How to Implement Pay Transparency

We recently kicked off a series on pay transparency in which we shared how being open and honest about pay can help you build a more diverse and inclusive team. 

Our first article explained what pay transparency is, why it’s important, and how the pros often outweigh the cons. Especially for women in tech and the companies trying to recruit them!

But how do you create a fair and consistent system for pay transparency? And how do you share your vision and values around pay with your employees and stakeholders?

That’s what we’re going to explore in this article!

We’re going to give you a framework to assess your current level of pay transparency and find areas for improvement. And then we’re going to give you some strategies to help you communicate your pay transparency strategy with confidence and clarity.

Let’s get started.

Step 1: Evaluating your current compensation strategy

Many companies assume that pay transparency is like an on/off switch, where you’re either transparent or you’re not. But it’s so much more than that!

Pay transparency is about embracing clarity in compensation conversations—and your company gets to decide exactly how and when you will add that clarity!

We like to think of pay transparency as a spectrum. On one side, employees know next to nothing about how compensation is determined and, on the other, they know exactly what their coworkers make. 

Evaluating when your company currently falls on the spectrum is the first step to figuring out how transparent you want to be. (After all, you can’t figure out where you want to go if you don’t know where you’re starting!)

We recommend considering:

• How pay is currently determined and who is typically involved in those decisions
• When and how candidates are told about pay ranges, and how flexible those ranges are when people negotiate
• Whether there are discrepancies between employees in similar roles and, if so, how big those gaps are
• If your employees understand how and when to apply for promotions and/or raises

‍Evaluating how you’re handling these situations now helps you to understand what issues may be solved or exacerbated by increased transparency.

You can also compare yourself with other tech companies at a similar size or stage to see where you might benefit from their best practices.

Step 2: Clarifying Your Compensation Strategy

Once you have a good understanding of what is and isn’t working within your organization, the next step is to establish a compensation philosophy that matches your company values and culture.

A compensation philosophy is a statement that defines how you pay your people and it ties into your mission, vision, and goals as a company.

Different companies and industries have different compensation philosophies depending on what they want to achieve and who they compete with. For example, it is common in financial services to pay based on the performance of the individual and the team. On the other hand, government services will usually focus on internal fairness within tight pay bands. Both strategies have their pros and cons, and attract different kinds of employees.

Additionally, some companies may offer lots of benefits and perks, while others focus on base salary or variable pay.

An example of this strategy is how Zappos uses a holacratic system to organize its company and compensation. They have no regular managers or job titles, but instead use self-managed teams and roles that are always changing.

As a result, Zappos pays its people based on the roles they do and the skills they learn, not their seniority or tenure. Zappos explains its comp philosophy and process to its people through its core values and culture book.

While this culture and pay philosophy won’t appeal to every potential employee, it helps Zappos attract the type of candidates who are likely to be very successful in their organization.

Similarly, you should think critically about the candidates you want to attract for your organization, what will be most appealing to them, and how that ties into your larger company vision.

Step 3: Using Data to Inform Compensation

There’s often a lot of guesswork and googling involved in pay conversations, which leads to inefficiency at best and inequity at worst. The answer is to use both external and internal data whenever possible.

Bringing in reliable data from salary surveys (e.g. Dice and Chief of Staff Network Compensation Survey) and third-party tools (e.g. Pave, Assemble, Ravio, etc.) will help you arrive at more fair and competitive salaries.

It can also help show your team how their pay is decided and how it compares to the market, which can in turn increase their trust in their process.

However, you need to be careful about exactly what data you use. Make sure it comes from a qualified source, and make sure it fits your company size, industry, and overall compensation strategy. These factors will change from company to company and aren’t one-size-fits-all.

Netflix is a good example of how market and strategy play out at a well-known tech company. One of their business priorities is to attract and retain the highest possible caliber of talent, and their compensation philosophy reflects that. They use data to determine a range of what each employee could make at a similar, local company and then they pay the higher end of the range. 

They calibrate this data annually, at which point they also let people change their mix of cash and stock options. This flexibility allows people to accommodate any changes that occur in their lives, and is another way in which their strategy reflects their values.

Step 4: Talking to Your Team About Their Compensation

The last thing you need to do to improve your pay transparency is, well, be transparent!

Explaining your compensation philosophy to both existing employees and candidates is crucial to building trust in your organization and continuing to recruit like-minded talent.

Being transparent about how and why you arrived at the strategy you did will provide people with clear answers to their questions and instill confidence and trust in your team.

People learn differently so it’s best to think of your compensation philosophy as a story that you need to tell in different forms. For example, you can use a culture deck to walk your current employees through your comp philosophy and values, a feedback session to present and answer questions about specific pay bands or ranges, and then individual conversations to discuss specific pay decisions and performance. 

Meanwhile, prospective employees may benefit from a blog post that shares why and how you went through the process, or a social media post that demonstrates how your strategy would benefit them as an employee.

There are many ways to tell your story, but the only real requirement is to be honest and real. Treat your team members like the rational adults they are, and avoid making promises or claims that you cannot keep or prove with data.

Buffer is a notoriously transparent company that would find a home on the far right (aka “transparent”) end of the pay transparent spectrum. They use a radically transparent approach to share their salaries and formulas with everyone… and we do mean everyone! 

Buffer’s public salary calculator shows how each person’s pay is determined based on their role, experience, location, and tenure. The company also shows its revenue, equity, diversity and other numbers on its Transparent Metrics Sashboard for anyone to see. 

Together, these items portray Buffer as a trusting and transparent team—one that is certainly compelling to employees who are looking for those things in their next workplace.

Wrapping Up

We hope this framework helps you check where you are on the pay transparency spectrum and take active steps to make it better. 

There are essentially four core steps:

1. Understanding where you currently are on the pay transparency spectrum,
2. Deciding on a compensation philosophy that aligns with your company’s goals and vision,
3. Leveraging data to turn the philosophy into a plan that tracks with the market and,
4. Sharing the final philosophy with not just the existing team, but any prospective candidates that are looking to join your organization.

If you have any questions or comments, please feel free to reach out!

Stay tuned for our next update that walks through the legal and compliance angle of pay transparency.