Pay transparency set to disrupt companies’ total rewards strategies over the next 2 years

As HR pros look to the future, pay transparency is the number one factor they see disrupting their total rewards strategies over the next two years.

Nearly two-thirds (65%) of HR professionals said pay transparency would cause “significant shifts” in their organizations’ rewards strategy over the next 12–24 months, according to a survey conducted in October by organizational consulting firm Korn Ferry.

This finding comes as employers continue to adjust to a shifting regulatory landscape in North America, Europe, and beyond.

Responding to an evolving legal landscape. More than a dozen states and Washington, DC now require employers to share the expected salary range for open roles when they advertise them. This has spurred many US businesses to be more intentional about compensation strategy, communicating not only how they pay workers, but why they pay them this way.

A pay transparency directive set to take effect in the EU next year is also expected to affect multinational firms with employees in Europe. This directive requires businesses not only to share salary ranges, but publish their gender pay gap, if they employ 150 workers or more.

Prior to pay transparency, “a lot of organizations took comfort, honestly, in being opaque about how they do things and reward,” said Tom McMullen, a senior client partner who leads Korn Ferry’s US pay equity practice. Disclosing pay ranges raises questions for both employees and managers, he continued, “and a lot of organizations are struggling with that.”

Employers can’t simply “throw the switch on transparency overnight,” McMullen explained, noting that the process involves building the right infrastructure and frameworks, as well as getting leadership buy-in. Now that many companies are at least publishing pay ranges, he said HR teams are starting to put more energy toward training managers to answer questions about different aspects of rewards strategy, such as how hiring ranges and promotion guidelines are determined.

Room for improvement. Korn Ferry’s survey also illustrates that HR leaders are still figuring out how best to communicate about compensation and other rewards at their companies. Most organizations (76%) either don’t communicate about their reward strategy, or only communicate it at a high level, while only 24% of organizations provide “meaningful detail” into the “what, why and how,” of their program strategy. Few people managers (8%) believe their rewards strategy is effectively communicated.

McMullen said he hopes the survey findings are a “wake up call” for organizations to be more intentional about their rewards strategies. He recommended that people leaders approach total rewards as they would any other business strategy, developing “a deliberate plan to win,” and focusing on benefits that help “attract, retain, and engage our employees.”

In addition to sharpening communication around total rewards, the survey also shows room for improvement on employee engagement. Only 50% of HR leaders reported their organizations involve employees below the leadership level directly in shaping total rewards strategy.

Senior leaders may be nervous about soliciting employee input if they view rewards as a cost, rather than an investment, McMullen said. Asking workers what they value might open up the door for them to ask for higher compensation, for example. Still, companies that do consider employees’ feedback on rewards “get higher marks in trust and credibility” compared to those that don’t, he said.