Salary transparency: how to create fair salary structures
What is the situation with salary transparency in Austria? Are there already companies that have transparent salary structures? And what structures do companies need to create to enable salary transparency? We asked all of these questions to Martina Ernst, CEO of FairEqualPay:
- Let’s try a definition: salary transparency, what exactly does that mean?
- process transparency
- data transparency
- Martina Ernst, your assessment: How much salary transparency is there already in Austrian companies?
- What are the benefits of salary transparency?
- What does a salary negotiation look like with transparent salaries?
- To put it very practically: Doesn’t it initially cause great dissatisfaction among employees if salaries are disclosed?
- An open culture of togetherness
- clarity of processes
- Clarity of communication and involvement of all stakeholders
- Do transparent salaries also lead to higher personnel costs?
- How do you manage to establish a transparent salary structure in the company?
- process for introducing salary transparency
- Communication when introducing salary transparency
- Expert tips for more wage transparency
Let’s try a definition: salary transparency, what exactly does that mean?
Salary transparency generally means Disclosure of information about salaries within a companyIt is commonly believed that salary transparency means that everyone must know the salaries of all their colleagues. However, only the average salary of those who perform the same or an equivalent function is relevant.
It is important to distinguish between process transparency and data transparency:
process transparency
At the process transparency the salary processes and structures are transparent and understandable for all employees. All employees know and understand the salary processes: when they take place and who is responsible for which part of the process. In addition, everyone (managers and employees) in the company knows and understands which criteria are used when setting salaries or salary increases.
data transparency
At the data transparency Employees have access to their salary data, their salary development and their position in the salary range for their job at any time. They know what the average salary is for the same or equivalent positions in the company and they know the criteria for their salary classification.
In connection with salary transparency, the transparent information important to mention. Since 2011, companies with 150 or more employees have been required to publish an internal income report containing aggregated salary data for comparable functions.
With the new EU directive on wage transparency, which will be incorporated into national law by June 2026, not only does the obligation of confidentiality for employees fall away, but there is also a need for companies to to be able to provide information to their employees at any time, the criteria according to which the salary is composed and what the average salary is for comparable functions.
Martina Ernst, your assessment: How much salary transparency is there already in Austrian companies?
In practice, the following trends are emerging:
- There are more and more start-ups and small young companies that practice complete salary transparency and jointly determine salary structures.
- Large international corporations are increasingly moving towards ensuring that not only managers but also all employees know their personal position in the salary range for the job they do.
- Although companies with more than 150 employees in Austria have been required to prepare an income report since 2011, this is usually only available if there are employee representatives in the company.
Generally Many companies still lack comprehensible and transparent salary structures. In addition, there is also a lack of openness to discuss the sensitive topic of salary and performance objectively and without emotion. This is often associated with great concern that openness would lead to cost increases. This is certainly not to be dismissed, but only if the openness is not accompanied by appropriate clarity about the criteria for the job architecture and the associated salary ranges and a good leadership, performance and feedback culture.
What are the benefits of salary transparency?
Salary transparency in the sense of the aforementioned process and data transparency brings a new language of clarity and comprehensibilityIt helps to objectify employee discussions: It is not about the person's self-worth, only the market value of the job and the added value that a person brings to the company in the respective position are discussed.
In addition, transparent processes within the company increase trust in the company and the feeling of FairnessThe more fairly employees feel they are treated, the more committed they are. The market and opinion research institute Gallup has shown in its studies for many years that increased commitment and higher employee motivation leads to higher retention (and thus also savings on the high costs of replacing vacancies), lower absenteeism and higher productivity – a clear WIN-WIN for everyone.
Danger: Salary transparency only leads to a positive reinforcement of the corporate culture if the process criteria for filling positions, promotion, succession and the corresponding salary determination transparent, clear and comprehensible are and if there is a well-structured dialogue between people and culture managers, managers and employees. Lack of communication structures and responsibilities can quickly become a boomerang.
What does a salary negotiation look like with transparent salaries?
Let us imagine the following: Employees and managers have the same information on salary development, position within the salary band with corresponding objective gender-neutral criteria and comparison with the average salary for the same or equivalent functions.
When these facts are on the table, it becomes easier for both sides to give objective reasons why someone should or should not earn more salary. This means that employees are no longer dependent on the goodwill of a sponsor, but rather the decisions are based on objective and gender-neutral criteria that are understandable to all sides. This also means that employees can talk to their superiors on an equal footing about the topic of salary. Both sides can prepare well for salary negotiations because the criteria for salary increases and promotions are transparent. The focus is no longer on what you believe you are worth, but rather on the value of the job that can be achieved on the market, both internally and externally, and the added value that this job brings to the company. This clarity prevents uncertainty and negative emotions and reduces the potential for conflict. Transparency creates trust, generates a feeling of fair treatment and increases the commitment and willingness to perform of employees - because in a transparent culture on an equal footing, employees are more likely to feel empowered.
