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Striving for Pay Transparency

Recent research finds roughly half of workers feeling they aren't paid fairly in relation to those in comparable jobs and a similar number of employers lacking processes to ensure fair compensation. Why the lack of clarity around pay, and what can HR do about it?

Thursday, December 8, 2016
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For as long as people have done work for money, there have been employees who feel they're not paid what they're worth.

Recent research from Willis Towers Watson confirmed that this feeling isn't likely going away anytime soon. The New York-based consultancy's 2016 Global Workforce Study found just slightly more than half (53 percent) of 31,000 employees, including 3,105 U.S.-based workers, feeling they are paid fairly in comparison to those with similar jobs at other companies. In addition, 55 percent of employees reported feeling they are compensated fairly compared to those in equivalent roles within their own organizations.

Another Willis Towers Watson study sees a similar number of employees with no idea how their pay stacks up to others, and finds close to half of employers with no system to guarantee that compensation is doled out fairly. 

Earlier this year, Willis Towers Watson conducted its 2016 Global Talent Management and Rewards Survey, which surveyed employees at more than 2,000 companies globally, including 441 in the United States. That poll found just 52 percent of respondents saying their employers have a formal process in place to ensure fairness in compensation distribution.

The same study also asked whether employees understood how their base pay is determined, and how their total compensation measures up to others in similar positions. While 65 percent of employees said they understand how their salary is determined, just 39 percent said they are aware of how their total compensation compares to the "typical employee" in their organization, and 34 percent indicated they know how their pay package stacks up against the average worker at other companies.

Bettina Deynes, vice president of human resources at the Alexandria, Va.-based Society for Human Resource Management, attributes this lack of practices to guarantee pay http://www.hreonline.com/images/ThinkstockPhotos-468190796paytransparencyL.jpgtransparency to a combination of factors.

"There are two primary reasons," says Deynes. "The first is that it simply is not on senior management's radar as a cost-effective initiative. For the most part, they know that it is important, but it is not getting enough attention as a necessity [to garner] a commitment to action."

Deynes also reasons that senior management at some organizations "may know they are not competitive in terms of compensation and benefits, and would rather ‘let sleeping dogs lie.' What they don't realize is that pay transparency is a critical employee concern, and that the dog is not sleeping."

Laura Sejen, managing director of human capital and benefits at Willis Towers Watson, says most organizations strive to deliver pay that's both fair to internal employees and is competitive in the market.

However, "our research over the years has indicated that not all organizations have the infrastructure in place needed to support the analysis of whether the distribution of their compensation is fair," she says.

To lay the necessary groundwork for an in-depth evaluation of their compensation practices, organizations must first have formal job architecture with clearly defined career progressions, combined with a formal approach to job leveling, "where the distinctions among levels are clear and jobs are assigned to levels on a consistent basis," she says.

"Employees need to be assigned to job families and levels both consistently and accurately for the organization to have the ability to check the fairness of compensation," adds Sejen. "There [also] needs to be consistency in the basis for determining individual employee pay, through the combination of a compensation structure and a performance management process or some other talent assessment program."

HR, of course, can be instrumental in addressing the growing need for greater pay transparency.

"HR must develop and implement a system of communication with all employees, at least once a year, which involves sending each employee a formal notification of the detailed value of their compensation and benefits packages," says Deynes.

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She says that such a letter (often referred to as "total compensation statements") should include the employee's current base compensation, added bonus or bonuses, the dollar value to the employee of applicable benefits, and the dollar value of any other perquisites the employee enjoys -- travel upgrades, and airline as well as hotel rewards points, for example.

Without this type of routine communication, many employees "are likely to only count the obvious compensation and benefits when considering the value of their pay packages," she says.

"Then -- and this is the hard part -- the employer must demonstrate to the employee in the same communication how the value of his or her package compares to competitors in the industry," adds Deynes. "Of course, if there is a deficiency, it will have to be rectified quickly by management."

In terms of ensuring fair distribution of compensation, companies and HR leaders should regularly review pay equity, in concert with the compensation cycle, says Brian Levine, a partner and innovation leader in Mercer's workforce strategy and analytics practice.

Such regular reviews can also help in responding to demand for pay transparency within the organization, says Levine, noting that Mercer has worked with organizations to conduct pay equity analyses, eliminating pay gaps or taking actions to reduce them, and then reporting on the company's processes and/or results.

Levine also recommends extending statistical analyses to evaluate the practices that gave rise to pay inequities in the first place.

"Notable differences in pay rates at hire, the allocation of performance ratings and representation rates across levels have all been contributions to pay inequity," he says, "and focus across HR programs is critical for those that want to make sustainable progress."

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