The Real Value of Pay Transparency

Pay transparency is getting a lot of press recently, with New York introducing legislation requiring businesses to list salary ranges.  The shift toward pay transparency is growing globally, with other cities expected to follow suit.  But salary ranges are just one piece of information, and many people don’t know what it means for them individually.

To link salary information to your situation you need to put yourself in the mind of the organization.  Hiring managers want you to work for them and are more inclined to meet your salary demands.  But human resource business partners, talent acquisition leaders, and compensation consultants are trained to be more objective, and stewards of the organization’s money.

These professions think about experience, equity, and future growth when advising hiring managers on pay decisions.  So should you…

  1. Experience – it is about past results.

For this discussion imagine you are a finalist candidate for a job whose published salary range is $50,000 to $100,000.

It is human nature to automatically think we are qualified and deserve the high-end of the salary range.  We want to start our negotiation at $80,000, for example.  But HR professionals first look at your resume to determine your level of experience.  Have you done the job?  Have you recently graduated from college?  Were your past successes at a similar-sized organization?  Actual job offers differ based on the answers to these types of questions.

  • Bucket #1: recent graduates, that have potential, but not a track record of success. An appropriate offer would be between the minimum and the 25th percentile based on market availability (how difficult it is to fill the position)
    Resulting Offer = $50,000 to $62,500

  • Bucket #2: candidates with five to seven years of experience and a track record of success, but they worked for a smaller firm, or this job represents a promotion. An appropriate offer would be between the 50th and 60th percentile
    Resulting Offer = $75,000 to $80,000

  • Bucket #3: candidates with 10+ years of experience, that are considered subject-matter-experts, and have the ability to mentor other colleagues. An appropriate offer would be between the 75th percentile and 90th percentile
    Resulting Offer = $87,500  to $95,000

Knowing which bucket you fall into guides you to focus on the right part of the published salary range.

  1. Equity – where you are compared to peers.

The second area HR professionals consider is internal equity.  In our above example, imagine you fall into bucket #1, a recent graduate.  The hiring manager wants to offer you $65,000 because it is difficult to find people with your skillset, and they are down two people in their 10-person department.  That sounds reasonable on the surface, but what is the impact on internal equity?  If eight people, who have more experience, make less than $65,000 – what will that do to morale and retention when they find out?  HR leaders know internal equity is important and the company must have a compelling narrative to address employee concerns.  Alternatively, they may budget money to make salary adjustments for other colleagues to reflect the new market environment.

While this might not seem like a concern to you, it does affect you.  Knowing when the salary range was last adjusted for your job is a valuable piece of information.

  1. Future Growth – can we afford to reward growth?

The final component is future growth.  The salary range must accommodate future merit increases and promotions within the same job class.  When creating an operating budget, what is the average merit increase based on performance?  Let us assume a superior performer gets a 5% to 7% base salary increase on average.   We’ll also assume a person must stay in their role for one year before they can apply for another role, and it takes a minimum of two years of superior performance to get promoted.

Imagine I meet your demands in the above scenario and offer you $90,000.  On day one you will be happy!  After a successful year I can move your salary to between $94,500 (5%), and $96,300 (7%).  If you continue to perform well, I can afford to give you another 5% increase, but not 7% (which puts you out of range).  Now you feel frustrated and trapped, and immediately begin to look for another opportunity inside or outside the organization.

The salary range has to accommodate enough room for you to develop your skills and a track record of success to merit a promotion to the next level up in the company.

Bottom Line

To maximize the value of knowing a job’s salary range, understand how experience, internal equity, and growth potential will affect the actual job offer.

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