Organisations are coming under increasing pressure to demonstrate transparency in reward decisions to employees.

Firstly, because of the tough economic times the UK is living in, staff want to know why pay budgets are not keeping up with inflation – and how those budgets are allocated. This is a fair question – and one that provides an opportunity to open up a dialogue with staff and have an ‘adult conversation’.

But what is an ‘adult conversation’? I’d define it as open and transparent conversations in the context of setting and managing realistic expectations, being honest about limitations, and not shying away from delivering difficult messages. By having these ‘adult conversations’ and providing an answer, organisations can take the first step to providing transparency in reward.

Even before the cost-of-living crisis, too many companies were using ‘smoke and mirror’ techniques when announcing their pay budgets to staff – often communicating ‘the magic number’ without any sense of the inputs behind it. Why not be proactive and communicate that pay budgets are not solely aligned to an inflation index, but also to market movements and – most crucially – affordability? In doing so, the gap in transparency can begin to be bridged.

A common question QCG is being asked in client conversations is “how much transparency should we have?”

The answer is not clear cut, and differs for varying organisations, but is often along the lines of “more than you currently have now”.

Clients are usually nervous that being transparent will lead to more questions than answers, and that it will lead to having HR and/or reward policies being more closely examined than ever before. This is often because transparency is being confused with full disclosure of detailed reward outcomes, rather than increasing the understanding behind pay decisions.

If organisations do fully disclose their reward approaches – e.g., publishing individual salaries, grading outcomes, etc., this is only likely to serve a self-fulfilling prophecy of excessive focus from staff at all levels on minute levels of detail, and a loss of sight of the why behind decisions.

Changing the focus of communications from the ‘what’ (policies, reward outcomes) to the ‘why’ (principles), in simple, non-HR jargon, will allow a greater understanding of the rationale behind reward decisions.

Having the difficult conversations

The degree of transparency relies on the degree to which organisations are ready to have ‘adult conversations’. In presenting the rationale behind decisions, organisations should be ready to answer questions and respond to scrutiny on that rationale. This in itself requires organisations to have put in the hard yards in getting their reward houses in order, ready to provide transparency on if required. A good question to ask yourselves is “if we are not ready to be transparent about reward with our colleagues, does this mean we need to rethink our approach”? In this context, transparency can be a useful tool to hold organisations to account and act as a sounding board for reward frameworks.

Furthermore, providing more transparency means that even though the outcomes of decisions may still not be favourable for certain employees, they will at least understand why these decisions have been made – and are therefore less likely to be left disengaged afterwards.

In explaining the ‘why’ behind reward decisions, this will also allow stakeholders to be empowered and not have to rely on HR to make and explain decisions. Operating with a greater degree of autonomy will likely engage line managers and other stakeholders – and increase the level of accountability that comes with decision making.

Finally, I believe HR and reward are at their most effective when being proactive in communicating with employees – rather than firefighting and reacting to crises that have already happened, often resulting in employees thinking the organisation they work for is hiding something.

Time for action...

The times we live in demand a greater sense of transparency of the principles behind key decisions – from pay budgets to the Employee Value Proposition, through to day-to-day pay management decisions made in areas such as hiring salaries, out-of-cycle increases, and how to apply benchmarking.

Organisations should use the current climate to consider moving the dial on transparency, otherwise staff will be left in the dark.

Get in touch if you would like to discuss your current and desired degree of transparency in reward, via ku/oc/gcq//dlihcriaf/retep