Transparent pay policies: Why do companies resist them?
Transparent pay policies are where salary structures and compensation data are made visible to employees. With a push towards fairness and equality, it seems like a natural shift. But despite the potential benefits, many companies are still hesitant to go all-in on pay transparency. So what is holding companies back from being transparent about pay?
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Employee demotivation
One of the top reasons companies resist transparent pay is the fear it might create tension among employees. When everyone knows what their colleagues are earning, it can lead to feelings of jealousy or resentment, especially if someone feels underpaid compared to their colleagues. This can affect team harmony and morale, making people more focused on what others are earning than on their own performance.
High performers might feel demotivated if they notice their pay isn’t significantly higher than that of lower performers. This can make top talent feel under-appreciated and less driven to maintain their high standards. If transparency reveals a big pay gap, lower-paid employees might feel discouraged, especially if they think the differences aren’t justified.
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Complex pay structures
Pay structures, especially in larger companies, can get be complex. Between performance bonuses, allowances, role-specific salaries and other performance-based incentives, explaining why someone earns more than someone else isn’t always straightforward. Transparent pay could oversimplify these complexities, leading to misunderstandings and dissatisfaction if employees don’t understand the full picture.
If the complexities are not explained in detail, then transparency may backfire, especially if one is not understanding factors such as market demand, experience or other skills required to carry out the job.
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Risk of external comparisons
While internal transparency may boost fairness within the company, it also exposes the business to comparisons outside the company. Employees might start comparing their pay to others in other companies, putting pressure on the employer to adjust salaries. This is especially tricky for smaller businesses that may not be able to compete with larger firms in terms of salary offerings.
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Privacy concerns
Some companies feel that transparent pay policies might compromise employee privacy. Not everyone is comfortable with their salary being common knowledge. It could also attract attention from competitors. Employers worry that transparency may limit their ability to negotiate flexibly, especially when it comes to rewarding exceptional performance or attracting new talent without upsetting current employees.
Finding the right balance
For companies considering a move toward salary transparency, striking a balance is crucial. Full pay transparency might not be the best fit for every organisation. However, partial transparency, like sharing salary ranges or pay bands, can offer many of the perks. This gives employees some clarity about what they can potentially earn without having rigid pay structures.
As always, clear communication is crucial. Companies should ensure employees understand how their pay is determined —whether it’s based on performance, experience, market value, or other factors. When people know how their compensation is decided, it can prevent many or all the downsides listed above.
Companies need to weigh the pros and cons carefully before jumping into a fully open pay structure. Understanding what works for your company’s specific culture and needs is key to making any decision or kind of shift in this direction.
SurgeAdvisory helps companies develop balanced pay policies that promote fairness while maintaining flexibility. By offering tailored strategies, we guide companies in implementing partial pay transparency, such as salary ranges and performance-based compensation, ensuring that employees understand the factors behind their pay.
About the author
Maria Bartolo Zahra is Co-Founder and HR Advisor at SurgeAdvisory. She has over twenty years of human resources and business advisory experience.