Incorporating benefits into the pay transparency conversation

As companies seek to build healthier, more engaged and more productive workforces in an uncertain economy, developing strong diversity and inclusion practices is no longer optional. While leaders have long considered how best to offer fair, equitable and competitive compensation to recruit and retain top talent, these efforts were historically executed privately. The growing movement for pay transparency challenges this traditional approach.

Spearheaded largely by a new generation of employees, the pay transparency movement seeks to shed existing taboos around compensation disclosures, which can perpetuate gender- and race-based pay gaps. Supporters argue that companies should take concrete actions, such as disclosing salary ranges on job applications and proactively communicating the criteria for determining pay and pay progression, to create fair compensation practices for all employees.

While the pay transparency movement was fueled primarily on social media amid other conversations about the future of work, it has grown into a priority for regulatory bodies around the world. In 2023, the European Union passed its Pay Transparency Directive, which requires companies operating in the EU to disclose pay ranges to applicants, share how pay is set, progressed and managed to employees, and assess compensation using gender-neutral job classification and evaluation systems, among other actions. The UK, Japan, Canada, Australia and more than 20 states in the U.S. also have some form of pay transparency regulation.

Ultimately, this regulation aims to help companies compensate and incentive workers fairly, regardless of gender, race and other protected statuses. However, too often pay transparency and pay equity advocates focus on direct compensation (wages, bonuses and equity), and overlook other critical parts of the total rewards package.

Companies and their HR teams must begin to include benefits in their pay transparency and pay equity conversations. Here’s why:

Benefits disparities are pay disparities: Companies can have strong equal pay practices and still end up with an inequitably compensated workforce, as exemplified by the health care affordability crisis. Consider the fact that 22% of U.S. employees are spending 10% or more of their income on health care. Moreover, half of Americans are unable to pay for a $1,000 unexpected medical bill within 30 days, which increases to about 66% for people of color and low-income workers. Without considering factors such as location, socioeconomics, and employee out-of-pocket costs, companies may unknowingly create a greater health care cost burden on some employees, resulting in an unequal compensation structure. This is also true for retirement benefits. Some wealth management benefit programs offer greater rewards to employees with an unbroken tenure at a company over time. Such programs could provide fewer payments to women employees, who are more likely than men to have breaks in service. To create a truly fair workforce where all employees have equal access to the right resources, benefits must be a part of the pay equity conversation.

Related: ‘How much do you make?’: Most U.S. workers in favor of pay transparency

Benefits recruit top talent: Many leaders assume workers care solely about their base salary, bonus and equity awards when selecting and remaining in a job. In reality, many workers take a broader lens when evaluating their rewards. A recent study found 88% of workers would give “some” or “heavy” consideration to a lower-paying job with stronger health, dental and vision insurance than a higher-paying job. Companies can strengthen their employee value proposition and retain top talent by communicating that their benefits packages are both competitive and equitable.

Benefits contribute to holistic wellbeing at work: The post-pandemic movement for flexible work benefits showed that employees seek a workplace that protects and promotes their wellbeing in addition to providing competitive base compensation. Benefits are a critical tool in ensuring a workplace has a culture of inclusivity beyond pay levels and policies. For example, companies that offer childcare benefits help address both the financial burden and stress of working parents, allowing them to be fully present and engaged when at work while reducing out-of-pocket expenses.

The pay transparency and equity movement and resulting legislation is a positive step forward in creating more inclusive workforces. As companies look to the future, promoting equity across the full total rewards package, covering both base pay and benefits, will be mission-critical in recruiting, retaining and engaging top talent.