As the cost of living continues to rise and pay discrepancies persist across minority demographics in Canada, there is a growing demand for organizations to promote open and honest conversations in the context of salary transparency.
According to the most recent data from Statistics Canada, female employees aged 25 to 54 earned 88% of their male counterpart’s average hourly wage and the discrepancy is even greater among marginalized groups such as Indigenous peoples, people of colour, and those living with disabilities.
The Canadian Federal Government has taken steps over the past five years to address these disparities through the Pay Equity Act which mandates that federally-regulated employers must proactively examine their compensation practices and ensure they are providing equal pay to men and women doing work of equal value.
However, employers can also proactively encourage a more equitable workplace by incorporating pay transparency into their organizational frameworks and empower their employees by providing valuable information around compensation. However, pay transparency is not without its complexities and striking the right balance is crucial to its success.
Implementing a pay transparency policy is not as simple as it sounds. Providing too much information may not always be beneficial, and ineffective communication can create unexpected problems. It’s important for organizations to consider what employees want to know – most often it is not who is being paid what, but rather what criteria are considered to justify salary levels.
Organizations need to invest the time to holistically evaluate their compensation programs (total rewards portfolio) and ensure there is sufficient clarity in the processes. They must also prepare and educate managers for discussions with direct reports and have an effective communications plan prior to evolving their pay transparency journey.
UNDERSTANDING THE SPECTRUM OF PAY TRANSPARENCY
Companies can adopt various levels of pay transparency into their policies. They must first assess the benefits and subsequent risks associated with each level and then make a decision that best suits their needs and desired outcomes.
1. Knowing what you’re paid and why.
At the basic level of pay transparency, employees gain insight into their salaries and the factors influencing their compensation, such as experience, education, and performance. This knowledge can empower employees by providing a sense of clarity about their earnings. Through understanding the rationale behind their pay, employees may feel less compelled to question their compensation.
2. Understanding how pay is determined and the employees’ positioning.
At a more comprehensive level of pay transparency, employees are made aware of the salary structure, review process, and their positioning within it. This level of transparency enhances clarity about where an employee’s pay falls relative to others in the organization and their earning potential within their current position. While this can build trust and foster more informed judgments about compensation, it can also create challenges for managers who may need to navigate conversations around fairness, perceptions of equity, and employees that perceive they are undervalued or overqualified for their position.
3. Full organizational transparency.
At the highest level of pay transparency, employees have access to complete information about all scales, salaries, and individual compensation within the organization. This degree of transparency provides insight into internal, external, and individual equity, facilitating discussions about fairness and the various factors considered in compensation decisions. However, this level of transparency carries risks, such as information leakage to talent competitors and privacy concerns from some employees.
CONSIDERING THE IMPLICATIONS OF PAY TRANSPARENCY FOR EMPLOYERS AND EMPLOYEES.
Implementing pay transparency requires thoughtful planning and communication. Employers need to assess the desired degree of transparency, ensuring it aligns with the organization’s values and goals. It is essential to evaluate the current compensation policies and consider potential biases or perceived unfairness.
Employers should also modernize their total rewards programs to strike a balance between monetary and non-monetary components to create a holistic incentive structure. Additionally, proper change management and effective communication are crucial to prepare employees and managers for the new policy rollout.
For employees, pay transparency can be empowering and equip them with valuable information that increases their understanding of compensation decisions and position within the organization. However, employees need to consider that transparency is just one aspect of promoting equitable pay. It is essential for them to recognize the significance of a total rewards structure, encompassing both financial and non-financial components.
NEXT STEPS FOR COMPANIES.
Pay transparency holds promise in the journey towards fair and equitable compensation and program design, but its implementation demands thoughtful consideration and strategic planning. Companies must carefully maneuver between candidness and discretion, providing pertinent information to employees while managing the potential associated risks.
By enhancing total rewards programs prior to introducing new pay transparency policies, organizations can help their employees to recognize the holistic benefits and rewards associated with their job, thereby shifting the focus away from entirely monetary.
Embracing pay transparency is a crucial element in ensuring that all employees are fairly compensated and helps to foster a work environment built on trust, mutual respect and inclusivity.
Darcy Clark is a Senior Principal, Compensation at Normandin Beaudry, a leader in actuarial and total rewards consulting services.
