Salary Transparency: An Essential Tool to Promote Fair Compensation Practices

The term “salary transparency” encompasses a wide range of practices, driven by a desire for transparency within certain organizations despite a restrictive legislative framework. Whether imposed or voluntary, salary transparency now emerges as an essential tool aimed at promoting the adoption and maintenance of fair compensation practices and, consequently, the engagement of employees.

In Canada, two provinces, Prince Edward Island and British Columbia, have salary transparency laws that require organizations to disclose salary scales when posting job offers.

Moreover, many organizations, not subject to any legislative framework, practice a form of salary transparency by voluntarily adopting a communication approach, whether total or partial, of their compensation data to enhance their attractiveness and the perception of fairness by their teams.

In this article, we will define the fundamentals of salary transparency and outline its benefits as well as its main limitations.

Salary transparency involves making information public about compensation within an organization¹. In practice, it encompasses a wide range of communication practices centered around three major dimensions of compensation:

1. Processes: Methods and means employed to determine compensation;
2. Tools: Formal framework within which compensation is managed, such as salary scales;
3. Individual salaries.

For each of these three dimensions, the level and quantity of shared information vary greatly from one organization to another. Some decide not to disclose any information, while others choose, on the contrary, to openly communicate to a larger audience the information inherent to these dimensions.

There is no simple answer when questioning the optimal level of transparency. While total absence of communication is to be avoided, excessive transparency also carries some risks.

Undoubtedly, salary transparency plays an essential role in reducing inequalities.

It’s still too often the case that members of equity-seeking groups receive lower compensation compared to other groups within organizations. By encouraging partial disclosure of compensation information, salary transparency will prompt organizations to ensure that their practices in this regard are free from bias.

In jurisdictions where salary transparency is a legal requirement, the law contributes to bringing greater equity in compensation practices, similar to pay equity laws.

An immediate corollary of reducing inequalities, the increase in employee trust is another direct consequence of salary transparency.

Our experience shows that in organizations that choose to disclose some compensation-related information (often processes), the level of trust and engagement among employees is significantly higher than elsewhere.

Furthermore, in a context of labour scarcity where employees are increasingly inclined to openly share information about their compensation, a policy of openness regarding compensation practices gives organizations a distinctive advantage in talent attraction.

While salary transparency is generally very virtuous, it does expose organizations to certain risks, which they must be aware of when embarking on the exercise.

Furthermore, it is important to mention that even if practiced outside a legal framework, salary transparency is binding in the sense that once intentions are stated, organizations must adhere to them. This prohibits discretion in compensation-related decision-making, which is positive in itself but may be perceived as a limitation of managers’ flexibility.

Thus, salary transparency could expose organizations to a certain vulnerability if competitors gain access to some of their compensation data.

As mentioned earlier, salary transparency represents a major advancement in human resource management, and the trend is expected to strengthen in the short and medium term.

Embarking on a transparency initiative carries potential benefits that are undeniable, and organizations deciding to be transparent must ensure they are ready to do so. Several considerations need to be addressed before disclosing compensation-related information to prevent unintended consequences.

Specifically, an organization should ask the following questions before embarking on a salary transparency exercise:

• What are the relevant laws in the regions where the organization operates?
• Is salary transparency aligned with the organization’s culture and philosophy?
• Are senior management and managers ready to participate in a salary transparency exercise?
• Are the compensation tools and processes in place robust enough to be shared?
• Is the financial health of the organization conducive to disclosing salary information (and meeting the expectations this may raise)?
• What is the perception of employees regarding compensation practices?
• What is the position of the union regarding salary transparency, if applicable?
• And so on.

Salary transparency, regulated by law in several jurisdictions in North America, is generating interest in an increasing number of organizations realizing that communicating the parameters surrounding compensation is a powerful engagement lever for employees.

More and more organizations are choosing to structure their approach to compensation to be able to have open discussions with their teams about their compensation. However, the implementation of salary transparency must be done while respecting certain guidelines in order to optimize its potential benefits.

If you are considering implementing a salary transparency initiative in your organization, Solertia’s advisors can assist you in conducting the preliminary diagnosis as well as in developing tools and processes that will enable you to carry out this important exercise under the best conditions.

Feel free to contact us to discuss with our dedicated team in total rewards.

1. Ordre des CRHA, Guide sur la transparence en rémunération, 2023