Why it never pays to shy away from salary transparency

Business Support | Economy & Politics | Employment & Skills | National

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With executive pay ratio regulations set to come into force next year, Richard Haaker, from recruitment consultancy Macildowie, looks at how businesses can benefit from a culture of transparency.

Like many business leaders, you are probably confident that your pay packet is an accurate reflection of your responsibilities and the role you play in the company’s success. Even if the new executive pay ratio regulations only confirm what employees already know – that their boss earns more than they do – it is natural to wonder whether the numbers stand up to scrutiny and what impact this could have on team morale.

It will soon be mandatory for large firms (with more than 250 employees) to publish details of top-level pay, but that doesn’t mean doing the bare minimum to avoid rocking the boat. On the contrary, this legislation should pave the way for honest discussions about the value individuals bring to the business, and set out what it takes to move up the ranks.

The truth is, we have already seen the taboo on talking about salaries start to lift in recent years. Not everyone is prepared to divulge exactly how much they earn, yet they are well aware people could work it out using information from Companies House, online salary calculators, old job ads and gender pay gap reporting.

Difficulties tend to arise when recruiting for a specialist role, including ones in the executive leadership team (ELT). Where skills are in extremely short supply, candidates have the power to write their own pay cheque, if the board believes they will deliver the results needed to gain a competitive advantage.

What matters most is how a business communicates its decisions to the wider team. Do employees understand the rationale behind the company strategy, what the targets (financial or otherwise) are and, crucially, how their role delivers genuine value to the company? Rather than being restricted to the boardroom, these conversations could be opened up during office-wide annual or quarterly meetings.

All this is encompassed in the employee value proposition (EVP), which sets out precisely what a job involves, along with details about the company and its values. An effective EVP continually evolves, in line with the expectations of each generation entering the workforce.

The psychological contract – an unwritten code of conduct that sets out what is expected of an employee – also plays a key role in getting members of the team onboard. In our offices, for example, we encourage people to become CEO of their own desk, so they are accountable for their work and development. It is a way of inspiring them to take charge of their career, no matter what their rank in the company.

It might sound counter-intuitive when businesses are aiming to turn a profit but fundamentally, it is a question of how we can involve everyone in its wealth generation.

Remember too, that commercial performance could suffer if pay discrepancies mean you fail to attract and retain staff, and morale (and therefore productivity) is poor. Just a handful of disgruntled employees, posting negative reviews on Glassdoor, is sometimes enough to put people off making an application.

A worker who may be struggling financially is unlikely to feel motivated and could well be suffering from stress and sleepless nights as a result. On top of money, employers also need to pay close attention to work-life balance, incentives and reward schemes, both financial and non-financial.

The question remains, however, on what grounds can ELT members command a high salary, without people feeling it is unjustified? In my view, it comes down to the quality of their leadership and whether they possess three key attributes – curiosity and an ability to communicate and coach.

Starting with curiosity, strong leaders are continually striving for ways to build relationships and gain employees’ trust across the ranks with an ‘open-door’ policy. Curiosity enables empathy, which in turn helps create trust, and trust is vital for effective leadership. If a leader is effective, then employees are more likely to display tolerance towards a pay gap.

Linked to this, it is important to foster 360-degree communication between every team member. As well as finding out what motivates people, you also get an honest opinion on what is working well and what is going wrong. Never be afraid to inspire others by explaining why someone was promoted, and share any successes like new business wins or ways the person in question has delivered a return on investment.

Finally, and perhaps most importantly, good leaders are also coaches, who invest in their team. This is not necessarily monetary rewards but could be time spent on mentoring and training schemes that enable people to be the best versions of themselves. When ELT members share their expertise, working with juniors to tap their potential and demonstrating a path to the top, it breeds positivity and leaves little room for resentment.

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