This guide is part of a progression set comprised of Core, Advanced, and Emerging Total Compensation practices.

What it is

Transparency in compensation is neither a best practice nor a luxury; it is a necessity in today’s workplace, especially as new generations of talent join the workplace, and it becomes less of an option and more of a requirement in jurisdictions worldwide. For many years, the compensation department was viewed as a backstage function, often shrouded in secrecy, mystery, and complication. The evolution in the marketplace, added information requirements, constantly changing expectations from candidates and employees, and increased regulations that apply to the total compensation spectrum have required compensation practitioners to step up and debunk the old stereotypes of what, why, and how they do their work.

Just as managers do not become managers solely because of a change in their job titles, organizations should not expect they will automatically know how to answer all employee inquiries regarding pay based on those managers' personal experience at the current or previous organization(s).

Further, when employees need to comprehend how their pay is determined and how it can grow over time, it will eventually impact their engagement and satisfaction with their jobs and organizations. Therefore, organizations should dedicate appropriate time and resources to ensure that all their leaders and employees responsibly manage and understand compensation-related investments.

Why use it

All U.S. public companies must disclose the compensation details, i.e., salaries, bonuses, stock programs and ownership guidelines, benefits, and perquisites, of their named executive officers (NEOs) as part of their annual proxy statement. This disclosure has become a truthful data source for benchmarking relevant NEOs in similar industries and markets and a transparent way to avoid pay equity issues among the NEO group. Since 2023, the U.S. Securities and Exchange Commission (SEC) has also required organizations to disclose the relationship between NEO compensation and the organization’s financial performance. Despite all these regulations, a different situation happens when managing compensation for the non-NEO population.

Educating leaders and employees about the organization's compensation programs’ strategy, rationale, and design is critical to successfully implementing and adopting pay transparency. At the same time, leaders should acknowledge the importance of openness and become familiar with the tools provided by their organizations to communicate the objectives, values, and details of the organization’s compensation programs. Organizations that believe in transparency and prioritize it will strengthen their reputation and help their leaders become more credible and empathetic with their team members.

Consultants estimate that one in four employees resigning can be classified as high performers, which is unsurprising given that other organizations showed interest in them. Therefore, retaining talent and fostering career plans are thought-provoking yet rewarding organizational processes. While managers can reach a point of understanding the aspirations, dreams, and challenges of each of their team members, they should also be aware that not all their team members are going to be high performers. Still, different elements available at the organization can provide them with a fulfilling value proposition and not only a biweekly paycheck.

Outcomes

These practices provide a better understanding of the importance of aligning employees’ perspectives with the organization’s reality and why empowering managers to make smart decisions with their budgets is crucial. Through education and awareness, managers can feel confident enough to talk to their team members regarding the organization’s pay transparency and pay equity matters. By implementing transparency and equity, organizations will create a more impartial, motivating, and trustful work environment for employees.

After reviewing different examples and commonly found situations in the market, these practices will help compensation designers become more analytical communicators and strong people advocates. These practices help by ensuring that new hires are onboarded with a competitive yet equitable salary and, similarly, that current employees are paid fairly based on their performance and contributions to the organization. A compensation designer following the practices at this level will assimilate the importance of running pay analyses often and turn data into insights that provide the organization with a better understanding of when, how, and where to focus the compensation strategy during the fiscal year.

Further, these practices will establish an appreciation for the financial and psychological implications of international relocation, especially if the employee has had minimum exposure to other jurisdictions before—notably, the accompanying family’s adaptation to the new jurisdiction as being one of the main factors that determine the success of an international assignment.

Practice guides at this level

Communicating the investment in compensation to stakeholders and employees.

Establishing communication vehicles for leadership and employees that align compensation budgets to business objectives and clarify the total cash value of earned pay and benefits to employees.

Empowering managers to make pay decisions based on performance, equity, and market conditions.

Developing tools and guidance for managers to determine and distribute pay increases based on individual performance levels and market conditions in a measurably equitable and fair manner.

Retaining the organization’s talent through tailored compensation strategies and other proactive mechanisms.

Generating compensation tactics and criteria that support employee retention strategies for the most valued and critical employees and are responsive to globally deployed and mobile workers.