The EU Pay Transparency Directive is sparking significant concern in our community. In fact, a compensation & benefits manager in a public company recently told me, ‘We are not ready. It would be a disaster if we were to make our salary ranges public right now. There are too many inconsistencies that just wouldn’t be acceptable.’
“Disaster” is probably the word used by this American employee’s company when they saw the traction her tweet started getting—a great example of a company that was not ready for Pay Transparency. This issue is everywhere at the moment. Unsurprisingly, the directive was also the focal point in both private compensation communities’ annual conventions, which I attended in the last few months.
The fear people are feeling makes sense. After all, Comp & Ben has always been a bit of a black box within a business, built on the pillars of confidentiality, discretion, and individual negotiations. Trying to shed light on a black box overnight without adequate preparation is bound to damage an organisation.
Incidentally, these concerns are also reflected in the enthusiastic responses I received to the first issue of this newsletter. I’m grateful for this positive feedback, which tells me I’m on the right track. Our sector faces a considerable challenge, and we’ll need to pool our thoughts and experiences to overcome it. That’s precisely why I launched The Compversation.
Here’s the thing, though: this challenge isn’t about numbers. It’s about something much more important.
The transparency challenge
There’s no getting away from it: when the EU directive is in force, companies will have to disclose their salary ranges. It’s natural to think of this as an unprecedented turning point — a seismic shift in the world of compensation and benefits.
But really, it’s just another step in a process that started long ago, whose effects we’re already seeing today: the transition to the pay transparency era.
More and more, employees and candidates are paying attention to the impact of their companies’ activities and their employers' values. Proclaiming these in press releases is no longer enough—they must be translated into practice. Discretionary decisions are becoming increasingly unacceptable. Employees are increasingly willing to challenge their managers and HR teams and hold them accountable. This is already impacting everything from corporate social responsibility to HR practices.
So, it makes sense that we also see a push towards transparency in compensation areas even before the directive’s implementation. The change is underway, and we’re already feeling its impact. Simply publishing figures is not enough to meet the demands of this new era. In fact, doing so without being ready could be a big mistake.
Moving from ‘how much’ to ‘why’
When it comes down to it, the numbers themselves aren’t all that important. What matters is the ‘why’ behind them. In other words, how you landed on a particular figure, not somewhere else.
Focusing solely on disclosing salary ranges misses the real issue. Because the battle for pay transparency isn’t necessarily about how much you pay each employee but how fair your process is in the eyes of candidates and employees. This is backed up by a study by the Josh Bersin Company, which found that pay equity matters 13x more to employees than their actual “level of pay”. So, every number must be accompanied by a clear, precise justification. Otherwise, we open the door to questioning, negotiations, and arbitrary decisions. We must be able to present fair and coherent salary policies. We don’t need to raise the average salary to prepare for pay transparency—not necessarily, anyway.
However, this also means that paying above market will no longer be enough to ensure employee loyalty. Even salary increases will fail to have the desired effect if employees don’t understand them. Above all, we must be clear on the ‘why’ — which means clearly understanding our own compensation philosophies.
Returning to that Josh Bersin study, we’ve seen the proof here at Figures. Our compensation packages are right on the market median, nothing crazy, but we are very transparent about the ‘why’ behind them. For each offer we publish, we share potentially acceptable salary ranges. For each offer, we explain in detail how we came up with each number and how it seems fair to us.
Not only we’ve had a 100% offer acceptance rate, but we’ve seen candidates agree to lower their salaries to join our company in the process.
That’s because we’re uncompromising about keeping our compensation policy fair and ensuring we stick to it. For our team, knowing that they will receive fair treatment is more important than the few thousand extra euros they could probably find elsewhere.
Asking the right questions
All of this means that employers need to have a consistent compensation policy built on clear, solid principles. This is where things get a bit complicated. While that sounds great in theory, salary scales are often the result of many individual decisions, each based on particular circumstances. This can make it difficult for them to justify today.
That’s why compensation and benefits teams will play such an essential role in this transitional period. Their job will be to determine ‘how much’ and help company leaders understand the ‘why’ behind their compensation policies. For the moment, we shouldn’t even be talking about numbers. Instead, we should ask the right questions: how is our company positioned in the market? Which companies should we be comparing ourselves with? What criteria do we take into account when putting together hiring packages? How do we account for performance?
Comp & Ben leaders have the difficult task of guiding companies through a process that will ultimately allow them to publish their salary ranges without worrying about the consequences. For now, that means ensuring those salary ranges are clear, fair, understandable and acceptable to everyone.
But there’s also way more to think about. That’s the bad news. The good news? We’ll help you get through the process within the subsequent Compversation editions.
Food for thought
Here’s some content I’ve been reading lately to keep the conversation going. Feel free to send me articles you’ve found interesting, and I’ll think about including them here!
How to build a really good compensation policy — Jessica Zwaan, Medium
Building a good compensation policy is a considerable challenge. It’s a long-term project that involves exploring your organisation’s values, positioning and priorities in detail. Offering a one-size-fits-all method would be very bold indeed.
But boldness is exactly what defines Jessica Zwaan, Chief People Officer at Whereby. In this three-part series, she explains exactly how to build an effective compensation policy, using insights from the world of pricing.
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