Pay Transparency

What pay transparency is

Pay transparency (الشفافية في الأجور) is the amount of information an organisation discloses about how pay is determined and what it amounts to, to its employees and to the people who apply to it. It is not a switch that is turned on or off. Between complete secrecy and complete openness there are degrees, and every organisation stands at one of them, whether it chose that degree or drifted into it.

The concept does not mean that the pay of individuals is published. An organisation may announce its rules alone and keep the figures secret, or it may announce the ranges without the pay of individuals. The following ladder runs from the least that is disclosed to the most:

• Rules of determination: how jobs are classified, which factors influence the pay of each grade, and when pay is reviewed.
• Grade ranges: the minimum and the maximum pay of each job grade.
• The individual’s position: where the employee’s own pay falls within the range of the grade, without stating anyone else’s pay.
• Individual pay: the amount each colleague earns, by name.

Each level is a decision in its own right. Announcing the rules and the ranges does not require publishing what lies beyond them, while publishing figures without rules leaves people facing differences that have no explanation.

Internal and external pay transparency

The internal form is directed at the employees: what they know about the structure of their pay and about where their own pay stands within it. The external form is directed at those who have not yet joined: what a candidate sees of the pay before applying, and what the community is told about the organisation’s policy. The difference is practical, because one can be announced without the other.

The external form appears in the job posting, a piece of text the organisation publishes on a public channel to announce an open vacancy. Some organisations state the pay range in it and others state nothing. Whether to state the range is the organisation’s own decision, based on what it wants to say to people it does not yet know and on its readiness for the questions that will follow.

If only basic pay is announced, people judge the organisation differently, because a candidate compares offers whose allowances and benefits differ. We suggest that the posting state the whole package, which is what is known as total rewards.

What happens when ranges are announced

Picture an organisation that has published the range of a grade as 7,500 to 11,500. Two employees in the same grade earn 8,500 and 10,500. After publication each of them sees where their own pay falls in the range, and each knows that the difference between them is 2,000, about 23.5% above the first employee’s pay (2,000 ÷ 8,500). The same difference existed before publication. What is new is that the employee on the lower pay can now ask about it.

This obliges the organisation to have an answer ready. The principle in pay equity is that every difference should have a reason that can be stated and examined, and transparency makes that principle subject to test in front of employees as well as in the files. If the difference comes from documented experience, a scope of responsibility or a written appraisal result, the organisation says so. If its only reason is “that is how the employee was hired”, a fault that had been hidden has come to light.

Announcing a range may also be of little use if the range itself is too wide to indicate anything. A range from 7,500 to 15,000 has a spread of 100% ((15,000 − 7,500) ÷ 7,500), so a person who sees it cannot tell what pay will be offered. The precise meaning of this percentage is the subject of range spread.

How a candidate interprets the announced range

A candidate may take the top figure of the range as what will be offered and build an expectation on it. Suppose the organisation publishes a range from 7,500 to 11,500 and then offers a candidate 8,800. The offer falls at 32.5% of the width of the range ((8,800 − 7,500) ÷ (11,500 − 7,500)) and lies 2,700 below its ceiling. That offer may be entirely sound if the candidate is at the start of a career, but a candidate who expected the ceiling will see it as a cut.

An announced range therefore requires the organisation to explain to the candidate where the offer stands in it: what put the offer at this point, and what would carry it to a higher point. This belongs to candidate experience, the impression an applicant leaves with after the whole recruitment journey, whether accepted or rejected.

How an organisation announces in stages

An organisation does not have to move to disclosure in one step. It can begin by publishing the rules of determination, then publish the ranges once the structure has been examined, and then show each employee where they stand within their own range. Between one stage and the next it measures what happened: how many questions arrived, and how many were answered within the period it had promised.

If 40 questions arrive and 34 are answered within five working days, the share of questions answered within the promised period is 85% (34 ÷ 40). The remaining six questions are more than a statistic. They form a list of what has no ready answer, and they point to places in the structure that need work before the next stage.

What disclosure reveals about pay outside the range

When employees’ pay is set against the published ranges, those whose pay falls outside them become visible. Suppose an organisation has 120 employees and it is found that 9 of them are below the minimum of their grades and 4 are above its maximum. Those outside the range number 13, which is 10.8% of the workforce (13 ÷ 120).

These employees do not necessarily indicate an error in pay. An employee may have joined before the ranges were built, or may have been moved from one grade to another. But each case needs a written decision: pay is raised to the minimum, or frozen until the range catches up with it, or the employee is placed again in a grade that suits. This count is established before the announcement, not after it, so the cases that will be asked about are settled before anyone asks.

What precedes announcing pay

The order matters. An organisation that announces before it has built its explanation puts the questions ahead of the answers. What precedes the announcement is:

• An approved structure: grades and ranges written down in the salary structure, instead of figures gathered from earlier decisions.
• An ordering of jobs: it explains why this job sits in this grade, and it is the work of job evaluation.
• A check of the differences: every difference within a grade is examined under internal pay equity, that is, according to where the two jobs stand in the organisation’s ordering of jobs.
• Preparation of the managers: the line manager is the one who will receive the team’s questions, and the answer must be the same in every team.

If these are not complete, we suggest that the organisation begin with the first level, announcing the rules, and move to what comes after as each answer becomes ready.

What organisations fear from disclosure

• Comparisons between colleagues. The remedy is to examine the differences before announcing and to give every difference a written reason.
• Competitors seeing the figures. The extent of this varies with the level announced, since announcing the rules reveals less than announcing the ranges.
• Demands for higher pay. They may come, and the answer to them is the rule and the route to a higher point, not a refusal.
• Departure of an employee who finds that they are below colleagues. This possibility exists, and it stands against the alternative of a hidden fault that remains without remedy.

What pay transparency does not do

Pay transparency does not make pay equal, and it does not rule that the distribution of pay is fair. It makes what already exists visible. Through it, explained and unexplained differences appear together, and so does whether the announced rule was applied to everyone in the same way.

Pay transparency is also not the gender pay gap, which is a statistical measure of the difference between the pay of men and the pay of women within one group. An organisation may measure the gap without announcing any pay, and it may announce ranges without measuring the gap. The link between them is that announcing makes differences easier to see; it does not correct them.

What is asked before disclosing the pay of a named individual

Disclosing the pay of an employee by name is a different decision from disclosing the range. We suggest that it be put to whoever gives legal advice in the organisation before it is approved, and the legal position on it lies outside what the concept of pay transparency itself determines. An organisation can stop at any of the first three levels, which are the rules, the ranges and the individual’s position, without anyone’s own pay becoming known.

How an employee who asks about a difference is answered

Employees can be expected to ask, and the answer that builds trust is the one that starts from the rule instead of the person. If the employee on 8,500 asks about a colleague on 10,500, the answer comes in this order: the grade and its range first, then the factors that determine where each employee stands within the range, then the position of the person asking and what would move that position higher. Nothing is said about the colleague’s own pay if the announced level does not include it.

An answer of the kind “that is management’s decision” announces that the difference has no rule behind it, and it is taken as an admission of a fault. By contrast, the rule written in the salary review for distributing the fixed sum can be part of the answer, because it moves the question from “why him?” to “what is the rule, and how do I reach what he has reached?”. In this way transparency changes from an event announced once into a practice in which the same answer is given again in every cycle. The questions that arrive after each announcement are reviewed so that their answers can be added to the managers’ guide.

This is an explanation of the concept, not legal advice.