Salary transparency can be a polarising topic within HR departments, with some seeing it as a long-overdue policy change and others an impending disaster.
On one hand, salary transparency advocates believe it can give employees an accurate picture of how their profession and skillset is valued in the market – thus boosting employee trust and engagement.
On the other, critics campaign that salary information is kept discreet for good reasons, including market competitiveness, leverage in negotiating salaries with candidates and decreased employee morale.
Regardless of where an organisation sits on the issue, the popularity of salary transparency is growing – partly motivated by a tightening candidate market and more willingness to see open, fair and equitable pay for all employees.
To understand how a salary transparency policy will impact your organisation, it’s crucial to understand the pros and cons first. Here we'll explain these in detail.
The Upsides of Salary Transparency
As worker mobility increases and the talent shortages tighten, highly-skilled professionals have their pick of roles. So more people now want to know the salary on offer before they even consider applying.
A significant majority (61%) of jobseekers consider salary the most important part of the job description, according to a 2018 LinkedIn survey. A Glassdoor study showed similar results, with salary (67%) being the top factor people look for in job ads.
It’s also worth noting that people don’t typically leave their jobs to be paid at the same level as their previous role. If an organisation is paying competitive salaries and provides salary ranges in job postings, they will likely attract more candidates.
With a salary range provided upfront, managing candidate expectations and salary negotiations can become more straightforward and reduce headaches for Hiring Managers.
Boosting trust and engagement levels among employees
Pay transparency doesn't diminish as a concern once someone becomes an employee. When workers see proof that they're being compensated in line with their abilities and performance, they're likely to feel more confident about their work and their tenure in the business.
When PayScale surveyed 71,000 workers to study the link between pay and employee engagement, it found an employer's ability to communicate clearly about salary is one of the top predictors of employee sentiment, including 'satisfaction' and 'intent to leave'.
The stakes are higher for businesses employing people for the most in-demand automotive engineering jobs, such as EE System Design Engineers, Advanced Driver Assistance Systems (ADAS) Test Engineers and Machine Learning Specialists. PayScale's research found transparency is even more critical for positions with salaries upwards of USD$85,000 (£67,718), with professionals in this bracket showing the strongest intentions to leave a company over this issue.
Salary transparency can also be a powerful motivational tool. Entry and mid-level employees can see the rewards that are in store for them if they show dedication to their career and put in the effort to earn promotions.
Closing the pay gap
Transparency policies can also help companies tackle pay inequality. Although the pay gap between men and women persists in many industries and professions, companies can shrink this gap if they adopt a pay transparency strategy, as OECD research has shown.
The Downsides of Salary Transparency
Employees could become resentful
There is potential for some employees to feel resentment when they compare their salary with colleagues. Envy and jealousy are primal human emotions, after all.
To avoid these risks, conduct a company-wide pay review and address any inequities in salary before disclosing salaries to employees. Smoothing out any glaring salary gaps between employees in similar roles with equivalent experience will demonstrate the company plays fair.
More employees could try to renegotiate salary
As a Hiring Manager, be prepared to receive a request or two for meetings to discuss salary, as some employees might get proactive in airing their grievances!
Also, keep in mind that competitors could use public salary information to poach current employees by offering them more pay. In some instances, an employee might use a job offer as leverage to negotiate for more pay in their current role.
Talent attraction and retention might get challenging
If employees perceive they're being underpaid compared to their colleagues, their level of engagement with the role might begin to suffer. With lowered engagement comes the potential for more staff resignations, which can set companies on the back foot – especially for roles where finding the right skills is already hard enough.
On the recruitment front, talented candidates could easily decide to completely avoid applying for a role if a company's advertised salaries are lower than what they're expecting.
The flexibility to overpay or underpay can narrow significantly. Transparency might make it harder to hire people on lower salaries or rates when an organisation is on a tight budget or is affected by a downturn. When competition for specific skillsets is at an all-time high, an overly-generous salary for a specialised role could seem unfair to other employees.
Salary Transparency Is Not 'All or Nothing'
As it's unwise to move towards full salary disclosure without the proper groundwork, keep in mind that transparency policies are best adopted incrementally.
Consider salary transparency a spectrum, with one end representing no data at all and the other end showing full disclosure of each employee's salary amount.
The happy medium is to highlight the criteria used in salary decisions. Criteria can include years of experience and education level, industry, location, essential skills required, availability of talent for the role, management responsibilities and KPIs as some examples.
Explaining the rationale behind compensation decisions can do a lot to pre-empt the side effect of resentment that can arise with transparency policies. It's harder to argue a salary decision is arbitrary if it's supported by data!
As some organisations use benefits to pad out salaries, providing the rationale for salary calculations may be a better option, as full transparency may skew the appearance of how employees are paid.
Publishing salary ranges, rather than exact figures, is another middle-of-the-road approach that can work in tandem with disclosing the salary criteria.
Successful pay transparency strategies are ultimately aligned with a company's culture and business strategy. While there are a few different ways to cut the transparency cake, supporting disclosures with clear data are more likely to make the policy a successful one and ensure everyone understands how decisions are made.
Transparency is an important motivator for candidates and employees, so consider doing market research on current salaries for a clearer picture on how the organisation stacks up against competitors – and how this affects recruitment.
As specialists in Automotive Engineering recruitment, our work relies on deep knowledge of the market – especially salaries! We can advise you on what the top candidates are looking for and how to negotiate effectively to hire your next great candidate. Get in touch with us to find out more.