By Stephanie R. Thomas, Ph.D., program director, Institute for Compensation Studies Cornell University

Pay transparency is a commonly used phrase with a somewhat fluid definition. What does it really mean?

As it is typically used, there are two meanings for pay transparency: salary disclosure and pay process transparency. To understand salary disclosure, we can look to real world examples.

Salary disclosure

The extreme pay transparency experiment at Google is an example of employee-driven disclosure. Erica Baker, a former engineer at Google, and her colleagues circulated a spreadsheet detailing their names, job titles, and salaries. Ms. Baker described the experiment in a series of Tweets:

“The world didn’t end. Everything didn’t go up in flames because salaries got shared. But s**t got better for some people."

An example of employer-driven disclosures comes from Whole Foods, making the following statement on its careers website:

“Unlike most companies, salary information for all—including the company’s leadership—is available to all inquiring Team Members. Wage transparency helps promote inclusiveness and ensures our compensation system is fair.”

Whether employee- or employer-driven, transparency in this context means full disclosure of raw, personally identifiable, naked data.

Pay process transparency

In contrast, pay process transparency means providing information to employees about how compensation decisions are made, and presenting that information in a way that helps employees understand those decisions. Rather than providing information about what specific individuals within the organization are earning, process transparency provides information to a specific individual about why she is making what she is, and what she needs to do to earn more.

Communication

Both approaches to transparency create an increased need for communication. The difference lies in the kinds of information about which you will be communicating.

If personally identifiable compensation information is made available within the organization, you can be assured that there are going to be questions regarding the relative ‘rankings’ of employees (e.g., Why is Jane making more than me? I work just as hard as June, so why am I getting less than her?). In some respects, this type of communication is reactive—the employer is responding to employee questions that largely will come from dissatisfied employees.

Pay process transparency requires a different type of communication. Proactive discussions covering the details about the compensation plan—salary ranges and midpoints, the goals and objectives that need to be completed to earn the next merit increase, performance metrics that must be satisfied to receive incentive pay, and the criteria required for promotion to the next level—are conveyed to different groups of employees in a tailored fashion that allows workers to internalize the information.

Pay process transparency provides the employer with an opportunity to focus the conversation away from ‘rankings’ of employees toward the performance of each employee individually.

With respect to pay disclosure, there are arguments in favor and arguments against. The risks and benefits of pursuing this path need to be evaluated against specific constraints: your organizational culture, the characteristics of your workforce, and the readiness of the organization and the employee population for such a radical shift, among others.

Pay process transparency is a foundational element. If you choose pay disclosure, process transparency serves as the backdrop. On its own, pay process transparency creates competitive advantages that will help you become an employer of choice.