Pay transparency has made a lot of headlines recently — including here at Figures.
And, for companies that have traditionally held salary information as confidential and avoided sharing details of their compensation processes with their employees, it can be a bit of a scary subject.
But pay transparency doesn’t have to be intimidating. Today, we’re busting five common myths about pay transparency, to help you understand what it will really mean for your business.
Myth #1: Pay transparency isn’t an urgent issue
We’ve all been talking a lot about the EU Pay Transparency Directive, but it probably won’t come into effect until 2024 at the earliest. And smaller companies will likely have even longer before they need to be fully compliant.
So, you could be forgiven for thinking that you don’t need to worry about pay transparency for at least a year. But is this true?
The truth: The EU Pay Transparency Directive is coming, and businesses need to prepare
Here’s the thing: legislation like the EU directive isn’t developed in a vacuum. In fact, it’s come about partly in response to a global movement towards pay transparency, which we’ve seen reflected in various laws enacted in the US over the past few years.
That means there’s a global demand for more equity, fairness and transparency when it comes to pay. And getting on board now can help solidify your company as a market leader in these areas.
Plus, 2024 isn’t very far away — and preparing for pay transparency takes time. If you haven’t yet started thinking about how you’ll comply with the EU law once it comes into play, now is the time.
Myth #2: Pay transparency will only cause resentment and jealousy among employees
Imagine this: you’re a hardworking, diligent employee who’s been working at your organisation for a couple of years. You think you’re on a decent salary, although you wouldn’t mind a raise in the not-so-distant future.
Then, you find out that a colleague who only started a few months ago is making significantly more than you, for the same role.
Would you be upset? Outraged? Probably. You might even feel disrespected by your employer, and start looking for a new job.
This is exactly the sort of situation that many employers are worried about when they start talking about salary transparency.
The truth: Understanding how pay decisions are made can motivate employees to move up — as long as your processes are fair
Here’s the thing, though: situations like the one described above aren’t actually caused by salary transparency — they’re caused by employers not paying their employees fairly.
There’s another myth that pay transparency is all about publicising your salaries or pay ranges. But a large part of it involves rethinking how you determine each employee’s salary in the first place — and making that process clear to employees.
Let’s go back to our scenario. It could be that the better-paid employee has more experience, a higher qualification, or outperformed the lower-paid employee in their latest performance review. Pay transparency doesn’t mean that every employee should be paid the same, and it’s perfectly reasonable to take things like performance and experience into account.
What’s important is to develop a clear, structured system for determining each employee’s pay, and communicate about this system to employees.
In fact, when it’s done right, this sort of transparency can actually motivate employees to work harder, because they’ll know exactly what they need to do to move up within their salary band.
Myth #3: Pay transparency doesn’t matter if we’re already paying people fairly
If you’re already committed to abolishing your gender pay gap and paying your employees equitably, you may be wondering if pay transparency really matters to your organisation. After all, every employee knows what their salary is — and surely knowing that they’re being paid well for their work is enough to keep them happy. Right?
The truth: Employees don’t always know whether they’re being fairly compensated — and perception matters
Here’s the problem: employees typically aren’t very good at judging whether or not they’re being paid fairly. And if you’re not being transparent about your pay practices, it’s reasonable for them to assume that you’ve got something to hide.
That means that even if you’re determining your salaries using a fair, structured and well-thought-out system… it won’t do you much good if you’re keeping your employees in the dark.
Being honest about how you make decisions about pay can do a few things for your organisation. First, it shows your employees that the salary you’re paying them is fair and in line with their experience and seniority. It also helps them to understand what their options are if they want to earn more.
Plus, pay transparency promotes trust in your organisation and its leadership — which ultimately leads to higher levels of engagement, productivity and retention.
Myth #4: The EU Pay Transparency Directive doesn’t affect me because my company is based in the UK
There’s been a lot of talk recently (including by us) on the upcoming EU Pay Transparency Directive. As we’ve discussed, this directive will require companies in the EU to report on their gender pay gap, provide pay transparency to jobseekers and give workers information on their pay and how it fits in with average pay levels across the organisation.
But if your company is based in the UK, you might be wondering what all of this has to do with you. After all, the UK is no longer part of the European Union, so it makes sense to think that an EU directive doesn’t apply to you.
The truth: UK companies should still be concerned with transparency, even if the EU Directive doesn’t (yet) affect them directly
The truth is that UK companies do need to be preparing for pay transparency now, even if the EU Directive might not directly impact them.
(Side note: if you have employees in the EU, you will be affected and will need to comply with the law once it comes into effect).
The reason is that it’s very likely that similar legislation will eventually be introduced in the UK to bring it in line with EU law. This will complement the existing gender pay gap reporting requirements for companies with 250+ employees.
It’s true that employers in the UK have a little more time than their European neighbours before they absolutely have to start working towards pay transparency. But it’s always better to start preparing as early as possible.
Of course, there are all sorts of other benefits too. Pay transparency can help you to remain competitive, attract top talent, boost employee morale and enhance your employer brand — that sounds pretty good to us.
Myth #5: Pay transparency will make it harder to find quality candidates
Part of the EU Pay Transparency Directive will require employers to include salary information in their external job descriptions. And, while some companies are already doing this, others are hesitant.
These companies worry that it might put them at a disadvantage in the negotiation process since candidates already know what they’re willing to pay. Plus, won’t putting salary info in the job ad just scare off candidates who think they might be able to make more money elsewhere?
The truth: Including pay ranges in your job ads helps attract candidates and avoids wasting time with unsuitable ones
Let’s frame this question another way. Imagine you spend weeks putting a candidate through several rounds of interviews, tests and assessments. Finally, you’re ready to make them an offer… which they turn down because the salary is too low.
While there is often room for negotiation at this stage, sometimes you just can’t afford to go any higher. You’ll end up losing this candidate because they’re out of your budget… and you’ll have to start your recruitment process all over again.
Isn’t that just a big waste of everyone’s time?
Including salary in your job descriptions does two things. First, it filters out candidates who are expecting a higher salary than you can afford to pay. That means you probably won’t hear from those candidates — but you’re not losing anything as they would never have accepted your offer anyway.
Second, putting salary info front and centre could actually encourage candidates to apply, as long as the salary range is in line with their expectations.
This isn’t just a theory: research from LinkedIn found that 91% of US jobseekers say seeing a salary on a job description impacts their decision to apply. And Indeed found in a 2022 survey that 67% of candidates consider salary information to be the most important component of a job description.
How to do pay transparency right
So, what do you need to do if you want to make your pay practices more transparent? First of all, it’s a long process that can’t be achieved overnight. But if you haven’t started yet, now is the best time — especially with the EU Pay Transparency Directive just around the corner.
We’ve put together a comprehensive checklist to help companies in the EU and the UK prepare for the directive’s implementation in 2024 — check it out here to start your journey towards pay transparency.