Pay transparency effects not as ‘clear-cut’ as we think

Salary openness and pay transparency are highly sought-after factors for Australian workers, and according to one founder, the results aren’t as “clear-cut” as they seem.

HR Leader recently spoke to Roxanne Calder, recruitment specialist and founder of EST10, about how pay transparency and its effect on workplace culture may be different to what most people would hope for.

“During the pandemic, with our health on the line, trust was number one. Open communication, with our whole lives on display – the cat, dog, children, and more – became the norm, and with it, what we were paid. [The year] 2022 and the boa-constrictor squeeze for talent clinched the deal for pay transparency. Since then, pay transparency has been insistent and on the rise,” Calder said.

“However, pay transparency and its effect on workplace culture isn’t as clear-cut as we think.”

Calder explained that what employees truly yearn for when it comes to pay transparency is a “fairer working environment”.

“Viewed as being a fairer working environment, 78 per cent of workers in England view salary openness positively. Changes to the gender pay laws brought pay transparency to the forefront,” she said.

“Women globally earn around 37 per cent less than their male counterparts in similar roles, and progress in closing the gap is described as painfully slow. Twenty-one out of 38 OECD countries require mandatory, systematic gender pay reporting by private sector firms.

“Additionally, pay transparency is a tool to bring about change to all pay inequities. It requires pay to be fair and unbiased across all demographics, such as gender, race, ethnicity, etc. It is needed, highly advisable, eminently valuable, and has powerful effects on workplace culture. It’s a no-brainer.”

As far as no-brainers go, Calder believes that it’s essential for employers, especially in the current talent market, to express pay transparency. As recruitment becomes a more difficult endeavour, organisations that are open about their salary range are almost guaranteed to garner more attention from candidates.

“Advertise the salary range, and you are guaranteed a high level of job applications. Eighty-five per cent of Gen Z are less likely to apply for a job without a salary range, a critical consideration when, globally, 27 per cent of our workforce will comprise Gen Z workers by 2025,” Calder said.

“For the rest of us, 98 per cent found listing salary on job adverts as important. With the global skills shortage, it’s business and culture imperative to select from an ample and diverse range of job applicants.”

There are, of course, pitfalls to total pay transparency, which Calder alluded to.

“Pay transparency doesn’t give us the whole picture. For some, it can make us dangerously nearsighted, showing us only what we want to see. A top performer who generates 40 per cent more value than the rest of your team. It sounds reasonable, except if it acts as a demotivator to their colleague who puts in maximum effort but will never quite achieve the same levels,” Calder said.

“Or the same top performer whose values are not aligned with the business. You might choose not to pay at a higher level. Sounds reasonable, but as a consequence found dealing with resignations and staff turnover. These present every reason to be cautious, wary, and, yes, afraid.

“Or the person who has been with your organisation forever. They are engaged, loyal and live the brand. We all know the value employee retention delivers. It’s touted in every HR and leadership forum. So, perhaps a yearly bonus that sees them earn more than their cohorts is justified, but to share with everyone else, though?

“Research shows when individuals receive bonuses and similar, it’s demotivating for their peers.”

Offering pay transparency that allows all members of the organisation to have a perspective of the organisation’s inner workings can have its downfalls. As Calder explained, that can be through motivation, engagement, and thus productivity.

Therefore, Calder suggests that Australian organisations should instead consider a much more delicate approach, which still offers openness and trust but protects businesses from the pitfalls that can arise when they are too open.

“Instead of an all-out full-monty disclosure, perhaps consider a more delicate approach. There are many other ways to demonstrate trust and openness. It doesn’t have to be about making all information accessible,” Calder said.

“An environment of clear goals and expectations, an understanding of salary banding, how salaries are determined, and what is required to earn more and receive promotions goes a long way to bridging the transparency gap and leveraging a positive workplace culture.

“Transparency in every way continues to evolve in all aspects of life. As for pay transparency in our workplace, well, that’s a given, and expect it to amplify even more. Apart from fairness, equity, and better workplace culture, it’s a societal necessity.”

Leaders can really fill this void of trust and openness by simply exerting these qualities themselves. Being honest and supportive of their team can nullify the need for grandiose transparency, which can hurt business outcomes.

“As a final point, the authentic leader? They are key in the pay transparency strategy. When 75 per cent of leaders say pay equity and transparency are a priority, but only 45 per cent of employees agree, we have another sizeable gap to fill! Fill both with one solution: your transparent leader!” Calder said.