Leadership Challenge: Learning to manage transparency
Every aspect of the organization is up for disruption. In 1949, ADP became the first company to offer outsourced payroll services to firms. Today, one out of every six workers gets paid by ADP's direct deposit in the bank (a handful still get a paper check). ADP's mobile solution app now has 16 million users who log in 33 million times per month. Millennials and Gen Z employees certainly prefer electronic money than physical money. In response to that, ADP has created a Pay Card. This acts like a debit card where a part of or the entire salary can get paid. It is like having your entire bank available in your wallet. So, how does this transition to digital pay impacting the employer-employee relationship?
Emotions make it special
In one of the places where I worked, I remember paying the Management Trainees their first salary in cash (even though we could have done a bank transfer). Along with that, I had included a handwritten note for each one that said, "This will be the least you will ever earn in a month, but you will always remember this payday." Years after that incident, whenever I meet people from that cohort, they still recall how special their first payday was. Will that bond need to be recreated as the world moves towards digital paychecks?
Equality can take many forms
As the world moves towards an open talent economy, organizations have to learn to work with more and more freelancers spread out all over the world. A freelancer told me that she works with a US-based firm who prices the project fee in US dollars. She jokes, "Because of the currency fluctuation, some months are better than others because I make a bit more. And in some, I make less. But when I travel around the world, I have greater control over what the dollar amount will mean in any country. I feel I have more control." Think about it, that is just what the ADP pay card does. The Pay Card may just be the default mode of payment for the gig economy because of its ability to personalize the paychecks.
Equality in a hyper-connected world
The seller always has more information. The more information that the seller discloses, the more trust is generated in the minds of the buyers. Several websites offer what people doing the same job are making in other companies. In Sweden, it is possible to request salary information about anybody with a simple phone call. Swedes believe that it is a by-product of democratic ideals that they live by. The Swedes also have a Minister for Gender Equality. The aim is to reduce the gender pay gap. Who asks for this information? Either someone who is aggrieved or someone who is just curious. Information about everyone's pay leads to conversations about equal pay for equal work. It is a starting point to tackle discriminatory pay practices – like entry-level engineers from one college being paid higher or lower salary than engineers hired from another college. This kind of a bias for "pedigree" generates angst.
Go to SmartLabel.org and you can look up the information about the ingredients of more than 3500 products made by Procter & Gamble. You can decide whether the ingredients are safe for you. Or is it too harsh? And what does it do to the environment?
At the turn of the century, Nike got criticized for allowing their suppliers to exploit workers, paying below the minimum wage, excessive working hours and failing to provide safe working conditions. They have since then worked hard to check the working conditions of their suppliers.
Look at an iPhone and you will note that it says, “Designed by Apple in California Assembled in China”. That relationship between Apple and its supplier came under fire for the poor working conditions some years back. The working conditions in any country that has relatively cheap labor will reveal "poor working conditions". If the company meets the country's norms of pay, safety and labor laws, can the supplier be faulted? When these conditions have been brought to light, the employers have often responded by progressively automating their factories as fast as possible. Robots do not violate labor laws.
Pay transparency has a price
Most experienced leaders have grown up in a world of privileges. They had access to information that their employees did not. Does giving more information help the consumer to make better decisions? It does not. When people change jobs, they compare tangible, measurable differences between their current and prospective employer. Yet the factors that may impact success or failure may be much more than that.
Harvard used to have some of its employees manage their endowment funds. These people were paid huge salaries and bonuses like professional fund managers of investment funds. The result was Harvard earned billions but the fund managers earned in millions. When their salary information was shared with their colleagues, it made them resentful. Harvard was forced to bring their pay in line with other colleagues. The fund managers left.
Google has a policy that makes huge differentiation in the compensation of its employees. The range of rewards at almost any level can easily vary by 300 percent to 500 percent. Laszlo Bock, the former head of HR for Google justified it by the difference in impact two people doing the same job could have —"Two people doing the same work can have a hundred times difference in their impact, and in their rewards." Google has never had a problem in attracting talent despite telling applicants that they have wide differentiation in compensation.
Transparency – so what
Most people overestimate their own capability and impact. When pay differences are on objective criteria e.g. tenure, seniority etc., people find it easy to accept differentials in earnings. When the reasons are more subjective (e.g. how the targets were achieved), it causes resentment. A leader who ruthlessly shuts down factory after factory to boost earnings per share is lionized.
After Zuckerberg testified before the House, the market seemed unaffected by the brouhaha. Did consumers really care about privacy as long as they got a free service? Probably not. When Uber got bad press, several people suggested that they switch to its competitor. Uber simply offered better discounts. In most countries, the consumers were happy to overlook how Uber ran their organization.
In many organizations, the team leading the digital transformation is paid higher than their peer group. People with expertise in AI are getting starting salaries that most people cannot even dream of. The market share of digital giants is getting increasingly concentrated in the hands of a few. The analog world seemed to have established the norms of equality.
In the digital world, we seem to be accepting a winner takes all philosophy. It is time for leaders to learn to pause and have the debates about transparency of information. We know that 42 people own as much wealth as the bottom 3.7 billion of the poorest. Leadership is not about transparency – it is what we do with that information. As of now, leaders are falling short.