The Pros and Cons of Pay Transparency

Only 12% of companies globally have developed and implemented a pay transparency strategy, while nearly 7 in 10 companies are in “wait and see” mode or still considering their approach, according to Korn Ferry’s 2023 Global Total Rewards Pulse Survey. Despite mounting pressure from stakeholders to conduct pay equity studies and disclose pay gap data publicly, employers are weighing the risks and assessing the impact of internal and external transparency from multiple perspectives.

While larger organizations seem to be further along in their transparency journeys, many companies are holding off for a variety of reasons - 45% of surveyed employers reported they are putting off publicly sharing pay data until required to do so from a regulatory or legislative perspective. Interestingly, the survey includes many participants from European countries who typically pave the way on ESG disclosures and are already preparing to comply with the recent EU pay transparency directive that will require significant data collection, disclosure and remediation efforts to address pay inequities.

The reluctance is in spite of an overwhelming 84% who agree that transparency efforts will reduce pay inequities across gender, race, and ethnicity and contribute to better employee engagement and applicant attraction. Although employers see many benefits to increased transparency, the report highlights the significant change management efforts for HR teams and potential unintended consequences.

The survey respondents indicated that changes to the total rewards philosophy would be required:

• 40% felt that the overall rewards strategy will need to change.
  
  
  1. 72% indicated the rewards communication strategy will need to change, including increased levels of manager education, training and communication.
     
     
  2. 66% agreed that the level of employee education, training and communication would need to be increased.
     
     
• 43% said changes to how performance is assessed and rewarded would be required; 61% believe they will need to reconsider manager discretion in pay decisions.

Employer concerns about increased turnover, disruptions to company culture due to negative employee perceptions of pay practices and the ability to correlate pay with top performance were also reported.

Meanwhile, an Agenda article interviewed several consultants on why more companies are not disclosing pay gaps. Some are addressing issues “behind the scenes” to get to parity before releasing their statistics because “they don’t feel they have a great story to tell.” A Just Capital report shows that it is more common to disclose that a pay gap analysis was conducted, but few publicly share the results. Those that do tout their parity achievements – not goals to improve. Others are waiting for an industry peer to voluntarily disclose information before making their move.

Companies and boards should prepare now, because investors will likely continue to push for this information in the absence of legal or regulatory requirements. It is possible that the SEC’s human capital metrics proposal expected later this year will include pay equity disclosure. The topic was also recently addressed with the Biden administration in a roundtable with business leaders including Mastercard and Microsoft who discussed their pay equity policies.

Separately, as total rewards teams plan their pay strategies for 2024, the Korn Ferry report includes median and average salary budget projections by country and by employee group.

In the U.S. the median increase across all employee groups is 3.8% (3.5% for Executives / Senior Management, 3.8% for Middle Management / Seasoned Professionals, 4.0% for Supervisory / Junior Professionals and 3.9% for Clerical / Operations.)