Demystifying pay transparency and performance management: 8 key considerations for organisations today
Gone are the days of hushed whispers in the break room, covert salary negotiations, and the dreaded salary taboo. In today's modern workplace, transparency is the name of the game. Organisations are waking up to the fact that keeping employees in the dark about their pay is so last season. In fact, studies have shown that pay transparency is not just a passing fad, but a crucial element of building a healthy and engaged workforce.
Hence, it’s safe to say that salary transparency is not just a buzzword anymore; it's a sizzling topic that's grabbing attention in boardrooms and break rooms alike. Employers are recognising that it's not just a nice-to-have, but a must-have to build trust, enhance engagement, and boost productivity among their employees. And let's not forget, it's a key tool in the fight against the gender pay gap!
So, what does pay transparency really mean? Is it a shining star or a potential pitfall? To find out the answer to these questions, People Matters in the latest edition of its Big Questions series tapped into the wisdom of industry experts Nicolas Dumoulin, who is the Managing Director of Michael Page India and Thailand, and Terrence Yong, the APAC General Manager at Visier Inc.
1. Putting employees in the know
Pay transparency is about fair compensation and involves the decision-making process and communication. At the heart of it lies the belief that employees deserve to be informed and have a clear understanding of how their compensation is calculated. It emphasises the importance of using objective and fair criteria when making compensation decisions, ensuring that employees are treated equitably and with transparency in the process.
Explaining further, the APAC General Manager at Visier Inc, said, “The implications of pay transparency are far-reaching, as it can expose social issues related to job types, diversity, and gender pay disparities. Nevertheless, at its core, pay transparency is fundamentally about ensuring fairness for individuals.”
The Managing Director of Michael Page India and Thailand added, “The most crucial aspect of pay is feeling adequately compensated for the same level of performance as your peers. Otherwise, it creates a sense of imbalance, which could be due to various reasons such as politics, diversity, and gender-related issues. A company needs to strike a balance between salary levels, function, and position while acknowledging that discrepancies will exist.”
2. Boosting trust, retention, and satisfaction
When employees know the nitty-gritty of how their pay is calculated and what criteria are being used, it builds trust between them and their employers. This trust translates into a greater sense of satisfaction and loyalty, knowing they're being fairly compensated for their hard work. “Without the foundation of trust, it becomes difficult to build a company culture or model that values fairness. To ensure transparency, companies should provide clear metrics and quality standards that apply to all demographics, including different ethnicities and age groups. When employees have confidence in their pay structure, they are likely to share their positive experience with others,” expressed Terrence Yong.
Explaining the significance of trust, Nicolas Dumoulin stated, “I've noticed that people, especially young individuals, are discussing salaries more frequently, usually focusing on the extremes. These extremes become the topic of gossip in the break room and can lead to frustration when they are perceived to be the norm. This is where transparency comes in, as it allows companies to proactively address these issues.”
He further added that “transparency can benefit career progression by providing employees with a clear understanding of how their salary package will grow as they move up within the company. This knowledge can create greater job satisfaction and loyalty, as employees will have a better idea of what to expect and will be less likely to leave for a higher salary elsewhere.”
3. Broadening the scope of compensation
When it comes to compensation, it's not all about the salary. Although salary is a critical component, it's just a piece of the puzzle. Organisations should broaden their perspective on compensation and consider other elements that make up an employee's overall package. “This includes bonuses, incentives, benefits, perks, work-life balance, career development opportunities, and company culture. By expanding the scope of compensation, companies can attract and retain top talent while also creating a more fulfilling work environment for their employees,” said the General Manager at Visier Inc.
“HR leaders need to have these conversations and be able to manage these variables effectively. Many companies are moving away from archaic performance systems that rely on rigid timelines and instead focus on coaching and providing feedback early on. Having transparency in the decision-making process and normalising standards across the organisation can also give employees confidence in the company. It's important to communicate these processes clearly and consistently to build trust and confidence in the organisation,” he added.
Nicolas Dumoulin echoed the significance of transparency but cautioned against equal pay for jobs with varying levels of performance. While managing and evaluating performance is crucial, it can pose difficulties, particularly for positions that require subjective assessments. “In these cases, political influence or personal connections may come into play and impact the evaluation. As an organisation, it's important to standardise the process as much as possible while also adding a human touch to it. However, this can be difficult because not everyone has access to the same information. To address this, we need to delve deeper and determine what is truly equitable,” suggested the Managing Director of Michael Page.
4. Breaking free from traditional leadership
Speaking of managing and evaluating, managers' perspectives on workplace transparency can vary greatly. While some actively advocate for transparency, recognising its benefits in fostering trust, enhancing employee engagement, and promoting a positive work culture, others may have reservations. Concerns about conflicts, favouritism, or negative employee reactions may lead some leaders to prefer maintaining confidentiality and discretion in certain areas of team operations.
“It's important to acknowledge that there is no one-size-fits-all approach, and open communication and mutual understanding can help navigate the complexities of transparency while aligning with the organisation's values and goals. Many people are openly discussing their salaries, especially with the rise of websites like Glassdoor. Additionally, with the current job market where many people are receiving multiple job offers, it's important for companies to have open and frank conversations about salaries,” advised Terrence Yong.
He added, “The younger generation, particularly Gen Z, is seeking transparency and engagement from their managers. This means that managers can no longer rely on a command and control style, but instead need to be open to feedback and show by example. Salary is just one aspect of compensation, and there are other benefits that employees value, such as flexible work arrangements and time off. It's important for companies to combine salary transparency with other benefits to create an overall positive work environment.”
