Pay transparency regulations are sweeping the globe, forcing organizations to think about pay transparency and fair pay on a global level. Over seven in 10 organizations (73%) report that these growing regulatory requirements are encouraging increased levels of pay communication to a great extent. However, many employers are also concerned about employee reactions to greater pay transparency, especially when organizations lack the job and pay structures and the policies needed to support consistent pay decisions. This situation is creating a sense of urgency among employers to enhance their pay management and governance practices.
73% report that these growing regulatory requirements are encouraging increased levels of pay communication
24% report that their lack of a clear job architecture and job leveling frameworks was a factor holding back increased pay program communication
33% indicated that one reason for a lack of pay transparency was because their pay programs were not ready
Our 2023 Pay Transparency Survey highlights the need to ensure that the drivers of equal pay are in place so that employers can confidently provide increased visibility and clarity around their pay programs and pay outcomes. The following measures can help prepare employers for this journey.
Employers can lay the foundation for greater pay transparency through job architecture and leveling frameworks that allow them to identify people in different jobs doing similar work in a consistent and objective manner. These serve as the basis for the design and management of reward and talent programs and, in turn, support the delivery of fair and equitable pay outcomes.
But roughly a quarter of respondents (24%) report that their lack of a clear job architecture and job leveling frameworks is a factor holding back increased pay program communication. Moreover, even those organizations that have started on this path don’t always have both components in place. Our 2023 Career Strategy and Design Survey shows that while six in 10 organizations have established job leveling frameworks, only slightly more than half (54%) have a set job architecture.
Organizations that are confident in their pay structures and supporting policies are better positioned to describe clearly the factors that determine pay levels and pay progression and to support managers in making equitable pay decisions. These types of organizations are less likely to have unexplained differences in pay. Yet one-third of our survey respondents (33%) indicate that one reason for a lack of pay transparency is because their pay programs are not ready (e.g., they lack confidence in their pay ranges and use of broad pay bands).
The following steps can help improve your organization’s confidence in its pay structures and policies:
Our survey respondents identify data availability and quality as a key barrier to pay transparency. Increasing regulatory requirements make it critical for organizations to assess whether they have the necessary data, tools and analytics in place to support the pay and pay equity information they need or will need to share.
Robust, readily accessible data and analytics enable employers to conduct various types of analyses (e.g., equal pay, pay gap and pay driver analyses) to uncover and address areas of risk. It is important to investigate whether you are systematically treating one demographic group differently from another and to understand what the reasons are for those differences so you can prevent career and pay gaps from reoccurring.
With job and pay structures as well as data and analytics in place, organizations are well equipped to communicate pay information to various stakeholders. This is a critical step in preparing the organization to educate managers and employees. A communication road map will serve as your guide by defining your organization’s fair pay ambitions and priorities and specifying the information you intend to disclose to each stakeholder group.
Employers look to managers to communicate on often-complicated pay issues to employees. In fact, eight in 10 organizations report using managers to communicate pay program information to their workforce. Yet, few report adequately preparing managers for this task. Only two in five say they are effective at educating managers on pay and pay equity issues.
Poorly educated managers will find it challenging to discuss pay policies and answer employee questions confidently. It is surprising, then, that fewer than one in five respondents rate their organization as effective at educating employees on these matters.
Employers must educate and support their managers so that they are confident in making pay decisions and discussing these decisions with employees. Organizations can also employ different types of learning programs and resources to help employees understand how their pay works and the increased pay information available to them.
Six in 10 employers (58%) are disclosing job levels to their employees, making this the most commonly shared pay program information (Figure 1). And even with the proliferation of pay transparency laws, less than half of employers are communicating key elements of employee pay.
Essential to pay transparency is an understanding of how employers determine base pay and the forms of compensation beyond base pay that they offer. Our survey findings show that organizations intend to make progress in these areas. Roughly half of organizations (48%) currently communicate how they make base pay decisions, with another 35% planning or considering doing so. Additionally, more than four in 10 (44%) also share variable pay opportunities, while about a quarter (24%) are looking to do so.
Going forward, many employers in North America and Europe will be required to communicate information on pay ranges. Currently, one in three organizations (35%) is already communicating information on pay ranges to its employees. More than four in 10 are planning or considering communicating individual pay ranges (44%) and how pay ranges are designed and managed (42%).
Our survey found organizations that communicate pay program information to employees generally take a global approach, rather than a local or compliance-focused approach, in determining the pay information that will be disclosed across all jobs, often with local variation where required.
Among organizations that are already communicating pay information to prospective employees or planning to do so, two-thirds (64%) are communicating or planning to communicate the job hiring range, that is, the part of the range they would reasonably offer a job applicant. Slightly more than four in 10 (42%) are communicating or looking to communicate the full salary range (Figure 2). Survey respondents are less likely to disclose a wide or narrow segment of a salary range or market rate for a role.
Approximately two-thirds of respondents (65%) that plan to communicate pay rates or ranges to prospective employees think doing so will increase questions from current employees and managers; however, only half of those that are already communicating this information report increased questions from these stakeholder groups .
Two out of three respondents (66%) are already communicating or planning to communicate pay range information in all locations where required. Globally, 26% are sharing this information or planning to do so even in locations not requiring such disclosures.
Disclosure of pay range information to prospective employees is more prevalent in the U.S. than in any other country or region. This is due to legislation in several states requiring disclosure of this information. However, the recently adopted European Union (EU) Pay Transparency Directive is creating a sense of urgency among companies in EU countries to prepare to comply with the new regulations; therefore, in the future, we expect to see a significant increase in the disclosure of this information in the EU member nations.
Three in five organizations (61%) say the board of directors oversees pay equity and pay transparency matters – usually through the compensation/remuneration committee or the full board.
Given increasing legislation around pay transparency, organizations must prepare now to meet regulatory requirements. Objective job and pay structures, robust data and analytics, and manager education are likely to help your organization confidently deliver a pay narrative to internal and external stakeholders. In turn, improved pay transparency can help advance fair pay, thereby boosting workplace fairness, supporting your commitment to pay equity and an inclusive workplace, and enhancing the employee experience.
Contact us to find out where you are on the journey to pay transparency with an assessment of whether you meet current legislation and find out what you need to do to improve.