A Guide To Pay Transparency And Open Salaries

Michael Dean
A Guide To Pay Transparency And Open Salaries

Open salaries are often portrayed as a scary prospect for everyone involved. Detractors argue that while we should value transparency in business, publishing your pay details online is not only quite nerve-wracking but also leads to a heightened sense of vulnerability. The Sony data leak fiasco, and the salary spreadsheet created by former Google employee Erica Baker, are examples of pay transparency doing neither businesses nor their employees any good.

Is pay transparency really that bad?

Let’s start with one of the biggest issues increased transparency seeks to address: The gender pay gap. In the US, a handful of tech companies like Pinterest and Squarespace’s ex-CEO Dane Atkinson’s SumAll seem to be making great strides using open salaries to fix this problem. The former announced a review of employee compensation data while the latter discloses employee salaries to everyone in the organization.

Leading the pack is Salesforce who announced they wanted to make sure female employees were treated equally to their male counterparts in terms of career advancement, growth opportunities and pay. According to CEO Marc Benioff, the company hopes to accomplish this by conducting an audit of all the salaries of 16,000 employees.

These waves of positive social change are now being backed up by new legislation in the UK. For several years the British government has encouraged businesses to publish their gap between average female earnings and average male earnings, however only five businesses (including Tesco and PwC) have done so voluntarily. From next year however, every UK business with over 250 employees will be required to by law.

Buffer’s transparent and simple salary formula

Transparency lies at the centre of Buffer’s company culture. Like most employers, they were sceptical about disclosing employee salaries and were afraid of the potential repercussions of this decision. However, the company met this challenge head-on by ensuring that the information they shared was more than just a bunch of numbers written on a piece of paper for everyone to see.

From revenues, user numbers, blog and business performance top progress reports on Buffer’s customer support, the company embraces radical transparency. Even the updates for investors are published on their blog. Copying the entire team on internal emails lists and sharing personal self-improvements daily to keep themselves accountable is integral to Buffer’s culture. Every employee can see the simple open salary formula to calculate salaries.

In fact, Buffer made this as well as all the individual salaries public, hoping it might encourage other companies to create an atmosphere of trust that is the foundation of great teamwork. Open salaries are all about transparency and it’s this transparency that breeds trust. As a completely ‘open company’, Buffer successfully leveraged the immense potential of pay transparency to break down barriers within and between teams.

The benefits of pay transparency and open salaries

Productivity boost

Economic research on pay transparency at workplaces indicates that switching from pay secrecy to a policy of open compensation results in long lasting and larger boosts in employee productivity. Studies indicate that employees often tend to overestimate what the others in their company are being paid, which lowers job satisfaction over a period of time. This is always the case when pay is kept secret.

Gender equality

As discussed earlier, pay transparency creates a more female-friendly work environment. It not only leads to a larger number of female applicants for jobs but also encourages them to negotiate over salaries on a level footing their male counterparts. Open salaries go a great way in helping close this ‘negotiation gap’ that has been prevalent till now.

Improved job matching

Having open salaries can speed up your hiring process, with applicants knowing what to expect. This reduces the chance of losing a candidate in the negotiating process and makes for a more harmonious career in the company.

Inc. found that under conditions of pay secrecy, employees tend to think their superiors make less than they really do and that their peers make more than they really do. This leads top performers to become disheartened about their future earnings potential, and causes others to complicate pay negotiations in the belief that they’re being rewarded less than their peers.

Potential downsides

Uncertainty

While many companies are jumping on the pay transparency bandwagon, others are extremely worried about the potential problems that this may create. Not every company is the same, so they can’t always expect their employees to react positively to a development like this. The biggest question is: is pay transparency a dividing factor or does it promote improved workplace morale?

Envy

One of the biggest concerns is coworker envy. It’s argued that not disclosing employee salaries is a case of ‘ignorance is bliss’. However, when people get to know that their peers are earning more than them for a more or less similar work profile, they feel undervalued and jealous

Finding a happy middle-ground

For those not attracted to the quite radical approaches taken by Buffer and Whole Foods, the best way to derive the benefits that an open salary philosophy offers would be to provide aggregated pay information. Instead of giving out individuals‘ exact numbers, you could disclose a pay range or median for a given role and responsibility in the firm.

This system enables people to see their career earning potential and how salaries are derived. The most efficient employees then remain motivated by the assurance their talents will be rewarded, while managers can clearly indicate to employees which areas they need to focus on to improve their earnings.

Most employees are concerned about the fairness of the system more than exactly what each person is taking home each month. With this goal in mind, taking steps to remove suspicions and demystify your company’s wage structure can be hugely beneficial.

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