Remuneration in practice: Reward Transparency

Does transparency mean full show off? The fact that we can look inside the organization, take a close
look at the remuneration system, learn about employee earnings, bonus rules, discover specific
numbers? These are the beliefs that can be heard when discussing the EU directive on pay
transparency. HR professionals and Comp&Beners have as much energy for change as doubts. In the
following blog I focus on reward transparency. How to create a transparent remuneration system?

What do we associate transparency with? In the context of the EU directive on transparency of
salaries, transparency is often perceived as an attack on the independence of organizations, a
restriction of freedom, a requirement to deprive the right to autonomous decisions, to expose
specific amounts, to show inequalities in the pay system, and as a result… to convey to the market
information “company X pays Mirek so much and so much, and Margaret so much” or “they pay
below average, it’s not worth working for them.”

For me, as reward professional, transparency means transparent rules of the game that are well
communicated. And in practice? Thanks to transparency, as a boss/leader/HR manager, I understand
what’s inside my compensation system and can explain it transparently to people.

From this text you will learn:

• what exactly the EU directive on pay transparency entails and how it affects the organization,
• how to start implementing EU requirements in the remuneration system,
• whether it is worth mapping/evaluating positions,
• what ‘s the role of salary grids (bands), remuneration rules in the transparency,
• at what stage is it worth to define the pay bands?” – you ask. I’ll be happy to answer!

Transparency is not so scary as some believes

The EU directive implies four main points:

• the obligation to include a pay range or minimum wage per job or to inform about the pay range/minimum wage before the first interview,
• reporting on the gender pay gap for companies with more than 100 employees,
• providing information on the company’s average level of earnings for a given position,
• employers are not allowed to ask employees about their salary history.

Would you admit that disclosing such information is not as risky as it sounds? And certainly less
so than gossip and the discreet exchange of more specific information in the corridor.

How to prepare for changes in remuneration schemes?

The good news is that the changes related to pay transparency do not come into force overnight.
After the publication of the EU directive, we will have three years to transpose the requirements
of this document into the detailed provisions of national law. There is therefore time to breathe
and prepare accordingly.

It is worth, for example, conducting an internal audit, checking the facts – determining our
background: e.g. do we have a pay grid/bands developed in the organisation, do we collect data
and use HR indicators. Or do we start from scratch and look for comparisons in the market
benchmark? This is important information to start thinking about transparent pay systems at all.

‘I want’ or ‘I have to’? Or why do I need transparency?

However, this is a good pretext to consider the purpose of transparency in general. Before
tackling the alignment of remuneration policy with current legislation, it is worth looking at the
current, very strong cultural trends that condition these changes. Transparent and clear terms
and conditions of employment are becoming necessary and in line with culture changes today.
Especially the youngest generation on the labour market, i.e. generation Z, want to work with
strong culture and based on values and is able to resign from a job where there are no fair,
transparent rules for cooperation.

A lot depends on the company culture, an authentic, holistic approach and a willingness to bring
about change at the awareness level of the entire organisation – from the CEO, board members
to the lowest positions in the company.

Well. So where to start, as an HR professional, you are faced with work from the basics?

Transparent remuneration system: manual for HR specialists

How to implement transparency in your organization step by step? Below you will find individual tips with a short description. Note – the order matters!

Transparency Step 1 – Job role analysis

The first step is to determine what job positions we have. We identify all individual positions and
check naming consistency. This stage we remove duplicate positions, traying to make your
organisation chart simple and intuitive.

Transparency Step 2 – Mapping and job evaluation

It involves aligning position names and comparing them to each other. Placing them in a
hierarchy. The mapping method primarily allows us to compare to market data, focusing less on
internal order, with the hierarchy based on external benchmarks. This is a good and quick
solution when dealing with fairly standard positions. Full evaluation allows us to create a very

precise picture of our organization and position them in the hierarchy, even when they appear to
be incomparable and specific to our organization. Also Hybrid approach is very effective.

Transparency Step 3 – Job hierarchy and grading table

By ranking, different positions are grouped based on the same criteria, such as knowledge,
experience, and responsibility. This allows for proper comparison to the market and is the
foundation of creating a pay bands / grading structure. It enables the comparison of salaries for
equivalent positions, such as reporting on the gender pay gap or providing information on the
average salary for a given position.

Transparency Step 4 – Pay Ranges

We assign pay ranges for each level/grade. Yes, only at this stage. This allows us to capture
average earnings for a larger group of employees, not for each position individually. As a result,
we organize the pay structure. This is the foundation for transparency-related activities. Based
on this, we can establish rules for how we approach pay raises and explain to employees why a
certain pay level is assigned.

Creating a transparent pay system is a process

Of course, each of these steps takes time. Nothing will happen overnight. The larger the
organisation and the more positions, the more time-consuming and involved the task becomes.
The most important thing, however, is to get started, to create a certain base, to unify and make
positions consistent. This will make it easier to map and value, and finally relate to market
standards. How? It can be done without generating high costs. You will find a hint below.

Sources you can use when you lack the budget for expensive compensation market research:

• interviews with candidates
• data from recruitment companies
• your own industry network (a mega-valuable, and rarely triggered, source of first-hand knowledge; i.e. just ask a colleague in the industry)
• exit interview
• free salary reports (just check exactly where the data comes from. Data on the rates of contracted candidates will tell us something different; after all, these are the ones we potentially cared about most)
• Professional report providers (sometimes it’s worth talking even with a small budget because there may be solutions, or we may get a mini-report in return for feeding the database); we can source data from local providers or global reports.

It is definitely easier to function in a reality in which we know the rules. Tidying up remuneration
policies is never easy. They require a lot of commitment and diligent work. They also involve
sometimes challenging conversations with employees, educating leaders on the issue,
negotiating with management, the labour relation side. However, developing clear remuneration
principles makes life easier in the future. Not only when discussing raises and promotions, but

also during recruitment and…when implementing the provisions of the EU directive into the
organisation.

If you need expert support on Comp&Ben – contact me.