In today’s information-rich world, businesses must adapt to increasing demands for transparency, particularly when it comes to compensation. Pay transparency, the practice of openly sharing pay structures and policies, is becoming a key factor in maintaining trust with employees, job candidates, and even the public.
Despite this trend, many businesses still lack a formal pay transparency strategy. In fact, a 2024 report by Mercer revealed that only 19% of U.S. companies have one in place. If your company is among the majority, now is the time to act. Here are five essential steps to help you create an effective pay transparency strategy.
1. Conduct a payroll audit. Over time, your company may have developed a relatively complex compensation structure and payroll system. By meticulously evaluating and identifying all related expenditures under a formal audit, you can determine what information you need to share and which data points should remain confidential.
You may also catch inconsistencies and disparities that need to be addressed. Ultimately, an audit can provide the raw data you need to understand whether and how your company’s compensation aligns with the roles and responsibilities of each position.
2. Define or refine compensation criteria. To be transparent about pay, your business needs clear and consistent criteria for how it arrived — and will arrive — at compensation-related decisions. If such criteria are already in place, you may need to refine the language used to describe them. Again, your objective is to clearly explain to job candidates and employees how your company makes pay decisions so you can reduce or eliminate any perception of bias or unfairness.
3. Develop a communications “substrategy.” Under your broader pay transparency strategy, your company must have a comprehensive substrategy for communicating about compensation with job candidates, employees and, if you so choose, the public. There are many ways to go about this, and the details will depend on your company’s size, industry, mission and other factors. However, common aspects of a communications substrategy include:
- Providing written guidelines explaining your compensation philosophy and structure,
- Supplementing those guidelines with an internal FAQs document,
- Holding companywide or department-specific Q&A sessions, and
- Using digital platforms to share updates and issue reminders.
4. Train and rely on supervisors. Your people managers must be the frontline champions and communicators of your pay transparency strategy. Unfortunately, many companies struggle with this. In the aforementioned Mercer report, 37% of U.S. companies identified managers’ inability to explain compensation programs as their biggest challenge in this area.
Naturally, it all begins with training. Once you’ve defined or refined your compensation criteria and developed a communications substrategy, invest the time and resources into educating supervisors (and higher-level managers) about them. These individuals need to become experts who can discuss your business’s compensation philosophy, policies, procedures and decisions. And it’s critical that their messaging be accurate and consistent to prevent misunderstandings and misinformation.
5. Get input from professional advisors. Before you roll out a formal pay transparency strategy, ask for input from external parties. Doing so is especially important for small businesses that may have only a few voices involved in the planning process.
For example, a qualified employment attorney can help ensure your strategy is legally compliant and limit your potential exposure to lawsuits. You can also contact your Rudler, PSC advisor at 859-331-1717 with questions and to assist you in conducting a payroll audit, identifying all compensation-related expenses and aligning your strategy with your business objectives.
RUDLER, PSC CPAs and Business Advisors
This week's Rudler Review is presented by Josh Myers, Senior Accountant and Becca Thorman, CPA, CVA.
If you would like to discuss your particular situation, contact Josh or Becca at 859-331-1717.
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