Pay Transparency: Is it the Right Decision for Your Company?
  • 6 min read

Pay Transparency: Is it the Right Decision for Your Company?

Increasing numbers of employers are making salaries visible to candidates and employees as a means to build trust and close the gender pay gap. Is this the right decision for your company? And what are the implications to individuals of sharing pay information?

Pay Transparency – A Recent Concept

The longstanding norm of keeping salary information a secret is being challenged by the new concept of transparency in pay where organizations (or even individuals) disclose employee salaries in order to build trust. As an article in the HR Daily (The Business Case for Transparency – HR Daily Advisor) suggests, employees who experience trust and feel safe at work are 110% more likely to stay with that company. Trust is pivotal for the efficacy in all organisations. 

CEO, Joel Gascoigne at Buffer claims;

“Transparency breeds trust, and trust is the foundation of great teamwork.”

Breaking the Taboo

Parity of pay between the sexes is the main driver for the campaign to expose pay levels in organizations, particularly larger companies. However, the notion of such a high level of pay visibility remains a pipe dream in most economies.  In an era where women salaries suffer through secrecy, disclosure of salaries can build a bridge to overcome the pay gap.  Campaigners for pay transparency argue that openness is good, and by (1) setting clear pay guidelines and (2) formalizing an approach to disclosure, workers are more likely to feel fairly treated.  This comes without the risk of ‘the few’ being unjustly discriminated against.

The term, ‘pay transparency’ can be very daunting although it is not as terrifying as it sounds. It is more about playing a fair game. And creating a culture within an organization where visibility of pay between workers becomes an accepted norm.

The Bright Side

Increased Productivity

Transparency policies can stimulate a meritocracy that leads to better performance amongst employees who want to ‘prove their worth’ and work harder to achieve the next ring on the pay ladder, or so says CEO of SumAll, Dane Atkinson. SumAll discovered after they established a transparency policy it, “morphed into a unifying productivity booster that kept people around”. With a growing number of examples like this one, enthusiasms of pay transparency suggest pay transparency not only boosts productivity but improves worker retention.

Better Communication  

Transparency can encourage companies to think more deeply about the reasons why one individual should be paid more or less than another. It can help endorse the practice of being transparent for both pay and performance. Performance reviews aid in setting expectations and reduce the fear of bias when it comes to compensation. A benefit of effective communication is the promotion of trust in organization culture; a powerful tool in the foundation of strong teamwork and relationships.

Employee Engagement

Open and honest discussions about pay scale can improve employee engagement.  According to a survey at PayScale (What Is Pay Transparency & Why Does It Matter?) there’s a strong link between pay and employee engagement. The study reveals that employee sentiment (i.e. satisfaction and intent to leave) is influenced by a company’s ability to communicate compensation clearly.

Performance Development

Transparency in career frameworks along with compensation terms can be used by employers to determine career paths, retention and succession plans for workers. As the shift towards pay transparency gathers pace, it can be very helpful to craft a strategy based on performance to as for a raise. Other employees with whom the compensation package may be shared should be well aware of what is being done to achieve this level. Buffer (Open Salaries at Buffer) is just one example of positive, engaged team as it also helped in avoidance of workplace politics when it became common knowledge for all.

The Dark Side

Working in Silo

Ultimately, there are workers who feel like they’re working in silos where the attitude of not sharing information is the norm in the corporate culture.

“We can’t know what we’re worth if we’re earning in a silo. Salary transparency is so important when it comes to earning.” —Farnoosh Torabi, Personal Finance Expert

(Salary Transparency)

Another parameter here is that, some people are unaware of how they are being compensated compared to peers, Megan McRobert, an organizer for the Writers Guild of America East endorsed on behalf of union members;

“If someone is significantly underpaid and they don’t know it, they may not negotiate for higher compensation. Making less than your peers can negatively impact people their entire careers—not just at one job—because promotions, raises, and future salary negotiations may be based, in part, on that rate of compensation”.

Internal Conflicts – Demotivation – Low Morale

Most human resource personnel prefer to maintain opacity in pay structures to avoid conflicts over differences in salaries and protect the company from an outbreak. Workplace jealousies and disruptions won’t only have behavioural/social damages on employees but may also affect the productivity due to negative competition and demotivation. At Compference 19 (The Impact of Salary Transparency and Performance-Based Evaluations) session, it was established that salary transparency can be risky. There can be a negative impact on morale, lack of engagement, cause disagreement and result in increased turnover. 

Too Much Information

There is a fine line between relevant, right information and too much information. Excessive sharing of information can sometimes ricochet and convert into endless debates. It holds a serious complexity because you want to share why the pay is different for different jobs/people. According to Stephanie Penner a senior partner at consulting firm Mercer (The Benefits and Downsides of Pay Transparency | Time),

“There is definitely a tipping point at which too much information is harmful because it will be taken out of context… There’s a lot more that goes into how someone is paid than what meets the eye to employees”.

Lack of Clarity – Visibility of Gap

With increased attention on gender and racial pay gaps, organisations are becoming more aware of the discrimination they had not realised earlier. A report from the American Association of University Women (Here’s what the experts say) declared that women in the US earn 79% of what men make and the gap widens for women of colour. The worst fear of all is that salary transparency can cause the companies to discover how unfair had been and lacked clarity for which they can face legal consequences.

For You to Decide

There is a question of whether it really only is the money involved at work makes people happy and if the increased emphasis on compensation sends a wrong message about the culture of an organisation.

Having transparent and honest conversations with employees contributes towards the wellbeing of the company. Pay transparency does benefit the business by improving engagement and workplace culture but it also presents with the challenge of adopting a whole new mind set around compensation.

Ultimately, it is for you to decide, whether pay transparency will help in achieving pay equality or lead to more divides at your workplace?

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