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How Your Startup Should Embrace Pay Transparency

Pay transparency isn't always easy but your startup could benefit from this strategy in multiple ways.

Wondering how to achieve pay transparency? Or why pay transparency matters? You're not alone. Pay transparency means something different to every startup and it is important to identify what stage of pay transparency you are in so that you can calibrate your policies and grow.

What is pay transparency? Without context, it can seem like a catch-all buzzword with multiple vague meanings, but that doesn’t make the reality any less important. 

Simply put, pay transparency is the full visibility of an organization’s salary information from entry level employees, all the way to the executive suite and the public eye. Builtin does a good job of breaking down the pay transparency journey and has divided it into five different stages of progress, from basic information all the way to absolute openness across an entire company. Most businesses are somewhere in the middle, but we’re here to discuss why startups should work pay transparency into their business plan as soon as possible. 

What Does Pay Transparency Looks Like For Your Startup? 

  1.  Stage one is making sure that employees know and understand their compensation package including benefits and perks. 
  2. The next stage is sharing with your team mates how market data was used to calculate their wage. This can involve pulling up historical and current records of what the market pays people in their positions. It’s a great step in the right direction. 
  3. At stage three, startups give employees real insight into their salary and reward structures. This would include outlining and defining the business’s pay philosophy, providing pay ranges for open positions, and outlining a clear set of policies for raises. 
  4. Startups on stage-four provide the same things that stage-three firms do, but they also go over every factor that contributes to pay, and how the compensation is tied to specific performance metrics. These companies always have open lines of communication, and actively work with the entire team to help make the compensation policies fairer and more equitable as the company continues to evolve. 
  5. And the final stage of transparency is having open salaries, giving employees vision into how much everyone on the team is making. This information is made available to the entire organization and made public for anyone to see. 

Why startups have more mobility on pay transparency than their corporate counterparts. 

Startups, scaleups and SME’s have a unique advantage over big business because their teams are small, their processes are still being built out, and cultural expectations are not yet established. Get ahead of an unnecessary problem while you’re still early in the game. 

The reality is if a startup hasn’t prioritized pay transparency from day one, you’re facing an uphill battle. An open compensation strategy starts from the first contact someone has with your company, including posting salaries in your job descriptions when hiring. If you haven’t been open from the start you may face some internal challenges with existing employees. As we know, it is a candidate’s market and as a result, you may need to offer new employees a more enticing compensation package to join the team than what you are currently paying your existing employees. If your goal is to work towards being fully transparent, have an honest and open conversation with your employees. Work with your current employees to help them understand your new pay structure, what has affected the change and what they can expect in relation to their own compensation. 

We understand the transition can be difficult and some employees may not be on board. As a startup your employer brand tells your story, communicates who you are as a company and showcases what it is truly like to work for your startup. Building a transparent employer brand helps candidates get a window into you company culture and it’s a great place to communicate your policy on pay transparency.  

Set yourself up to scale affordably. 

The good news is as a startup you are small, scrappy and can get ahead of these challenges. You need to be diligent and committed to a pay philosophy that works with the calculated trajectory of your business. You should start by knowing which employees you should hire full-time and which you should hire freelance until you really get the engine running. Addressing internal pay equity and building out a proper philosophy is easier at 10 employees than it is when startups see explosive growth and swell to 100 and beyond. Lay the groundwork when things are simpler so that you are not trying to make large scale changes when you have a lot more on your plate. 

Big companies have deep pockets, but pay isn’t everything. 

There are massive international companies that actively pay above market as a strategy. Their philosophy is that if you pay more, you get better people. They may win talent but often struggle with high turnover and less engaged employees who are ultimately in it for the pay cheque. Competing with big business when it comes to compensation will be expensive and you’ll likely lose. Some companies that make big promises find that they are unstable when the floor falls and revenue dries up – then everyone loses. 

There are multiple aspects to accomplishing pay transparency including regular and clear communication with each employee on performance and compensation. We recommend having regular conversations rather than keeping it to an annual, awkward and forced meeting. Even when a raise is not a part of the conversation, employees want to know when they are doing well and when they aren’t, far more often than once a year. When you foster a more open environment, employees will be more comfortable broaching the subject of a pay increase or change in responsibilities. While salary is one of the most important aspects of a person’s career, it’s likely not the only thing that motivates them. If you’re not in the position to be able to offer an increase in pay, understand their other motivations and if you’re able to, offer to supplement their pay with other compensation; time off, personal development opportunities etc… 

If money is tight, don’t avoid the conversation with incoming candidates – address it head on. 

As we’ve noted full pay transparency starts with the first point of contact a candidate has with your startup. If you’re not in the position to compete with larger companies on salary, acknowledge you are below market while providing the right context for why your star candidate should join. If you posture instead of being authentic, you are going to turn people away. Sometimes people are willing to forego salaries if you can promise growth and the opportunity to work on something new and exciting. In these cases, being transparent might seem risky, but the more genuine you are in communicating your mission, vision, and goals for the business, the more likely it is that you can win a candidate who cares more about your company’s growth than your money. This play may take longer, but it will get you the right person for the role you’re looking to fill. 

The ultimate goal is to eventually have full pay transparency across your team and with the public. If you have a fair environment, who cares if people talk about what they earn to their colleagues? It’s something that should be normalized, not tabooed. When you get people in the door with the right expectations, for pay and career development, you are removing doubt and friction, which will help make you a very well-oiled (and lucrative) machine. 

Everyone wants to know how they are being valued, and they should. We expect to have all the information we need to trust our car dealers, mortgage brokers, and airlines, so it’s natural that employees are interested in understanding the compensation structures of their employer. Understanding our value and the runway for our career’s future is one of the most important facets of our working lives. 

For more tips like this, make sure to join the Pivot + Edge Talent Network. We’re always sharing our top career insights, hiring tips and all the latest news from our team, and we can’t wait to connect with you! 

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