Employees today are more likely than ever to demand transparency about compensation practices at their organization. Total rewards leaders agree that pay transparency would benefit the organization in numerous ways. Yet even though everyone seems to be on board, organizations are slower to adopt this practice than you might expect. In our latest research at Gartner, 60 percent of the organizations we surveyed said they had not yet acted on pay transparency at all, while only 14 percent had fully realized it.
So why aren’t we making faster progress toward an outcome all stakeholders agree is the right thing to do? In a session at Gartner’s ReimagineHR event in London last Thursday, Advisory Leader Ania Krasniewska armed the total rewards leaders in attendance with strategies for surmounting obstacles to pay transparency and getting senior leaders and line managers at their organizations on board. Here are some of the most common reasons why organizations shy away from pay transparency, along with some counterarguments HR leaders can use to win over a skeptical CEO:
“It’s just a trend.”
The pressure organizations are facing today to be more transparent about their compensation practices comes from several directions: Millennial employees expect more transparency than previous generations did, employees have more access to (often inaccurate) pay information from outside sources like Glassdoor or PayScale, and governments and the media are advocating transparency as a means of driving pay equity. For an executive wary of pay transparency, it may be tempting to reason that these trends will eventually pass, but there is good reason to believe otherwise.
While Millennials and Gen Z are the employee cohorts most commonly associated with demands for pay transparency, they’re not the only employees who want it. Like other Millennial-driven trends in the workplace today, the younger generation of employees is simply more vocal in demanding things that in fact, employees of all ages would like. Their attitudes also influence their parents, neighbors, and older colleagues. Millennials aren’t the only ones using Glassdoor: Many of the employees who use these external sources to compare their salaries with those of their peers are in senior positions at their organizations. Furthermore, Millennials aren’t going away; they are already the largest segment of the workforce and Gen Z will eventually be even bigger. Gambling that these generations will stop caring about pay transparency later on is a very risky bet.
The 2107 edition of the Women in the Workplace report, released on Tuesday by Lean In and McKinsey, finds that “women’s progress is slow—and may even be stalling—in part because many employees and companies fail to understand the magnitude of the problem.” The report, which is based on pipeline data from 222 companies employing more than 12 million people, shows that women remain underrepresented at every level, and women and color are even worse off:
Only one in five C-suite leaders is a woman, and fewer than one in thirty is a woman of color. This disparity is not due to company-level attrition or lack of interest: women and men stay at their companies and ask for promotions at similar rates. Company commitment to gender diversity is at an all-time high for the third year in a row, but this commitment isn’t changing the numbers. The report points to a simple reason: we have blind spots when it comes to diversity, and we can’t solve problems that we don’t see or understand clearly.
Lean In and McKinsey find that corporate America has made little progress toward gender parity since last year’s report, which found that for every 100 women promoted past entry level positions, 130 men were promoted, and that women were less likely to be given challenging assignments, included in meetings, or afforded opportunities to interact with senior leaders. This year’s report focuses on the thorny issue that while these problems are not getting better, many Americans (particularly men) believe they have already been solved:
Many employees think women are well represented in leadership when they see only a few. Nearly 50 percent of men think women are well represented in leadership in companies where only one in ten senior leaders is a woman. And remarkably, a third of women agree. It is hard to imagine a groundswell of change when many employees don’t see anything wrong with the status quo. …
PayScale’s 2017 Compensation Best Practices Report suggests that managers’ skills at communicating with employees about pay are a blind spot for many organizations, Mykkah Herner, PayScale’s modern compensation evangelist, writes at TLNT:
The research revealed a number of interesting insights when it comes to managers, including:
- Only 11% of respondents strongly agree that employees have a great relationship with their direct managers.
- A mere 17% strongly agree that there is frequent, two-way communication between managers and employees.
- Just 19% were very confident in managers’ abilities to have tough conversations about pay.
- And yet, 38% of managers are communicating compensation information to employees; that number jumps to 53% among enterprise organizations.
Even with low confidence in manager’s abilities to talk effectively about pay, only 30% of respondents said their company offered managers training about conducting compensation conversations. And, of those 30% who do offer training, most organizations still lack confidence in their managers’ ability to talk about pay successfully.
“Talking about pay is important,” Herner adds, “because it establishes the groundwork for a trusting relationship,” but there is a bit of a chicken-and-egg problem with that statement: The best managers are those who maintain frequent performance conversations with their direct reports, which both builds trust between manager and employees and better situates each party for the pay conversation. However, for most employees and managers, the first formal meeting of the year is the performance and pay conversation, which is the best opportunity to establish that foundation of trust. So while it makes sense intuitively that effective pay conversations lead to more trusting relationships or merely coincide with them is harder to prove.
However there is a far more important reason for managers to be good at pay conversations, which is that effective pay conversations improve employee pay perceptions and strengthen the link between performance and pay.