It’s impossible to view any HR publication, website, or newsletter lately without running across a mention of pay transparency. Though, there are fewer than 15 states with active pay transparency laws as of this publication.
However, the impact is greater than that because organizations that have employees in multiple states may choose to become more transparent even in states where it’s not yet the law. The goal being to avoid discrepancies and issues with remote positions. The writing is on the wall — pay transparency is here to stay and employers are seeing the need to take some sort of action now, and probably more down the road. First, it’s important to understand the current state of pay transparency laws and ensure your organization is (at the bare minimum) being compliant. From there you can leverage one of pay transparency’s largest benefits – employee retention.
How does pay transparency impact retention?
Collective intelligence through various forms of research has found that leadership, competitive pay, trust, transparency, and opportunities for advancement all have an impact on retention.
In the third quarter of 2023, Mercer conducted the Inside Employees’ Minds study, which consisted of 4,505 US employees. One of the significant outcomes of that study was that 68% of employees report that they know their pay ranges. The trouble with that number is that only 25% of employers report they are sharing their pay ranges — that’s a big discrepancy. 61% of employees are finding out what they believe to be their pay range through job postings.
As we all know, what’s shared in job postings is often irrelevant for a current employee’s pay, which means that a large percentage of employees are relying on irrelevant information to determine if they are being compensated fairly. Pay transparency can help HR professionals educate current employees on how that job posting pay range relates to their own compensation and the broader salary range. But does it matter?
How big of an impact does pay transparency have on keeping employees?
In the same Inside Employees’ Minds study, we found that employees who feel they are paid fairly are 85% more engaged and 62% more committed than those who don’t feel they are paid fairly. Going further, we found that if they felt they were paid fairly, they were twice as likely to say that they understood how the company determined their compensation and that their manager provided them with their pay range. It appears that pay transparency is quite important when it comes to engaging and retaining employees.
Overall, pay transparency is a big step toward promoting trust between employers and employees. Pay has been a taboo topic for so long and has led to a lot of inequality and distrust.
Employers should look at being transparent about more than just pay. Career development and advancement opportunities are other big drivers in employee retention. Employees who feel they can meet their career goals by working for their current employer are twice as committed.
A similar question was asked in 2022-2023 Global Talent Trends – “What makes employees stay?” While job security ranked number one in 2022 during COVID, competitive pay and fair reward practices took third and fourth place. Of course, being transparent about what you are doing to ensure that pay is competitive and fair is critical to building this sentiment with employees.
What can you do?
Depending on where you are in your pay transparency journey, Mercer can assist. Of course, a top concern is to ensure you are tracking the proposed and enacted federal and state laws around transparency.
Beyond that, most organizations will need to understand where they may have opportunities for improvement when it comes to pay administration and equity. That is typically done by conducting several types of analysis (e.g., pay equity analysis, market competitiveness, range outliers) and developing a plan for remediation and implementation.
Another challenge can be communication and education. For example, an employee may question why they are not paid at the midpoint of the range, if that’s “competitive.” If you don’t use a traditional salary structure, the question may be a bit different, but will likely be getting at the same point – employees won’t necessarily understand why they are paid the way they are. A multi-step communication and education plan for both managers and employees will help as your organization embraces pay transparency.
How can Mercer support you?
Whether it’s salary surveys to evaluate competitiveness, communication, or education plans to support the process, or overall change management strategies, Mercer is ready and excited to help!
Give us a call at 1-855-286-5302 or email surveys@mercer.com – we’re waiting to speak with you!
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