Why Pay Transparency is Key to Employee Satisfaction

Right now, pay transparency is one of the most talked about trends around the HR watercooler. And for good reason — it’s a key driver for organisational success. That’s because transparent and fair pay practices help create equitable company cultures, where employees feel valued. 

And when employees feel valued, satisfaction and improved performance follow. That means getting pay transparency right is a big deal. Ready to know how it’s done? 

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What is Pay Transparency?

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At Figures, we define pay transparency as: The practice of openly sharing some or all of a company’s compensation structure.

The amount of information shared during this process can vary. Many companies choose to start at a lower level of transparency, with the aim of moving toward complete transparency in the future. Here are some of the typical approaches:

• Minimal transparency: Companies provide basic information, including sharing compensation policies. No details about salary ranges or individual salaries are shared. 
• Partial transparency: Companies publish compensation policies and salary ranges for each position, but typically don’t share individual salary information. 
• Full transparency: Companies make all pay details openly accessible, including compensation policies, salary grids, and details about individual salaries plus how they’re are calculated. 

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The move towards pay transparency is partly driven by employee sentiment, because people want to know they’re being paid fairly. But regional and country-specific laws also have a role to play.

The EU pay transparency directive was approved in 2023, and will come into force in 2026. While that might seem a while away — it’ll soon come around. That’s why forward-thinking organisations are already starting to prepare. 

Laws regarding salary transparency are also coming into force elsewhere. In California, for example, companies with 15+ employees must now publish pay ranges for any vacancies.  

But pay transparency isn’t just about complying with rules and regulations — it’s also a crucial element of employee satisfaction, retention, and productivity. 

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The Link Between Pay Transparency and Employee Satisfaction

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Employee satisfaction hinges on a few different factors — but one of the most critical elements is pay. 

Research from Gartner found that just 32% of employees think their pay is fair, which can leave them feeling dissatisfied and disengaged. By moving towards fair pay practices, organisations can help employees understand how their pay is calculated, while also reassuring them it’s equitable. 

This helps foster a culture of trust and clarity, which in turn helps boost satisfaction and engagement. 

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How Pay Transparency Reduces Turnover and Retains Top Talent

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Even if your salary bands aren’t public knowledge, employees talk. And when people find out they’re being paid less than their colleague in an equivalent role, that’s a problem. 

Often, this leads to employees searching for a new role elsewhere, with Microsoft’s Work Trend Index Annual Report finding that a lack of fair compensation is one of the main reasons people leave their jobs. 

In contrast, wage transparency often improves retention, because everyone knows they’re being paid fairly. It also makes it easier to attract top talent, because it’s easy for people to see what they’ll earn, and how their career could progress. 

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Looking for some real-life inspiration? 

Construction machinery rental company Klarx uses Figures to set competitive salaries designed to attract, and retain, top talent. Access to market data also empowers managers to have open conversations about compensation, backed up by numbers, not emotions. 

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Boosting Productivity Through Trust and Transparency

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Pay, productivity, and performance go hand in hand. When people feel like they’re being paid fairly, 88% say their productivity increases as a result. And that, in turn, drives performance. 

During the pay transparency process, it’s also a good idea to involve employees from the outset. This is a much better option than leaving your people to do their own research, which 74% of employees do via sites like Glassdoor or job postings.

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Challenges About Pay Transparency

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If you’re still on the fence about pay transparency — that’s OK. This process comes with a few challenges, which can make it feel a little overwhelming. But as pay transparency will soon be mandatory, it’s time to overcome these roadblocks.

Challenge 1: Employee discomfort and jealousy

It’s true that some employees aren’t comfortable having their salaries disclosed, but the majority of employees support pay transparency. Others may feel jealous to discover a colleague in the same role has been paid more than them. 

How to overcome it: Use a compensation communication plan to outline your approach to pay transparency. Taking the time to explain the reasons behind these changes can also help get employees on board with your new compensation strategy. 

