Create a fair salary formula and make it transparent.
Transparent salary (also referred to as “open salary”) is the practice of determining each employee’s compensation according to a set of rules — the salary formula — instead of making compensation subject to individual negotiation between employer and employee. The salary formula — and often individual compensation as well — is transparent to all members of an organization, and sometimes to the public.
A transparent salary formula needs to suit an organization’s context, and to be perceived as fair enough by all stakeholders.
Perception of fairness varies from person to person and according to context, so creating a salary formula requires developing a shared understanding of what is considered fair.
When deciding (or agreeing) on a salary formula for an organization or department, consider:
- what would be a suitable fixed subsistence guarantee
- how to calculate compensation according to need, investment, productivity, or merit
- how to distribute the organization’s profit and cover for losses in line with expectations and needs of the various stakeholders
Decide how to handle remuneration for changing roles and develop a strategy for how to transition towards new contracts and compensation agreements.