Show them the money: Why and how to bring pay transparency to your workplace

So, you’re thinking about salary transparency.

Salary and compensation information has long been shrouded in mystery, especially in the private sector. Increasingly, there have been legislative efforts, most notably in Colorado and New York City, to require companies to be transparent about wages in job descriptions.

Moving your organization toward pay transparency can seem scary, in large part because we’ve been socialized to believe that this information should be private. In most cases, the secrecy of this data has only led to inequality and exploitation in compensation, primarily hurting people of color, women (and BIPOC women most severely), as evidenced by persistent and glaring race and gender wage gaps.

We — Jess Gartner and Crystal Coache — are the CEO and founder of Allovue, a Baltimore-based education finance technology company, and the chief of staff of the education nonprofit Urban Teachers and former director of talent at Allovue, respectively. In our roles, we have both worked over the past decade to promote policies and practices that create and sustain diversity, equity and inclusion in our organizations. We believe that compensation transparency is a critical component of promoting equity in the workplace.

Crystal: At Urban Teachers, we contracted with a trusted equity-focused partner with a specialty in education nonprofits to conduct an audit, run market comparisons, and develop recommendations to support the leadership team as we developed our compensation philosophy and pay structure. For organizations that are larger and/or have a long history of opaque compensation practices, relying on an external subject matter expert to do some analysis and share key findings can support in gaining credibility and trust in the design process from a skeptical workforce. They will also likely have access to more rich and nuanced databases for market research. It was a crucial part of our work to create a strong pay structure and manage change effectively.

Jess: Allovue moved to full salary transparency in the beginning of 2021 with an internal compensation matrix and salary ranges posted on every job description. The implementation of this salary matrix was the result of several years of auditing, correcting, and organizing compensation structure — it didn’t happen overnight, and I don’t recommend organizations releasing this information without first taking steps to get organized.

Here are some steps you can take to prepare your organization to move toward a more equitable and transparent compensation structure:

1. Investigate current practices and mindsets.

As a leadership team, take stock of what concerns you have about making salary information public. Are you aware of pay inequities within your organization that you’re afraid of “getting out”? Are you worried about “overpaying” for an employee you “could’ve gotten cheaper” if you hadn’t shared the salary information ahead of time? Were you raised with the belief that salaries should be private? Do you think it’s a waste of time? Do you feel like pay transparency will take away from your competitive advantage of being a “good negotiator” — or that others just need to be better at negotiating compensation?

You and your leadership team’s answers to these questions or others may reveal data issues you need to investigate and/or mindsets contributing to inequity at your organization. Even if everyone is completely in agreement, I recommend going through the additional steps below, because some of the information may surprise you.

2. Align on your compensation philosophy and priorities.

What role will experience play in your compensation strategy? What about education? Performance? Does your organization care more about team performance or individual performance? Does market competitiveness or internal equity matter more?

In a world with an imperfect and inequitable market that places different value on different forms of labor, sometimes in a gendered way, there is plenty to grapple with when doing the work to prepare a compensation strategy that aligns to your values. You’ll be glad you spent the time having the tough conversations and aligning on your priorities when it comes time to put pen to paper to begin drafting a structure.

Crystal: At Urban Teachers, we decided to have a wage floor based on a living wage for a two-person household and we capped the ratio of highest- to lowest paid-employees to be below the average for an organization of our size. In order to create an ideal structure, you need to know what your ideals are.

Crystal Coache. (Photo via LinkedIn)

3. Take stock.

Perform a compensation audit and analysis with your existing team. Are titles and compensation ranges consistent within and across departments? Are there gaps in compensation across race and gender?

Some of these answers may have legitimate reasons — an early-career software developer may command a higher salary in the market than an early-career digital marketer; the women on your engineering team may primarily occupy junior positions — but it’s important to understand where these gaps are, why, and if there are immediate problems you need to address, or longer-term strategies you want to pursue, like creating pathways and opportunities for promotion. For example, if two people in your company have the title “Customer Success Specialist” with a $40,000 pay gap between them, that is an issue you need to assess and correct.

4. Create an ideal structure.

Build your ideal salary matrix, taking into account current and future position hierarchies and market rate compensation data for every department.

Jess: At Allovue, each of our departments has seven bands of titles and compensation with similar progressions of title seniority normed across departments — a “Senior” role is a band 4 in every department; a “VP” is a band 6 in every department, etc. Our bands range from $10K to $40K ranges with narrower ranges in lower bands and higher ranges of $30-40K in bands 5 to 7 to accommodate a wider range of tenure and experience in more senior roles. We don’t yet have people in every band in every department, but it’s a structure we can grow into for years to come.

Crystal: At Urban Teachers, we similarly developed seven levels that span from “Coordinator” to “Chief’” roles. Each level has five bands ranging from novice to mastery that indicate the degree of skill, knowledge, experience and performance an employee brings to the position. Because of organizational appetite, we went a step further and provided guidance on typically how long it takes to advance across bands. For the most senior positions, it takes two to three years to move from band to band, whereas our more foundational and mid-level staff can move through bands annually. We’ve planned for most roles (foundational and mid-level) to not only grow through bands, but to also experience a promotion into the next level before reaching the maximum salary for the position.

