution. It’s not always the best move in every situation.

For instance, if there are existing discrepancies in pay within your organization that haven’t been addressed, making salaries public could cause more harm than good right off the bat. In those cases, it’s probably wiser to work on correcting those pay gaps first. Otherwise, you might end up with frustrated employees who feel undervalued, which could hurt morale and lead to retention problems.

But on the flip side, keeping pay a secret allows biases and stereotypes to creep into salary decisions. Managers might unconsciously favor employees who spend more time in the office or who they see as similar to themselves, which can disadvantage certain groups, like women.

Clear expectations around salary potential help employees make better career decisions and set realistic goals. But still, it has to be done thoughtfully and in stages to avoid unnecessary disruptions.

Adam Klein, certified integral coach and managing director, New Ventures West

Educate around pay structure

To ensure that pay transparency is constructive in our company, we take several steps. First, we educate our team on how pay is structured, tying our compensation to clearly defined competency levels within each job category based on market data. Regular compensation reviews are critical to maintaining our competitiveness, and we share these findings with our team to foster trust.

Finally, we take a holistic view of compensation, considering not only base salary but also variable compensation, retirement plans, pensions, and profit-sharing opportunities. This comprehensive approach helps us ensure we do our best to help employees feel valued and fairly compensated.

Kristin Pardue, cofounder and CEO, Rêve Consulting