This blog post is an excerpt from PayScale’s 2019 Compensation Best Practices Report.
Even if you do all the work to create a fair compensation system, none of it matters if your employees aren’t aware of your effort. Talking to employees about how you make pay decisions is the best way to improve engagement and narrow the corporate chasm. Two years ago, we introduced the Pay Transparency Spectrum to help employers make necessary decisions about the types of information they want to share and how.
Year over year, we have not seen much progress on the pay transparency front. In 2018, 46 percent of all organizations are still at level one, while just 31 percent of all orgs are at a level three or above. These stats are nearly identical as the stats from last year.
In 2019, organizations aspire to move up the pay transparency spectrum: 28 percent of all organizations plan to reach level three; 23 percent plan to move to level four and 8 percent aspire to reach level five.
This year, we also asked several new questions to understand what organizations actually communicate to their employees. It turns out, most organizations aren’t sharing much.
- Just 31 percent of organizations have developed a formal compensation philosophy/strategy and are sharing it with their employees. Thirty-nine percent are working on one, while another 23 percent of organizations do not have a formal compensation strategy/philosophy.
- In 2018, 36 percent of employers report they share pay ranges with their employees for their position. The largest organizations are more likely to share pay ranges (43 percent) than smaller organizations (34 percent). This is likely because larger organizations are more likely to have well-defined salary ranges than smaller ones.
- 38 percent of employers report their employees know where they fall within the range.
- When employers give raises, just 32 percent share market data with their employees. Interestingly, smaller organizations are more likely to share market data with their employees (37 percent) than the largest ones (20 percent).
- Lastly, we asked organizations if they share pay ranges with prospective employees. Thirty-two percent of organizations never share pay ranges with prospective employees.
What You Can Do to Foster Greater Transparency
Why aren’t more organizations open with their employees about how they make pay decisions?
One potential barrier is that organizations are using a salary structure that’s difficult for employees to understand.
In the past, many organizations have used pay grades (or grade-based pay ranges) to manage employee pay at scale. The grades, or levels, offered a useful framework to make sense of the relative importance of all the jobs, and to rationalize the salary when market data doesn’t exist for a position. Yet, this salary structure doesn’t hold up as well in an age when data are abundant and employees desire greater transparency. The determination of grades and how jobs are slotted can feel arbitrary and unfair to employees.
If you want to make it easier for your employees to understand how they’re paid and why they’re paid the way you do, consider creating a specific range for each position.
In 2018, 17 percent of surveyed organizations switched from using pay grades to setting ranges for each position. Of those that made the switch, 11 percent say the main reason is to make it easier for employees to understand how they’re being paid.
Other good ways to improve communication with employees include sharing your compensation strategy, the pay ranges for their positions and where they fall within range. Given that most organizations aren’t sharing this info with their staff — doing so can set your firm apart.
When you tell someone what the range is for their role, you send them the message, “we care about getting pay right, and this is competitive pay for your role.” You effectively tell employees that you want them to have a future within your organization.
Another way to demonstrate that you value open communication is to share total compensation statements with employees. A total compensation statement outlines all of an employee’s rewards (salary, bonuses, equity, health insurance, etc.) and often applies a monetary value to non-cash items. In 2018, 36 percent of organizations provided this kind of statement to employees. This trend has not changed year-over-year. However, top-performing organizations are far more likely to provide one than typical performers (43 percent versus 36 percent).
Giving employees so much salary information can feel scary. One common concern is employees may compare total compensation statements with their peers and not be happy with what they discover. While this is a valid concern, it’s also beneficial to support your employees exchanging salary information — because open discussions help root out pay disparity.
Want to learn more about how organizations are managing compensation in 2019? Check out our latest Compensation Best Practices Report.