Much of the writing and dialogue about pay transparency circles around, and sometimes directly addresses, the question of who benefits from salary secrecy or salary transparency. Salary transparency increases equity and decreases paternalism. For organizational leaders, their actions and beliefs around who should benefit from their organization’s work, and in what ways, will serve as the undergirding for what they decide to do about pay transparency.
What Determines Pay?
The arguments against pay transparency often rest on a negative view of human nature and behavior. Authors argue, and cite some supporting but not completely relevant research, that pay transparency drives down morale and performance. These arguments are based on research done in organizations that have not simultaneously conducted employee education on how pay is determined. The first step in increasing pay transparency in any organization is to educate people about how pay is determined and what constitutes high performance in that organization.
Pay is based on a variety of factors, some fair and honorable, some not so nice, and some illegal:
- The level of risk the person holds for the organization: Are they the signee on debt? Do their decisions and authority inherently incur necessary risk for the organization?
- The organization’s reputation: An organization with a strong reputation often attracts more applicants and can negotiate pay downward.
- The size of the accessible workforce: The laws of supply and demand influence pay. If there is a glut of workers, an organization might be able to pay less.
- An employee’s experience, years of experience, and that experience’s relevance to the job.
- An employee’s education level and the education’s relevance to the job.
- Employee performance: How well an employee does in his or her job by many measures of performance.
- The company’s performance: How well the company is doing financially.
- The cost of living: The cost of living in the company’s area.
- Industry standards for pay (adapted from: https://www.payscale.com/career-news/2015/05/salary-factors-heres-how-yo…).
Other factors that come into play and are less than ideal and often illegal include sexism, racism, and other “isms.” They also include relationship to the owners, friendships, and more.
Personal Psychology Issues
I asked seven people on my staff if they would like to have salary transparency. Six said, “No,” and one said, “I’m interested.” Not a scientific study by any stretch, but when asked why they said, “No,” the six said they were uncomfortable with other people knowing their salaries. This appears to be a deeply rooted psychological response in almost all (but not every) culture around the world. This reaction changes by who is asking and for what reasons.
In general, we don’t mind sharing our salaries with people with whom we are not in competition and whom we trust. People also do not mind sharing salaries for the right reasons. A parent asks how much a potential life partner makes; a child might be willing to share that. Someone is willing to lend us money to start a new venture; one might be willing to share salary with the lender so the lender trusts our ability to repay the loan.
The question for organizational leaders becomes, “What is the right thing to do around pay transparency from a moral, ethical, and organizational viability standpoint?” Here are some thoughts about options for the individual and for an organization.
- Share your salary with others.
- Share a range within which your salary falls with others.
- Do research on what the salary range is in your area for your job; several Websites now that provide that information.
An organization can practice pay transparency along a spectrum from complete pay opaqueness to total pay transparency. Each organization should determine what its ideal salary transparency level is, and work toward that over time. Be aware of the pros and cons of the different degrees of transparency; those are reviewed in detail in an article from Recruiter Box at https://recruiterbox.com/blog/the-three-levels-of-salary-transparency.
Here are a variety of tactics for approaching salary transparency by organizations:
- Create a sustained and ongoing educational program to help staff understand how pay is determined.
- Share salary grades and bands as Glitch did—after gathering feedback on the idea during meetings and through anonymous surveys, Glitch decided to share salary ranges, not exact figures. These ranges are known internally and are made clear on its job posts.
- Set a maximum differential between top and bottom salaries, and share that differential.
- Proactively provide external benchmarks for salaries.
- Publish all salaries openly; a few companies have done this, including Buffer.
- Hire an external firm to review compensation for fairness, equity, and market competitiveness.
- Communicate and engage deeply and frequently with staff about compensation in the organization.
In the End…
Salary transparency is likely to increase as the modern era of the “personal-made-public” and the demand for equity across all demographics continue. Companies would do well to develop policies and strategies to capitalize on the upside of this trend and manage the possible negative impact (https://www.nytimes.com/interactive/2020/02/19/magazine/salary-sharing.html).
Laura Freebairn-Smith, Ph.D., is a partner at Organizational Performance Group (OPG). She has been a consultant for companies as The New York Times and People’s Bank. Her specialty is assisting leaders in realizing the full potential of their organizations through humanistic and analytical practices, while offering guidance in the redesign of infrastructure, the creation of strategic plans, and with organizational development. Freebairn-Smith currently teaches leadership at Yale’s Drama School, and diversity and teambuilding in the Executive MBA program at Yale’s School of Management. Prior to that, she served as Director of Yale’s Organizational Development and Learning Center, which she helped create. Her credentials include a BA from UC Berkeley (Philosophy and Political Science) and an MBA from the Yale School of Management. She holds a doctorate in Organizational Systems from Saybrook Institute. Prior to joining Yale, Laura founded Good Work Associates, a consulting firm providing strategic planning and organizational development. Before that, she served as managing director for the Gesell Institute of Human Development, as chief operating officer for Jobs for the Future, and as education coordinator for the International Rescue Committee on the Thai/Cambodian border. In addition to her tenure at Yale, Freebairn-Smith has taught at University of New Haven, Georgetown, and Central CT State University.