Every company has its own position on pay transparency. If your business is considering letting people see behind the curtain for the first time, you may want to consider how much people see.
Compensation transparency has been advocated as the future of business. We are seeing trust and equality become "make or break" factors for employees across many sectors. Being up front and honest about how you pay your workers is considered a virtuous action.
Much ink has been spilled on the discussion of the effect transparency in the workplace can have. Some argue that it will cause divisions and disunity in the workplace.
If the salaries are not fair and consistent, disclosing them could lead to anger among employees and even lawsuits. New employees may fear that they will have no negotiation power in the future.
Others believe that honesty is the best policy. Recent reports from Glassdoor show that 70% of employees globally believe salary transparency is good for employee satisfaction; another 72% believe it’s good for business.
Partial pay transparency
If your business isn't ready to reveal all, partial pay transparency may be the answer. Already adopted by many companies, partial pay transparency provides companies with flexibility when it comes to remuneration.
Most businesses don’t actively publicize compensation details. They make pay ranges for specific positions available on job descriptions, but have no formalized structure for doing so.
As such, compensation information won’t be available for every position. Especially if the role is held by a small number of people in the company.
The advantage of partial transparency is that it gives you flexibility to pay more to an employee who has earned it. You can also offer a new employee slightly more or less, to accurately remunerate them based on their ability or experience.
The downside to this strategy is that you can end up with slight pay disparities between people who do the same job. This can lead to people wondering if a colleague earns more than them, which can distract them from their job responsibilities.
Full pay transparency
Some companies have fully embraced pay transparency. Full transparency about pay removes the hearsay and speculation about pay. Everyone knows how much they are paid compared to everyone else and the company is happy to justify those pay rates.
There is no pay disparity within roles and new hires don't lose out if they don't negotiate pay. The rate is the rate, regardless.
While there can be some disruption during the transition phase, there is only one real disadvantage to full pay transparency. An employee who works harder or has more skills than an equivalent team member won’t be paid more unless your business model adjusts to allow it.
So why aren't more companies opting for full transparency?
The reality is that companies who are hesitant to reveal their pay have something to hide. Whether they actually do, or they perceive that they might, the fear of a PR backlash regarding workplace inequality might not be considered worth it.
And inequality is everywhere. A study by Monster, referenced in an earlier article, found that women in India earn 20% less than men. In order to avoid a PR storm, companies need to either address the balance or formalise a mandate for equality before being transparent. In this way, pay transparency is a powerful force for gender workplace equality.
One of the challenges for businesses is that the way they calculate pay isn't always calculated fairly in the first place. Most factors that affect pay are entirely arbitrary. For example, one study found that good-looking workers typically earn 3% to 4% more than workers who are more homely. And of course, there are larger factors including race, gender and age.
But the problem of opting for a fair and transparent system is that businesses also want to attract and retain top performers and that rewards the right behaviours, particularly behaviours that are good for the organization. The big challenge is that all of those things are hard to measure and often pull in contrary directions.
This is compounded by the fact that a capitalist structure has created a culture where a CEO is considered to have exceptional talent and deserves to be rewarded exceptionally.
So today, the ratio of CEO to worker pay is in the region of 2,000 to one, and that makes righting the ship seriously problematic. Especially considering that the decision-makers are the ones likely to lose most, and human nature is an undeniable factor.
On way to address this issue is to commit to strict policies that require hiring managers to set salaries based on non-arbitrary factors. Companies that use neutral factors like job scope and the market value of the role as the sole determinants of pay can rely on objectivity. The wage is the wage, come what may. Take it or leave it.
The problem arises when top talent names their price. If they're good enough, someone will pay them and no hiring manager wants to lose out to competitors because they failed to negotiate.
But what you need to remember is that this issue isn't about a day's wage for a day's work done. It's about removing prejudice and bias for arbitrary decision making. If someone has the skills that deserve better pay, pay more. But don't pay less because of your person bias.
Businesses that aren't completely objective in their pay rates will naturally find the transition more challenging. The pressure is on businesses to become more transparent, but the impact of doing so can affect much more than people think. Partial pay transparency could be the first stepping stone to making your business meet the expectations of a changing world.