‘They get paid how much?!’

How would you feel about your employees knowing what their colleagues got paid? For many, this is probably a very confronting thought. However, according to a recent article published on news.com.au, this is the bold move some companies are starting to take.

The businesses mentioned have decided to take the concept of a transparent workplace to a whole new level by sharing all of their financials, including salaries and results, with each and every person in their team. The philosophy behind this is that such a level of transparency helps to build trust and will motivate their team to continuously improve and aim higher.

So, how transparent could you afford to be around pay rates and salaries within your business? If your employees questioned their salary in comparison to their peers, could you fairly justify the difference and explain the reasons why? Or instead, would it open up a can of worms resulting in an influx of pay review demands?

The real make or break with this practice is whether or not you have a fair and transparent pay review process in place because if you don’t, then having your employees know what one another gets paid is likely to do nothing but cause resentment and lead to disengagement.

This is particularly the case if you have people being paid significantly different salaries for doing what’s perceived to be the same job or a job at the same level. An employee we once worked with summed this up pretty well when he said that “although I’m not necessarily motivated just by money, knowing what I’m paid compared to my peers in the same role, is incredibly de-motivating”. Needless to say there wasn’t a great level of trust or engagement with his employer as a result.

Often pay reviews occur annually and are tied to a performance review, which makes a lot of sense and serves as acknowledgement for a job well done (or not so well done if there is no increase or bonus offered!). On the flip side, however, linking these two processes can set up the expectation amongst employees that pay increases will happen every year, regardless of results.

Managing expectations in this situation is something we know a number of small businesses battle with, and unfortunately, by not addressing or fixing this issue, it has the potential for huge negative flow on effects to team morale and workplace culture. The key to avoiding this is to openly communicate your process, set realistic expectations around what’s on offer and be clear that pay reviews are linked directly to overall performance.

To make life simpler when it comes to pay reviews we suggest a few things:

Firstly, pay reviews should occur for every one of your employees and preferably at the same time of year. Employees talk. Even about what they’re getting paid and even if you’ve asked them to be discreet! If certain team members missed out on having a pay review, they’ll probably be asking you why and you’d want to have a good reason! Or worse, they won’t say anything to you (just to everyone else in the team!), and this will lead to (yep, you guessed it!) … disengagement.

Set some very clear and transparent qualifying criteria such as length of service (e.g. must have been employed for 12 months or more), high performance ratings, proportionate increases if there is profit accountability, etc. Just because an employee’s pay is being reviewed it doesn’t automatically entitle them to an increase – this should be communicated very clearly to your team. The more objective your criteria are, the better.

When it comes to determining whether or a not an increase is warranted, consider a number of different factors.

Individual performance is an obvious consideration but so is the overall performance of the business. If the business had a tough year and profit targets weren’t hit then it may not be practical to hand out salary increases to your team. Again, communication is the key here – it’s important to be transparent if this is the situation you’re faced with. This doesn’t mean that you can’t reward employees that have performed exceptionally well; it just means that you’ll have to think outside the box and be more creative about how you do it.

Also take into consideration market rates and trends as well as your team’s individual skills. If you have an employee who has a highly sought after skill-set that’s in short demand across your industry, you may need to consider bumping their salary as means to retain them.

Communicate with each of your team members the outcome of their pay review whether they got an increase or not. Yes, it’s a difficult conversation to have if they don’t get an increase but to be fair, you owe it to them to let them know why. This will likely lead to further conversations about their performance and what needs to be done in order to improve it, which gives them the best opportunity to succeed.

Although doing a ‘WikiLeaks’ on your team’s salaries to help boost employee motivation may not be the right move for your business, putting in place some structure, communicating well and being more transparent about your pay review process should do the trick just as well.

Janelle McKenzie and Abiramie Sathiamoorthy are the co-founders of E&I People Solutions. Janelle has a hands-on background in HR, her philosophy is all about providing practical solutions that offer businesses real value. Abiramie has worked with a range of different businesses to set up or enhance their people processes with an end goal to help create high-performing teams.