In 2017 and 2018, there were many discussions around flexible working, and while most organisations acknowledged the benefits, few were willing to commit to it and relinquish control. However, “the pandemic forced many companies to adopt flexible working, and it became apparent that productivity could be increased with proper management. To ensure successful implementation, managers need to understand what it is and how to manage it effectively. It should be aligned with both business and personal goals and achieve a balance,” said Nicolas Dumoulin.
5. Building a foundation: The role of frameworks
Bringing pay transparency to the table in a company can stir up some initial challenges that managers need to be ready to tackle. One of these challenges is the possibility of pushback from employees and management who are used to the old-school, closed-door approach to salaries. To overcome this situation, the Managing Director of Michael Page suggested, “having a framework in place.”
“This will aid in evaluating performance periodically, and not just during the year-end review. In light of the rapidly changing market, it is crucial to be agile and adaptable. Therefore, it would be beneficial to create a channel for employees to voice concerns about fair pay, where objective assessors can provide feedback,” he said.
Terrence Yong shared his observation that “in most companies, they follow a consistent pay philosophy to ensure a similar pay experience." However, in his company, they benchmark their pay against five or ten other companies in the industry and "set the philosophy to be at the 70th percentile of the pay scale."
"This is because we believe in paying our employees fairly, and we want to reward top-performing individuals accordingly. However, this philosophy also means that those who perform poorly may not receive much mercy. It's important to explain this philosophy clearly to our employees so they can understand the decision-making behind it and decide if this is the kind of environment they want to work in," explained Terrence.
“There's no such thing as a free lunch and top performance is rewarded accordingly. The decision-making process behind pay scales can be complex, and it depends on factors such as company culture, shared salary scales, variable components, and moments of sharing. These are not decisions that are made in the boardroom alone but are shared with others who feel connected to the company. Ultimately, pay is not just about exception and performance; it's about creating a fair and balanced environment for everyone,” he told People Matters.
6. Meeting the demands of informed and empowered employees
As workplace transparency gains traction, pay transparency could be on the verge of becoming a non-negotiable norm. With growing social awareness and advocacy for transparency in all aspects of work, including salaries, employees and job seekers are demanding fair compensation and transparency in pay decisions. Informed and empowered, they expect their employers to be upfront about how pay is determined, reflecting a changing landscape where transparency is valued more than ever.
“Wage transparency is definitely a part of the company's evolution, and if you aim to establish a trustworthy relationship with your employees, it must be one of the tools you utilise. I suggest being proactive and implementing it now to avoid falling behind in the future. The pace at which this occurs is uncertain, but I see it picking up momentum, especially with the current situation. As for Gen-Z, I believe they value their internal relationships and already have a culture of open communication, giving your company an opportunity to leverage this and address any concerns. Otherwise, ignoring it can result in missed opportunities and confusion,” pointed Nicolas Dumoulin.
7. Transparency: A beacon for closing the gender pay gap
Making pay transparent can aid in tackling income inequality by revealing and rectifying any discriminatory pay gaps linked to gender, race, or other protected characteristics. Additionally, it can encourage diversity and inclusion by guaranteeing that employees from all backgrounds are equitably compensated for their labour. After all, we know that “there is still a gender gap, especially at lower levels in companies, and although more women are in leadership positions on boards, this may not necessarily translate to lower levels,” stated the Managing Director, Michael Page India and Thailand.
“To address pay transparency, companies need to analyse and compare salaries of women in certain roles to those of their male counterparts, rather than just setting a pay range. This approach can work both ways and if companies communicate about it, it can become a key discussion area in boardrooms. This can be a catalyst for change and contribute to addressing social justice issues and income inequality on a sustainable basis,” he added.
Terrence Yong reiterated Nicolas's viewpoint, emphasising that tackling gender pay disparities requires sustained effort and that comparing male and female salaries is a complex issue that goes beyond simplistic assumptions.
“There are many variables to consider such as job scope, tenure, and levels. It's important to have a big enough sample size to make accurate comparisons. However, moving in this direction is a positive step. It's important to sustain the effort and make it an ongoing process that is operationalised and measured regularly. It should be treated as a target and efforts and investments should be made to regularly check progress. This is a path towards solving bigger issues,” he added.
8. Behaviour-driven feedback: A more effective approach
Feeling in charge of one's path towards achieving goals is pivotal for individuals in any professional environment. When workers feel confident to make decisions and take responsibility for their work, “it can enhance their drive, contentment, and output. Autonomy permits individuals to utilise their abilities, inventiveness, and distinct perspectives to tackle tasks and difficulties in their own style. It provides them with the flexibility to make decisions and take measured risks, resulting in innovative solutions and more favourable outcomes,” expressed Nicolas Dumoulin.
“This approach is already prevalent in some regions like Asia, but may still be evolving in other places like Europe. SMART goals, which are specific, measurable, achievable, relevant, and time-bound, are crucial in achieving salary transparency. Constantly monitoring and closely following up on progress can lead to micromanagement and hinder individual initiative. It's more effective to provide feedback on behaviours, where we can help individuals understand how they can approach things differently. This approach focuses on constructive feedback to drive behaviour change, rather than purely quantitative measures,” he concluded.
Watch the full discussion here.
To gain further insights from industry experts on the pressing issues in today's ever-evolving world of work, do follow People Matters' Big Questions series, live on LinkedIn every month.