Would Your Business Be Prepared If Pay Transparency Got A Major Shake Up?

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Is your organisation prepared for a pay secrecy clause overhaul? 

To be clear, we’re not jumping the gun, here. But it is an election year and there are a lot of policy promises being thrown about worthy of your attention. We’re specifically talking about Labor’s commitment to ban pay secrecy clauses that prevent some employees from discussing their pay and bonuses with colleagues.

If successful, Labor has said they will:

  • Legislate so companies with more than 250 employees will have to report their gender pay gap publicly.

  • Prohibit pay secrecy clauses and give employees the right to disclose their pay, if they want to.

It’s worth noting that not every employer would be affected as the clauses aren’t widely used across all industries. In the public sector especially, pay rates are transparent. 

But for those organisations where pay secrecy is in play, let’s explore the benefits and risks of introducing pay transparency, and how you can prepare should your workplace need to respond.

The Risks Of Pay Transparency

A Norwegian study on pay transparency amongst residents shows that higher transparency increased the happiness gap between high- and low-income earners by 29% (meaning, high-income earners reported being happier but low-income earners felt worse). A similar study by researchers at the University of California on faculty members, shows that when employees discovered they made less than their peers, they became less satisfied (also proposing that pay transparency would increase the two-to-three year turnover rate of lower ranked employees (source: HRM Online). 

The Benefits Of Pay Transparency

Primarily, it’s argued that greater transparency will help individuals negotiate equal pay where they suspect they’re being unjustifiably paid less than colleagues (in particular, women). Much of the debate around these secrecy clauses draws attention to how they may contribute to the gender pay gap. 

The European Union (EU) recently proposed making pay transparency a binding measure for its member states (it’s currently voluntary), believing pay transparency could help European countries close their 14% gender pay gap.

We think, in this current talent-short environment where every employer is looking for an edge over their competition, proactively eliminating their gender pay gap and embracing equality in the workplace could be received favourably by candidates.

How can workplaces respond?

Transparency doesn’t need to just be isolated to remuneration. For many employees, they may not have a clear idea of the KPIs and outputs required of their colleagues, even if they carry the same role title. 

Employers could look at reviewing their remuneration policies and being more transparent about the criteria used to measure tasks and responsibilities when setting pay rates and bonuses, as well as updating job responsibilities for currency to make sure they are clear, fair, and accessible.

Given the potential risks to job satisfaction with the introduction of pay transparency, it is essential your organisation plans any transition strategically and thoughtfully as the Beetoota Advocate has pointed out sarcastically.