How to Do Pay Transparency Right

Pay transparency is growing in popularity among tech companies — and in Colorado, it’s a legal requirement.
Brian Nordli
January 23, 2021
Updated: January 24, 2021
Brian Nordli
January 23, 2021
Updated: January 24, 2021

For most of her career, Caryn Hubbard thought of salaries as a private matter. Then, she joined Buffer as its VP of finance.

Known for its culture of radical transparency, Buffer posts salary information for its employees online. That means anyone — not just other employees — can find her and her coworkers’ salaries on Buffer’s website. The exposure took some getting used to at first, she said, but it’s also had a profound impact on how she thinks about salaries.

“It’s changed some of the conversations I have, and I will talk about salary more openly, even with my kids.”

For starters, it’s increased her awareness of bias and pay inequities. When employee pay is no longer a secret, every little difference in salary needs to be accounted for. That’s challenged her as the head of finance — and the company as a whole — to think about its pay philosophy and the way bias can creep in to create those pay differences.

Now, five years into her career at Buffer, talking about salaries has become second nature.

“I’m definitely more comfortable [talking about salaries],” Hubbard said. “It’s changed some of the conversations I have, and I will talk about salary more openly, even with my kids.”

Buffer’s approach is just one of several different ways to provide pay transparency, which many experts see as a critical first step toward pay equity. In fact, according to a 2020 report from WorldatWork and Mercer, 67 percent of organizations say salary transparency is increasing in importance to them.

It’s not just about bringing each employee’s salary to light, however. Ultimately, the goal of salary transparency is to give workers an understanding of why they’re paid what they are — and what they need to do to reach the next step on the ladder.

5 Steps Toward Better Pay Transparency

  • Determine where your company currently falls on the pay transparency spectrum, and where you want to be. Survey managers to understand what employees want to know about their salaries.
  • Develop a pay philosophy that aligns with your talent strategy and culture. What do you value in new hires? Which behaviors do you want to incentivize?
  • Clearly define roles and responsibilities, and use market data to set salary ranges. This helps to eliminate bias and create a less subjective pay structure.
  • Conduct a payroll audit to identify and resolve salary discrepancies.    
  • Train managers to have proactive salary conversations with employees. There’s no way to do this right they aren’t on board.

 

In Colorado, Pay Transparency Is Required by Law

Salary transparency isn’t just the right thing to do. For some companies, it’s a legal requirement.

On January 1, Colorado’s Equal Pay for Equal Work Act went into effect to prevent gender-based wage discrimination. In addition to making it illegal for businesses to pay “an employee of one sex a wage rate less than the rate paid to an employee of a different sex for substantially similar work,” the law also requires all Colorado-based businesses to include expected salary ranges and benefits in all their job postings.

(The law lays out a list of permissible factors for explaining salary discrepancies, including seniority; a merit system; quantity or quality of production; geographic location; travel and relevant education, training or experience.)

The pay transparency stipulation is a critical component of the act’s strategy to prevent wage discrimination, said Colorado State Senator Jessie Danielson (D), one of the bill’s primary sponsors.

“It becomes difficult to hide this type of discrimination when it becomes public. And it gives people an opportunity to advocate for themselves.”

While it’s a known fact that women are paid less than men on average, the secrecy surrounding salaries can make it difficult for an individual worker to know if she’s underpaid relative to the men she works with. Those discrepancies widen throughout a woman’s career, because employers tend to base salaries in part on a candidate’s previous pay.

Women are also less likely than men to receive a raise when they ask for one, according to the Harvard Business Review.

The biases that lead to wage gaps are less likely to take root when employees and candidates have insight into the pay range for their roles, Danielson told Built In.

“It becomes difficult to hide this type of discrimination when it becomes public,” Danielson said. “And it gives people an opportunity to advocate for themselves.”

Pay transparency alone doesn’t lead to equal pay, however, and Colorado’s law seeks to address other sources of bias as well. It prohibits employers from asking about a candidate’s previous salary, requires all job postings to be shared with current employees and allows women to file wage complaints with the Colorado Department of Labor. It also empowers the Colorado Department of Labor to help filers recoup the difference in wages.

 

Figure Out What Pay Transparency Looks Like for Your Company

Ultimately, a salary is much more than a number. Salaries reflects what a company values, and they are usually tied to job titles, expectations and performance, said Shelly Holt, chief people officer at PayScale. Pay transparency requires a company to reflect on how each of these factors play into salary considerations, which in turn can help to uncover bias and lead to a more inclusive workplace.