To put it very practically: Doesn’t it initially cause great dissatisfaction among employees if salaries are disclosed?
For salary transparency to have a positive impact in a company, three key elements are needed:
An open culture of togetherness
In this open culture of cooperation, the company's values must be reflected in the remuneration. Diversity, equality and inclusion must have a clear priority (for example, part-time positions are valued in the same way as full-time positions, there are shared leadership positions in the company, etc.). It is also important that managers and employees communicate with each other on an equal footing and that feedback takes place continuously - both top down and bottom up. Performance must not be perceived as pressure, but as a contribution that each individual and all make together to realize the company's purpose and the associated goals. This in turn requires that performance goals are largely set together with superiors in order to avoid a climate of fear and demotivating stress. The benefits should also be adapted to the different target group needs in the company and flexible working conditions (for example through flexible working hours, workation, hybrid working, remote work ...) should be part of the total remuneration in order to be able to offer different target groups objective and equal opportunities for promotion.
clarity of processes
A job architecture is needed that regulates the relative importance of positions in the company. It is also important to review this architecture annually and adjust it if necessary. In addition, internal and external salary benchmarks must be carried out regularly. There also needs to be clarity about the job and salary criteria that specify exactly which competencies, skills and responsibilities are required for a position and which criteria determine the respective position in the salary range for the corresponding position. What must also be present are the performance goals with comprehensible criteria for performance assessment for each job profile. To avoid envy and frustration, people and culture managers should proactively adjust unjustified salary differences.
Clarity of communication and involvement of all stakeholders
In order to ensure this clarity in communication, the compensation guidelines must be formulated in a way that is understandable to everyone. Managers must also be trained to conduct salary discussions in an unbiased, objective and appreciative manner. And it is important for employees to have access to the salary information that is relevant to them at all times.
Do transparent salaries also lead to higher personnel costs?
Wage transparency can lead to increased personnel costs in the short term, but only if one of the following three reasons applies:
- Necessary salary adjustments: The company must make salary adjustments to retain existing employees if the market value of the position is already higher than the salary paid - especially if new candidates have already received or are being offered a higher salary for the same or equivalent position.
- Transparency in the job advertisement: If companies no longer only state the minimum wage set by the collective agreement in their job advertisements, but rather realistic ranges, this could lead to competitors outbidding salaries in the short term.
- Wage transparency without structure: An unstructured introduction of wage transparency virtually “overnight”, in which the structural, procedural and communicative prerequisites mentioned above are missing, can lead to irritation, envy, frustration and conflict – and in the worst case to increased personnel costs.
How do you manage to establish a transparent salary structure in the company?
The typical roadmap has two major components that need to be implemented: establishing processes and communicating them accordingly.
process for introducing salary transparency
The following steps must be established in the company:
- definition of a job architecture, in which the value of the individual jobs in relation to each other is determined
- Determining the necessary skills and competencies, education, professional experience, responsibilities etc. for each position
- use of external benchmarksto verify the internal salary benchmarks and compare them with the company strategy and setting the goals: Does the company consciously want to be the best payer on the market or rather align itself with the market median? Are there positions where the company consciously exceeds the industry standard payment?
- analysis of existing salaries and, if necessary, salary adjustments if employees are not correctly classified
- increasing equal opportunities: The company not only analyzes the situation in the salary range, but also examines the diversity per job level. If it becomes apparent that certain target groups (for example mothers, older employees, people with a migrant background, etc.) are not represented in certain jobs or job levels, the company should take structural measures to increase equal opportunities.
- performance management live with SMART goals and regular feedback loops and employees define goals on an equal footing with their superiors
- definition of a timetable for an annual review
Communication when introducing salary transparency
The following aspects are important when communicating:
- Involvement of employees and managers from the beginning: involvement in the process, gathering feedback, possibly setting up sounding boards
- Formulating compensation policies that are understandable to all and consistent with corporate values
- Content training for managers and employees on how salaries are determined on the market, what compensation strategy the company pursues, what processes apply internally and how salary negotiations should proceed
- Bias training for everyone and especially for managers, because your own perspective is 'powerful'. Objectivity is created on the one hand by comprehensible criteria but on the other hand also by being able to take the other person's perspective
- Regular meetings and pulse checks to increase clarity or improve processes, criteria and communication where necessary
Expert tips for more wage transparency
- When introducing greater wage transparency, the values of fairness, equality and transparency should be at the forefront.
- The path to greater salary transparency should be understandable, collaborative, flexible and both team-oriented and focused on the individual.
- During the process, do not lose sight of the numerous advantages: Salary transparency creates a new language of clarity in the company. In the medium term, this new language creates a new culture of positive cooperation, trust and perceived fairness if the company is prepared to manage communication with and among stakeholders and to review the processes annually and adapt them if necessary. This culture of cooperation increases employee commitment and thus the productivity of the company.
