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Dear Workforce What Are the Pros and Cons of Making Our Pay Ranges Transparent

Currently our employees know only their salary and salary grade; they don’t know their compensation ratio or where they are on the salary range, nor do they know the salary ranges for their jobs. We are debating the pros and cons of making salary ranges transparent. How might doing this help/harm us in retaining and recruiting? Would it be unusual?
December 28, 2010
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Related Topics: Variable Pay, Compensation Design and Communication, Dear Workforce, Compensation
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Dear Not Telling Everything:
Open communication about pay ranges is an effective tool in retention and recruitment. It is definitely not unusual—a wide variety of companies provide this type of information to employees. In many companies, it is actually acceptable for employees to know the boss' salary range. In fact, we suspect that many employees in your company have been able to guess their salary range, or at least their range midpoint, through a combination of conversation and coercion.
At the very least, management generates confusion—and at worst suspicion and distrust—by attempting to hide critical personal information from employees. Obviously, the negative implications on commitment and retention are enormous. Conversely, the more often you communicate with them, the less reason employees have to speculate.
Employees may not agree with your method, sources or information, but communicating honestly about pay at least enables them to understand. Companies that share information about pay ranges generally have more committed employees and therefore higher retention rates. That's not the only advantage, though.
Managers use pay-range information to align employee expectations with market realities and manage pay progression within their departments. Employees have clarity on where they stand and are able to make decisions about their next career move. Also, if your firm strives to pay competitively, employees should know how they stack up against the market. This is particularly true for high performers, but applies also to solid “meets-expectations” employees.
To be effective, however, you must recognize that communicating pay-range information is only the first step. Be prepared to provide background information on how the company defines labor markets, selects and analyzes survey sources, determines pay ranges, assigns jobs to grades and sets salaries within pay ranges. A caveat: Don't launch this effort at annual review time. In fact, begin educating employees well in advance of annual reviews to provide a foundation of understanding. You might be pleasantly surprised to see the volume of review-related questions—and particularly, complaints—taper off.
Open communication, however, does not mean “opening your books.” Be selective and discreet about the information you provide. Disclose only what is prudent and appropriate. For example, actual employee salaries or wage rates are never published except in two very specific circumstances: when everyone is paid an identical rate or if a union agreement requires it (and then only for union employees). Also be discreet in disclosing executive pay ranges. Typically, pay ranges above director (vice president, senior vice president and so on) are not open to scrutiny and, if published, could create unnecessary turmoil.
As with any type of human resources process, you should analyze and plan carefully. Assess your company's culture, management systems, training capabilities and workforce. This assessment will guide you in determining disclosure, developing training and managing expectations.
SOURCE: Bob Fulton, Pathfinder's Group Inc., Chicago
LEARN MORE: Please read more for an alternative view on pay transparency.
Workforce Management Online, December 2010 -- Register Now!
The information contained in this article is intended to provide useful information on the topic covered, but should not be construed as legal advice or a legal opinion. Also remember that state laws may differ from the federal law.
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