Pay transparency, which means being clear and open about how and why we make pay decisions, is integral to the cultivation of a trusting relationship between senior leadership and the wider workforce.

What makes a lot of leaders nervous about pay transparency is the fear of what could happen if employees all found out what each other earned, but the fact is, most people are not that concerned with what everyone else is getting paid. What they are interested in however is whether they’re being treated fairly – and fairness is easily demonstrated by being transparent about how and why pay decisions are made.

There are several key benefits of pay transparency for any organisation:

Earning employee trust

From an employee perspective, pay transparency leads to fairness because when businesses are open and transparent, they show that they have nothing to hide. With pay transparency, it's not just about sharing outcomes, but also the thought process behind them, and that builds trust with employees.

Employees have instant access to a wealth of salary data from websites like Glassdoor and Indeed. While some organisations continue to ask people to keep their pay information confidential, many employees openly discuss pay and reward with their colleagues. Leaders need the tools to deliver the right messages to their people, so they can shape some of that conversation instead of reacting to it every time.

 Enhanced employee engagement and retention

A PayScale survey found one of the top predictors of employee engagement is an organisation’s ability to communicate clearly and honestly about pay.  Even when employees were paid below the market rate, the survey showed that job satisfaction numbers more than doubled – rising from 40% to 82% if someone took the time to explain the context and reasons behind their pay.

Yes, even when people are being paid less than the market rate, they are more satisfied when their organisation is transparent about pay. What does this tell us?

Having a fair, customised pay and reward framework is only part of the solution. It also needs to be communicated clearly. In the absence of a clear communication strategy, employees don’t know if the pay process is fair and may form their own perceptions.

Context about how and why pay decisions are made drives engagement and enables people to do their jobs more effectively. More pay transparency equals more job satisfaction – and lower employee turnover as a result.

There is plenty of research that shows a clear correlation with increased employee retention. This is only natural, since pay transparency builds trust and any relationship, including a working relationship, lasts longer when it is built on a foundation of trust.

Transparency and DEI strategy

Transparency allows employees to gain a better understanding of whether their pay is fair by examining the organisation’s pay structure, approach to pay and pay progression. This helps them to make more informed choices and negotiate the right salaries. Being able to negotiate effectively with this information to hand is particularly important for women, black and minority ethnic workers who often tend to be less comfortable negotiating compared to their white male colleagues.

Leaders may argue that in the absence of pay transparency, they are able to negotiate the lowest possible salary for each candidate, helping them to cut costs. Although true, this indicates that an organisation has no interest in ensuring equal pay for its employees, and creates an image that few people would want to work for.

With various advantages for both business leaders and employees, pay transparency is worth adopting for organisations of all sizes and industries. Not only is it indicative of a working world more conscious and accommodating of their employee needs, but one that treats organisational culture, openness and trust as a priority.