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Challenge 2: Privacy concerns

If you’re moving towards fully transparent pay, some employees may be worried about their salary information becoming public knowledge. HR teams might also be concerned about how to complete this process while still complying with data protection regulations.   

How to overcome it: Clearly communicate the value behind pay transparency, so employees understand the benefits it brings. If you’re using HR tech, make sure your chosen provider has robust security measures in place, to protect employee data. 

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Challenge 3: Pay transparency creates extra work for HR

There’s no getting around it, implementing pay transparency is hard work. But — as it’s also becoming mandatory, doing nothing isn’t an option. Starting now means you can spread the load over more time, rather than panicking as reporting deadlines start to loom.  

How to overcome it: Use the right HR tech to benchmark salaries, create bands, and identify pay inequities. 

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How HR Leaders Can Implement Pay Transparency

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Ready to implement pay transparency at your organisation? Here’s your step-by-step guide to getting started. 

Step 1: Review regional pay transparency laws 

The first step on your journey toward salary transparency is to brush up on regional laws and regulations. 

Then you need to decide if you’re going to meet only the minimum requirements, or go beyond compliance towards championing pay transparency as part of your organisational culture. Taking a bold step like this might feel like a lot — but it can really pay off in terms of talent attraction and retention.  

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Step 2: Assess your current compensation policy 

Now, it’s time to assess where you stand currently. Do you have an existing compensation policy? Does it include details about how salary decisions are made, including performance-based bonuses and career progression? Are the criteria used objective and consistent? If not, start re-writing your policy to bring it in line with the move towards pay transparency. 

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Step 3: Complete manager training 

Managers will be on the frontline, and a lot of employee queries will probably be directed to them. Make sure you provide training, so everyone approaches pay discussions in a consistent way. 

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Step 4: Keep employees informed

Moving towards pay transparency takes time, but it’s a good idea to keep employees informed from the very start. This helps build a culture of openness and trust — where employees feel involved in any changes, rather than blindsided by them.

Toward the start of the pay transparency process, take the time to let employees know what’s happening. Depending on the size and structure of your organisation, this could involve town-hall style meetings, FAQ documents, and the option for employees to submit anonymous feedback if they have questions or concerns. 

Tell them what the next steps will be too, for example when can they expect to see the results of salary benchmarking, and how might their pay be affected? 

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Step 5: Complete salary benchmarking and establish salary bands 

Now you’ve completed the groundwork, it’s time to start benchmarking your salaries and creating salary bands. It’s best to use recent data for this process, preferably that’s specific to your industry and location.

Read: the HR Manager’s Ultimate Guide to Salary Benchmarking  

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Step 6: Address pay gaps 

If any pay gaps are identified during the previous step, now’s the time to address them. Use the same, objective and consistent approach you developed during Step 2. To keep affected employees informed, use Step 7 below to let them know what changes will be implemented, and when. 

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Step 7: Communicate and implement any changes 

Now it’s time to let your employees know the results of the move towards pay transparency. A compensation communication plan can help provide a framework for discussions, in addition to outlining what will be shared, and when. 

Announce any changes through a range of channels, to ensure everyone stays informed. And make sure employees are given the opportunity to ask questions, and know who to come to with any concerns. 

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Step 8: Monitor and adjust 

Pay transparency isn’t a one-and-done exercise. It’s something that should be monitored and adjusted regularly. Tracking metrics including employee engagement, satisfaction, and retention rates will help you evaluate the success of any new pay transparency policies. 

HR best practices also involve reviewing your pay transparency practices yearly or six-monthly to ensure you’re staying compliant, and offering competitive total compensation packages to your employees. This is particularly important for fast-growing organisations, as you’ll need to provide additional reporting once you have over 250 employees. 

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A Transparent Future

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The future isn’t just bright — it’s transparent. From boosting productivity and satisfaction to retaining top talent, pay transparency brings all kinds of benefits. And that's why it isn’t just a short-lived trend, it’s here to stay. 

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