Holt knows how scary pay transparency can be to HR leaders. Salaries have long been treated as a taboo subject in the workplace, and the assumption is that open salaries will lead to resentment among employees.

But those worries don’t reflect reality, Holt said. Employees talk, and odds are they already know what their peers are making. They also have access to compensation data websites that can help them determine how their salaries stack up to the market rate. Moreover, research suggests employees are actually more productive when they learn what their managers make — a finding unveiled in a 2018 study from the National Bureau of Economic Research.

“There is a bigger burden on organizations and leaders to articulate with consistency what their approach is to things like compensation.”

In other words: By not taking a more proactive approach to the salary conversation, a company is actually doing more harm to its culture than good.

“There is a bigger burden on organizations and leaders to articulate with consistency what their approach is to things like compensation,” Holt said. “But just not addressing it ... you’re going to end up having downstream impacts in things like retention and recruitment.”

Still, Holt recognizes that an open salary model isn’t right for every company. PayScale regards salary transparency as a spectrum that spans five stages.

PayScale pay transparency spectrum
PayScale pay transparency spectrum. | Image: PayScale

The first stage is telling employees what they earn; it’s the absolute bare minimum. The next tier is to share with employees how market data was used to calculate their pay.

At the third stage, companies give employees insight into their compensation structures. This would include outlining the company’s pay philosophy, providing salary ranges for open positions, and outlining a clear set of policies for raises. Broadly speaking, third-stage salary transparency is what Colorado’s Equal Pay for Equal Work Act requires.

Fourth-tier companies provide all the insights required at stage three, but they also break down the individual factors determining pay and how much they contribute. Fourth-tier companies also maintain open lines of dialogue with employees over compensation policies, with the goal of working together to make these policies more equitable over time.

The final stage of transparency is open salaries, which gives employees insight into how much their colleagues make. This data can be made available to employees of the company, or made public for anyone to see, like Buffer’s salary data is.

Each company should assess where it currently falls on that spectrum and determine where it ultimately wants to be, Holt said. That requires looking at existing policies and talking with managers about what conversations they’re having with employees about salaries.

Insights gained from these conversations can help company leaders identify problems with the current salary policy and determine what questions their pay transparency policy needs to answer, Hubbard added.

The next step is to develop a pay philosophy that’s aligned with the company’s business strategy and culture. Pay needs to be aligned with both factors to help managers explain to employees why their compensation is what it is, and what they need to do if they want to make more. Companies should also look carefully at how their salaries compare with market rates, and how salary, along with other factors like company size and maturity, can impact the type of talent they are able to recruit.

PayScale used these questions as a framework to assess market data and set pay bands, or salary ranges, for each position. The company’s goal was to set salaries at a level that would be perceived as fair, consistent and positive relative to the market. The bands also helped the company make sure each employee was paid fairly.

From there, PayScale created a performance management framework that mapped out what behaviors the company rewards, and a new management philosophy geared toward helping employees reach those goals.

“They may not agree with everything, but they understand why we do it and how it connects to them.”

Once you have a clear policy in place, it’s time to explain it to your employees. This can be done through a company-wide presentation on the pay philosophy and performance framework, but it should also be reinforced in one-on-one conversations with managers. Managers need to be trained to answer questions about salaries and have continuous conversations around employee performance, since they are the ones who determine promotions and individual salaries.

Providing this context helps employees understand why their performance matters, how it connects to their salaries and how it fits within the bigger picture, Holt said.

“We’ve received a warm reception from employees because they understand why,” Holt said. “They may not agree with everything, but they understand why we do it and how it connects to them.”

 

Buffer Finance Team
Buffer’s finance team. | PHoto: Buffer

Conduct a Pay Analysis to Identify Pay Discrepancies

When a company makes a commitment to pay transparency, it’s not uncommon for pay discrepancies to pop up. That’s especially true for fast-growth companies.

Holt recommends doing a pay analysis first for each role and look for “red-circle” employees. These are workers who make significantly more or less than other people in similar roles.

The next step is to analyze why there’s such a big difference in pay, Holt said. It could be that the person’s responsibilities don’t line up with their job title, or that they transitioned into a new role and their pay didn’t change. If there isn’t an objective reason for the difference, the manager or HR leader needs to rectify the situation.

“If you know our philosophy and you know we use ranges and things like that, then I can have that conversation with you.”

