Not very long ago, in 2015 Erica Baker, a former employee of Google famously created a spreadsheet to allow staff to input their salaries anonymously. The spreadsheet highlighted apparent discrepancies between the pay taken home by people doing the same job.  Last year, BBC also hit the news for pay discrepancies which triggered a round of debates on the gender pay gap.

The incident of BBC and Google solicits the question— having a transparent compensation system. With increasing attention on the gender wage gap at the workplace, companies are optimistic that pay transparency can help close the gender imbalance at work. However, a few companies are worried if pay transparency can spark jealousy among employees and can impact employee retention.

In 2016, Cornell University conducted a study which highlighted how pay and pay comparisons could influence inter-relating behaviors in organizations in general and expertise identification and help-seeking behaviors in particular. The research suggests that when actual pay information is unavailable, individuals ‘grab whatever information is handy’ to form a quick, general impression of relative pay rates.

When employees don’t know how their pay compares to their peers’, they’re more likely to feel underpaid and maybe even discriminated against. In fact, ask yourself this question -- Do you want to work at a place that tolerates the idea that you feel underpaid or discriminated against?

This article will offer you some insights on to how organizations can accelerate their business impact by making a transparent compensation culture.

Improves trust:

Sanoj Kumar, Program Director, People Function, Mindtree shares, “One of the significant impact that we see after making our compensation process transparent was the increase in the trust factor. Employees at Mindtree shown greater trust in the fairness with which the organization treats them in internal anonymous surveys. The number progressively increased by close to 1 bps from 2016.

Creating a culture of transparency, especially in the compensation system improves trust factor among employees and inculcates the feeling of care and loyalty.

Keep people from quitting:

According to an earlier survey by PayScale, it was found that how people perceive their pay matters more than what they’re actually paid. Moreover, the more information they have about why they earn what they do, especially in relation to their peers, the less likely they are to quit. 

Pay transparency improves trust among employees and when employees start to trust the organization, they would rather stay on with the organization than leave for another that does not offer the same.

Bridge gender imbalance:

According to a study by Monster, it was found that men earned a median gross hourly salary of Rs. 231, compared to women, who earned only Rs 184.8. This means, women in India are earning 20 percent less than men, indicating that gender plays an important parameter while determining salaries in India.

Making compensation transparent will solve the often-ignored issue of the gender pay gap. The transparent pay culture will not only improve the engagement of female employees at work but will also pave the way to a more diverse workforce.

There is a lot of pay-injustice issues associated with the world of work today. Hence, building a transparent culture is imperative for businesses. To know more, watch this webcast by People Matters in association with SAP SuccessFactors on “Building a culture of transparency - Let’s begin with compensation.”

This article is a part of the campaign #FutureofWork in collaboration with SAP SuccessFactors. Follow the hashtag to access more articles and case studies on new age HR practices.