Exploring the concept of pay transparency for your organisation.

The Pay Transparency Landscape

In recent years, there has been much global talk and action on the concept of pay transparency. That movement is gaining momentum here in Australia.

Traditionally, most organisations in Australia have not been transparent about pay or pay practices. Until 2022, many companies typically included 'pay secrecy' clauses in employment contracts to actively discourage conversations on pay.

As part of Australian culture, it’s been ingrained in us not to discuss pay or ask anyone what they earn. Many will have been raised being told it’s rude or impolite to ask such questions of friends, family or colleagues.

Combined, the impact has been that pay conversations have only ever happened behind closed doors, which has traditionally led to favourable (i.e. cost-saving) outcomes for employers. However, this has come at the cost of treating people equitably and has been a key driver behind the existence of a pay gap (be it gender or any other intersectional data point) in an organisation.

The global winds of change have been blowing and in 2022 the Australian Government outlawed pay secrecy clauses in contracts of employment.

The future has arrived, yet many organisations still remain unprepared for the new world where pay transparency is not just a legal requirement but an embraced expectation from employees and the community at large.

Pay Transparency Global Movement 

European Union

The EU has led the charge globally, with the 2023 pay transparency and pay equity Directive (EU Directive) requiring all member states to adopt the directive and implement the legislation by June 2026.

The EU Directive will require employers to conduct assessments of all aspects of their remuneration practices —including basic pay, bonuses and other incentives - and report their results publicly and provide salary transparency to job candidates.

At the centre of the EU Directive is the expectation that workplaces must be able to categorise employees who are performing the same work or work of equal value, and to ensure discriminatory talent management decisions are detected, remedied, and made transparent.

United States

Over the past few years, many States in the US have mandated that job ads outline the salary for the advertised role, whilst others have prohibited companies from asking candidates about their salary history during the recruitment process. 

Australia

At home, our legislation has focussed on gender pay gap transparency for companies reporting to the Workplace Gender Equality Agency (WGEA), but as yet, there has been no move to enforce pay transparency on job ads or to go as far in terms of pay transparency as has been the case with the EU Directive.

Publishing organisation's gender pay gaps was a rather bold move for our conservative culture, and what we’ve witnessed since then is the gender pay gap becoming a topic of mainstream media, igniting many a discussion at the dinner table.

It has certainly succeeded at creating broad awareness of the issue. I recently had a member of our GEM community share with me a beautiful story about her 11-year-old daughter delivering a school speech on closing the gender pay gap. We’ve yet to realise the full impact of what this all means for our nation's progress towards closing the gender pay gap.

There will be continued pressure in Australia in this respect, and it will be interesting to see whether legislators will take further steps to heighten pay transparency across the board, as we've seen in other jurisdictions.

The Balance of Power - Pay Transparency in Recruitment.

We’ve all been there. Blindly applying for a job in the hope that it pays in line with your expectations. Completing lengthy applications online, handing over a raft of your most personal details, all in the hope there is alignment on salary with your potential new employer.

Many of us will have proceeded right to the business end of the interview, meeting future teams and future bosses, leaving salary discussions to the very end, only to be offered the role on a salary so underwhelming that you're almost insulted.

And somehow, in this day and age, many companies think that either not discussing salary or withholding it until the candidate is sufficiently on the hook - is an effective recruitment strategy.

The time for change?

Now, don’t get me wrong, I’m not suggesting these are easy conversations for either party for a number of different reasons (yes, coming from an HR background, I’ve seen this from both sides of the fence - as a candidate, and as the employer, at various points in my career) - but the workplace and the world have evolved.

If I had a crystal ball, I would predict that pay transparency will become more common in Australia within the next five years. This is not necessarily through legislation but more so as common practice – the progressive workplaces will see value in being more transparent by providing a leading candidate-focused experience. Then, others will notice and feel peer pressure to follow. The future is coming, and it’s not holding on to relics of the past, particularly ones that don’t elevate employee experience.

