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4 Ways Payroll Transparency Benefits Companies With Nothing to Hide Making salaries public knowledge can motivate employees to work harder, presuming people are paid on merit.

By Matt Straz

entrepreneur daily

Opinions expressed by Entrepreneur contributors are their own.

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An employee's paycheck is almost always confidential, and rightfully so. According to a January 2014 survey from the Institute for Women's Policy Research, about half of all workers -- 51 percent of women and 47 percent of men -- report that discussion of wage and salary information is either discouraged or prohibited by their employers.

But workplaces everywhere are becoming radically transparent. Transparency is encouraged in multiple aspects of business, from leadership decisions and company financials to organizational and individual goals. Is payroll next in line? There are reasons for companies to consider making payroll open information.

It's certainly a bold HR strategy to let every employee know how much their coworkers make. As such, it might not be right for every business. Before making salaries or compensation methodology transparent, ask the following questions:

  • Does payroll transparency mirror the company culture?
  • Is salary transparency doable with company size?
  • Is leadership prepared for the hard conversations that may ensue?

If the answer to all of those questions is a resounding "yes," then payroll transparency is worth considering. Here's why:

1. It enforces equality.

When payroll is transparent internally, suspicions of discrimination, favoritism and general unfairness are put to rest. With everything out in the open, employees can make sense of their earnings and those of their colleagues. That is especially important when it comes to bridging the gender gap in the workplace.

To enforce equality, consider sharing the methodology behind employee salaries. At Buffer, for instance, the exact formula used to calculate salaries is shared with the whole team. The formula takes into account everything from job type to seniority to experience and location.

The transparency makes it easy for employees to understand (and see) why certain employees make more or less than others. When employees know what their counterparts make, they'll be in a better position to negotiate their own salary.

Related: Let's Be Real: Why Transparency in Business Should Be the Norm

2. It motivates employees.

Sharing peers' and superiors' salary information is a surefire motivator. When employees can clearly see where they stand within the company in relation to their colleagues, they're more likely to ask themselves why they're in that position and do what they can to raise their prospects.

The heightened motivation sparked by payroll transparency gets employees excited about various training programs that increase individual raise prospects and overall productivity.

Related: Radical Transparency Can Re-Energize a Company's Culture and Deliver Results

3. It can help reduce turnover.

With payroll transparency, gone are the days of feeling cheated or undervalued. Making salary more transparent among employees lets everyone gauge what they make against company averages.

Knowing what colleagues make and what qualifies individuals for a pay raise is motivating. More importantly, the transparency gives employees the necessary tools they need to advocate for themselves , an attractive incentive for an employee to stay with the company.

Marketing analytics company SumAll is an example. CEO Dane Atkinson says that sharing employee salary data helps everyone get a better sense of their position within the workplace, boosts satisfaction levels and greatly reduces turnover (as proven by an impressive 95 percent retention rate).

4. It promotes a culture of trust.

Above all else, internal payroll transparency breeds trust. Being open and honest about payroll establishes trust between management and employees. Employees don't have to wonder who's getting a raise or if they're being paid what they deserve. The more employees know, the less time they will spend racking their brains about payroll.

Atkinson explains here: "It's stunning how much stress exists in the workplace around compensation, how much time is spent by employees trying to be treated fairly. When you take that away, it's not only more productive for the company but a huge relief on the team."

Related: 4 Reasons You Should Let Your Team Set its Salaries

Matt Straz

Founder and CEO of Namely

Matt Straz is the founder and CEO of Namely, the HR and payroll platform for the world's most exciting companies.

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