Internal Pay Transparency: A Strategic HR Approach

You may know from your own experience that it is possible to have too much of a good thing. Whether it’s leftover Halloween candy, time with family on Thanksgiving, or salary transparency—everyone (be it a person or an organization) eventually has to set a limit.  

Some organizations have deliberately (or out of necessity) chosen full salary transparency and publish their employees' salaries both internally and externally. While the benefits may seem commendable, numerous experts point out the potential downsides of public salary information, not to mention the resistance you are likely to encounter when proposing such a radical change.

The good news: Publishing individual salaries is just one approach to pay transparency. In fact, the best approach for most companies is probably somewhere between complete opacity and full disclosure. This way, you can increase fairness towards employees and reap many of the benefits of pay transparency without revealing exact salaries.

Open salary discussions

The topic of salary is equally uncomfortable for employees and employers. Unfortunately, only 30% of companies train their managers on how to discuss compensation with employees. This may explain why only 17% of companies trust their managers to handle difficult conversations about pay. Training managers on salary discussions promotes constructive and open conversations about compensation.

You can also support leaders in having open and informed conversations with their employees about compensation by providing them with accurate and valuable information on salary changes and the total compensation of each individual employee. An excellent way to do this is by providing compensation and HR reports through an HR database (such as IceHrm). Many of our clients allow decision-makers and influencers in the compensation area (e.g., managers, finance, HR, and recruiting staff) to access this information through our employee self-service system.

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You should also make openness about salary (and perhaps even openness in general) a permanent part of your company culture. When employees are encouraged to raise concerns about their salary or other issues, they are much more likely to initiate conversations. These conversations can uncover problems that would have otherwise remained hidden in your company and help you address them.

Salary Comparison Reports

It may not be particularly surprising, but the gap between employers who consider their pay to be fair (44%) and employees who consider their pay to be fair (20%) is quite alarming. The problem may partly lie in inaccurate or uninformed assessments of salaries for others in comparable positions. Fortunately, there are tools that collect compensation information from the community and generate corresponding reports.

Decision-makers in the compensation field can use these reports to see how their organizations compare. The reports also provide employees and applicants with valuable evidence that their salary or offer is actually in line with the market (assuming, of course, that you actually pay fairly – more on that later).

Here are some examples of payroll tools:

- PayScale: Employees can participate in a short survey to determine their appropriate salary. Employers can use PayScale (which is integrated with IceHrm to ensure up-to-date employee data) to ensure fair compensation.

- Glassdoor: Employees can leave reviews about your company on Glassdoor and also report their salaries. Glassdoor then creates a report for each company profile with salary ranges for various positions. This allows employees not only to see the salaries of their colleagues within their own company but also to compare the salaries of other companies in the industry or region for similar positions.

It is important to know that some salary forecasting tools are more accurate than others, and some do not provide a complete picture of the positions in your industry or region. Therefore, it is important for compensation managers to understand these reports and their limitations in order to discuss them with employees and applicants.

Defined compensation levels

Only 23% of employees consider salary determination in their company to be transparent, and 31% of employers agree. For most employees, it is therefore as if their salary is set arbitrarily by someone.

One of the best ways to build trust and transparency in compensation is to implement a clearly defined and comprehensive compensation system. This system allows you to evaluate positions consistently based on factors such as task complexity, required experience, education/training, importance to the company, and other criteria. This way, you can determine an appropriate salary range for each position. Naturally, you also need to consider the demand for certain positions and market trends.

If employees want to know why their salary was determined in a certain way, you can explain that the same compensation criteria are applied to everyone in the company. Regularly reviewing each position using a compensation system also makes it clear when employees deserve a salary increase.

Fair Pay

Conversely: If only 44% of employers believe they pay fairly, more than half of employers consider their pay to be unfair. So if you are trying to offer candidates a salary below their worth, withholding deserved raises from employees, or are aware of pay disparities between different groups of people doing the same work, then stop. It is dishonest.

Openness and transparency are much more pleasant when there is nothing to hide. Managers no longer feel trapped in a confrontation during salary negotiations and are naturally more likely to promote open salary discussions. The HR department no longer has to worry about employees comparing salaries if it can refer to a standardized evaluation system that determines the level of compensation. HR managers see no reason to deceive anyone when they have reviewed pay slips to ensure that the salaries paid are in line with the market.

Transparency builds employee trust in fair pay. The first step towards greater salary transparency is therefore to ensure that your company pays fairly from the outset. This will make your company feel more comfortable and more likely to support a certain amount of salary transparency.

Achieving the benefits of salary transparency—like increased trust and fairness—does not require publishing every employee's paycheck. Instead, the focus should be on building a culture of open communication and establishing a structured, explainable compensation framework. This involves proactively training managers for difficult pay conversations, utilizing external salary comparison tools to ensure market alignment, and implementing clear, defined compensation levels based on objective criteria. IceHrm is instrumental in this process by acting as the central HR database that provides managers with the accurate compensation and HR reports they need to have informed discussions. Furthermore, by integrating with tools like PayScale, IceHrm helps decision-makers ensure that their pay practices are fair, consistent, and transparent, ultimately bridging the gap between employee and employer perceptions of fair pay.