What are the benefits of introducing pay transparency in your organisation?

It’s important to note as we discuss this, we are coming from the angle of transparency both internally and externally. The internal focus includes transparency on your pay processes (annual cycle reviews and what feeds into these processes, e.g. performance reviews.) and pay outcomes (how salaries are determined and rewarded through the employee lifecycle) for existing employees. When we refer to the external component, we refer to transparency for those external to the business, such as your future candidates. There are many benefits to pay transparency and to keep this succinct, we’ll focus on three:

✅ Fairness – levelling up the ledger.

It may not come as a surprise, but pay transparency has been shown to reduce gender pay gaps. In a recently published study from the university sector in the UK, researchers looked at the impact of pay transparency intervention on the gender pay gap, and found that over the course of the study, female academic’s income increased by .62% and the gender pay gap reduced by 4.37%. The study found that the main mechanism for this was women negotiating higher pay. Now, if you're managing a budget on behalf of your organisation and don’t like where this is heading, I’d urge you to consider the bigger picture in terms of what ‘doing nothing’ may cost your organisation.

Here is an example of a recent legal case with Birmingham city council, now declared bankrupt. Being transparent on pay holds everyone to account. It also levels the playing field by arming individuals with the right information when it comes to understanding their pay and what that means in the broader business context.

✅ Higher Levels of Trust.

The concept of trust in an organisation is highly correlated with engagement. As Culture Amp has found from their extensive research on engagement, ‘trust is the bedrock of engagement.’ Therefore, it makes sense that organisations that practice pay transparency (effectively) are more likely to have better communication and higher trust in their workplace.

It sends a strong signal to their people that the organisation is committed to being open and clear about pay practices. This can be an effective attraction strategy, too, as candidates who apply for a role have a clear understanding of the pay range and opt-in if they meet their criteria instead of being in the dark and hoping for the best. It’s a far more effective way of building trust with candidates and new starters.

✅ Increased Productivity & Performance.

With higher levels of engagement and trust in an organisation, it might seem obvious that these organisations can experience higher productivity, leading to improved individual and business performance. It can serve as a source of motivation. Instead of employees being left in the dark about where they sit on the pay scale, they generally have a better understanding of how their pay is derived and how to get to the next level on the pay scale. It’s no surprise that transparency leads to higher levels of retention, too – with 81% of workers saying they feel more productive and loyal to their employers when they are paid fairly.

The Broader Considerations of Pay Transparency.

There are a multitude of dynamics at play when it comes to pay transparency—considerations such as legacy pay issues, management maturity to deal with all the nuances, HR teams already overloaded with other issues, and creating the time and space to craft a strategic approach, including effective implementation, change management, and of course, your communications plan needs to be nailed - it is easier said than done.

There are also many options and ways for your business to embrace pay transparency. It may start with transparency in your processes and practices—by being transparent about your compensation strategy and the annual cycle, being clear about how pay decisions are made in your business, and communicating how pay decisions are made.

It could be an option to introduce (realistic) salary bands or ranges in your job ads. My back-of-the-envelope research on Seek shows that the majority of companies are not advertising with salary ranges. It seems more common if a recruitment agency is blind advertising on a client's behalf, but for companies directly – this practice appears to be limited to a minority of businesses. As for government roles and recruitment practices, they are very accustomed to including salary ranges in their job advertisements. When the Commonwealth gender pay gap results were released for the first time last month, it showed a significantly lower national gender pay gap (to the tune of 8%) than the private sector.  

Finally, it may be right for your business to be fully transparent about your salary bands or job grades. We saw this with PWC a few years ago, and they claimed it helped reduce their gender pay gap. Initial criticism of the move suggested the bands were too wide to be useful, but since gender pay gaps were published, PWC's gender pay gap landed in the ‘sweet spot’ of + or - 5%.   

If you want to learn more about pay transparency or how equidi's award-winning platform, or services can help your business, then Book a Demo today!

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