5. Compare your reality to the ideal.

Plot your current employees in bands on your matrix based on their salary today. Do you have people in the same titles today but different compensation bands? Do you have people titled in bands lower or higher than their current salary? What changes do you need to make to existing employees’ title and/or compensation to make your matrix accurate for current employees?

Here are some common scenarios:

• Employee A currently has a band 2 salary and a band 1 title. This should be an easy one — promote Employee A to band 2 title.
• Employee B currently has a band 3 salary and a band 5 title. If Employee B is high-performing and deserves the band 5 title, you should correct their salary to band 5. If Employee B has been hired to an inaccurate title or promoted in title too quickly, you will need to have a difficult conversation with this employee about why they are being reassigned to a different title and what skills or experience they would need for the band 5 title under this structure.
• Employees C and D both have band 3 titles, but Employee C has a band 2 salary and Employee D has a band 5 salary. This is the most challenging situation to correct because it likely stems from bias or inequity in your pre-existing process. If there is a clear difference in skills and experience, you can increase Employee C’s salary to band 3 and promote Employee D’s title to band 5. However, if these employees have the same level of skills and experience, you need to norm them to the same title and salary.

Revealing this kind of pay inequity can cost an organization tens or hundreds of thousands of dollars. In the short term, that is painful and costly. In the long term, you are ensuring equitable compensation across your organization, which increases trust and retention and decreases liability. The costs of inequitable compensation are high, but often unseen and incalculable: limited productivity, organizational mistrust, high employee turnover which leads to loss of institutional knowledge as well as recruitment and retraining costs, and in the worst case, even lawsuits.

Jess Gartner. (Photo via LinkedIn)

6. Make and share changes.

Share with employees that you’ve conducted a title and compensation audit and are making some changes to align title and compensation inconsistencies with a new compensation structure. Explain that this is part of a broader process to reduce bias in hiring and promotions, make compensation more equitable, and increase transparency with prospective candidates.

7. Share the compensation matrix.

Once all title and compensation changes have been made, share the compensation matrix within your organization. At this point, everyone should be in their correct band for title and compensation. Seek feedback from your team — if they feel that ranges or titles are inconsistent with market rates or inaccurate within your organization, revisit national compensation data or dig in to understand why there is a gap between the stated structure and realities of team responsibilities. Based on the issue and analysis, you can either provide data that substantiates the structure as is, or make tweaks based on new information from employees.

8. Put the matrix in action.

Now you’re ready to put this compensation structure in place in the real world. Use the titles and salary ranges to plan and recruit for new hires, as well as to help employees set professional growth goals. This will save an incredible amount of time for your organization as well as for prospective candidates. If your salary range is $50-70K, and a candidate needs $100K, it’s a waste of time for both parties to engage. Everyone can feel confident that the transparency of salary ranges will promote equitable compensation for current and future employees.

9. Monitor the market and keep your matrix/pay structure relevant.

With any new major change, you’ll need to monitor the implementation for fidelity and plug holes as you find them. Additionally, be sure to update your ranges as the market and or your priorities evolve and change.

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But … you’re not convinced yet. Let’s dig into some common concerns.

Concern #1: “If I post a range of $50-70K, what if I miss out on the perfect candidate who needed $100K?”

Do you need a $60K hire or a $100K hire? Either you’re posting a job for a lower range than you actually need, or you’re risking hiring someone who is overqualified for the job you need and will quickly become bored and unhappy. The compensation matrix forces you to assess what level of skill and experience you really need for this opportunity, and hire people at the appropriate level of compensation for that role.

Concern #2: “If I post a range of $80-100K, what if we get lots of unqualified applicants?”

This process forces you to be specific about what “qualified” means for this job. If it’s a hard-line qualification about relevant certifications, prior experience, or other objective measure, that’s easy to quickly evaluate on applications. If you’re worried that someone is “unqualified” because they’re currently making much less money, that may be an indicator of bias in your process.

One of the most insidious reasons for opaque salaries is a fear of “overpaying” for someone whose expectations were lower than yours. This is almost always a perpetuation of systemic biases and the pay disparities that result from them. If your team thinks this is an $80K job, you should compensate the new hire at that level regardless of their previous compensation or expectations. Otherwise, you’re just celebrating pulling a fast one on someone who was under the impression that their skills are worth less. Create objective measures of qualification for candidacy and then evaluate and compensate them accordingly.

Concern #3: “If I have to give an employee a $30K salary correction, they’ll know they’ve been being underpaid for three years.”

Yep. You may have a difficult conversation coming up. You’ll need to decide ahead of time how much, if any, retroactive compensation you can provide and apply it equivalently across any employees receiving a correction.

This can go either way: The employee may appreciate the audit, correction and transparency, and continue on with you; it’s also a risk that revealing such a wide gap will create a breach of trust that will cause the employee to leave. Again, while this can be difficult in the short term, it’s worth making the changes now so you do not recreate or allow these gaps to persist as your organization grows.

These issues will surface in time; it’s far better for the organization to be proactive about finding and correcting them — but that doesn’t mean it will be free of consequences.

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There are many ways to approach the design of an equitable and comprehensible pay structure. However you approach it, auditing, correcting, and restructuring your organization’s compensation can be messy, painful and costly. In the worst moments, it’s tempting to call it a distraction. I promise you, there is no better use of executive time in the long run than ensuring that your organization is promoting fair labor and compensation practices and working to reduce bias and inequity in the workplace.