For an employee making less, it could mean they’re due for a raise to put them equal to their colleagues. If an employee’s salary is above market rate, Holt suggests pausing their merit raises and explaining why. For those on a salary freeze, it can help to offer an opportunity to earn bonuses and make up the difference through high performance.

The key, however, is to have a pay philosophy and an objective blueprint for employee salaries.

“If you know our philosophy and you know we use ranges and things like that, then I can have that conversation with you,” Holt said. “You might not like that you’re red-circled and won’t get a merit increase, but you might still be able to blow it out of the park and get paid more on a corporate bonus.”

 

Use Objective Data to Determine Salaries

At Buffer, Hubbard spends a lot of time thinking about fairness. Comparisons are inevitable when salaries are open, which means any difference in pay needs to be accounted for. This is where Hubbard finds comfort in data.

Hubbard works with the director of business operations to build Buffer’s formula and philosophy around employee salaries. The formula is now in its third full iteration, and Hubbard is still constantly evaluating it and re-benchmarking roles based on new data.

The current version takes into account the market rate for a person’s role, their experience level, where they live and any dependents that person might have.

This is all then integrated with the company’s career framework. There’s a clear career progression that scales from level 1 to the C-suite, along with benchmarks for how to reach each level. The end goal was to create a framework that is easy to understand, pays employees a high market rate and is couched in objective data.

“Having a data-driven level of salary can reduce the different levels of bias that are possibly inherent across managers if they’re choosing their own way to go about it.”

Not every company needs to build a formula to adopt a pay transparency model, but managers do need to be prepared to provide a reason behind their pay scales. At a minimum, it’s important to base it on market data for a given role and objective values, like experience, education, scope of responsibilities and performance, Hubbard said.

The more salaries are tied to an objective framework, the less likely biases are to impact salaries.

“For us, it created a level of comfort and security,” Hubbard said. “Having a data-driven level of salary can reduce the different levels of bias that are possibly inherent across managers if they’re choosing their own way to go about it.”

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Get Buy-In From Managers and Employees

When Holt and her team rolled out PayScale’s latest pay transparency strategy, they started with the leadership team.

They had long conversations around the career framework, the new pay philosophy and performance management. This included conversations about how to help employees set goals, how to coach them and how to support them in their career growth. The purpose was to help managers understand why pay transparency matters, and give them the tools to have the necessary conversations with their employees.

Hubbard took a similar approach at Buffer. When she was working on the new pay formula, she met with each manager to explain the reason for the change, and to discuss the expected short- and long-term impact. During those meetings, she was also able to discuss any questions and concerns. This helped her build trust during the rollout.

“[Managers] are the ones who get the questions. And if they are not prepared to answer them or they aren’t trained to answer them, then you don’t have transparency.”

Without leadership buy-in, a company can’t have salary transparency, Holt said. After all, managers are the ones who have to answer for the differences in salaries.

“They are the ones who get the questions,” Holt said. “And if they are not prepared to answer them or they aren’t trained to answer them, then you don’t have transparency.”

Once managers understand the new policy, it’s time to roll it out to all employees. Holt said PayScale hosted a number of employee sessions to share the new pay philosophy, career framework and growth plan. The company coupled that with a rollout of resources to support employee development. These resources include management training, as well as employee workshops on goal setting and strategies for advocating for themselves in conversations with company leaders.

This approach helped put employees in charge of their own career growth, with an understanding of how each step would influence their salaries. After all, pay transparency isn’t just a one-time thing. It needs to be constantly reinforced and tied to every facet of the employee experience, Holt said.

 

‘It’s Not All Sunshine and Rainbows’

As much as Hubbard has adapted to Buffer’s style of radical transparency, she admits it isn’t always easy.

Nothing is hidden from employees, which means that if someone gets a raise or is promoted, other employees will want to know why they weren’t considered. People also have their own opinions on what the pay formula should address. These are difficult conversations to have, but it’s also what Hubbard loves most about the company’s approach.

“It’s not all sunshine and rainbows, which is kind of the cool part.”

Employees are encouraged to ask these questions and advocate for themselves, instead of whispering about them at lunchtime — which is often what happens when salaries are taboo. And in turn, it challenges her and members of the leadership team to have answers.

“It’s not all sunshine and rainbows, which is kind of the cool part,” Hubbard said. “[Pay transparency] is not super easy, but it also brings on a level of reward that you might not be able to anticipate or project.”

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