Do Your Values Align With Pay Transparency?

Elizabeth Pittelkow Kittner CFO, GigaOm
Exploring Ethics in Business & Finance Today

Would you like to know if you are being paid fairly for your role? Do you believe you should be paid based on your performance, what your colleagues in similar roles are being paid, what the market is paying for your role, or some combination of these factors?

No matter your feelings about pay, the push for transparency is becoming more prevalent in the workforce as an increasing number of states are requiring employers to provide salary ranges for the positions they post and as websites, like Glassdoor and Big 4 Transparency, provide more opportunities for people to share their salaries anonymously.

While both employers and employees have varying feelings about whether to share salaries, research shows that pay transparency offers several benefits. For starters, it can provide a more fair and equitable workplace; attract candidates; and support diversity, equity, and inclusion efforts. Additionally, a recent study in Nature Human Behavior showed that pay transparency reduced gender pay disparity and improved productivity measurements.

It is important to consider there are some potential drawbacks to pay transparency. The practice has been shown to reduce overall wages and ongoing raises because individual negotiating power is diminished when employers publish a salary range for positions. It also has the potential to demotivate high performers because opportunities for a pay increase based on a strong performance are reduced.

Before you implement pay transparency into your workplace, here are a few points to consider—both as an employer and as an employee—to ensure the practice aligns with your values.

EMPLOYER CONSIDERATIONS

As an employer, it is imperative to consider the balance between privacy and transparency. After all, not all employees want their salary information to be known, as they could feel it violates their personal privacy. One way to address this concern is to provide salary ranges instead of exact salaries.

It is also important to remember that pay transparency often shows disparities between employees, so employers should review and remedy inequities as part of their planning process. Recent research from Bocconi University regarding pay transparency suggests if an organization is equitable and consistent in how pay is allocated, then the overall employee responses are generally good, and productivity should increase. However, if an organization is not fair in allocating pay, then employee responses are more negative, and overall productivity may decline.

Additionally, employers need to consider the impact pay transparency may have on employee morale. Even if employers provide rationale for salary differences (e.g., certifications, skills, experience, responsibilities, etc.), morale may be affected if employees feel they should be making more or if they feel they have been passed over for promotion. To help mitigate these employee frustrations, organizations can establish clear standards for determining salaries, promotions, and performance-based increases. Employers should also consider providing coaching and development opportunities for employees looking to advance, and/or adjust pay or responsibilities appropriately. Annual salary reviews can also ensure employees are being compensated within market rates for their responsibilities and experience; this practice will help protect against discrepancies across diverse groups of people.

Most importantly, employers must ensure they do not retaliate against employees who speak out about pay transparency, including any disparities they perceive. To avoid retaliation, ensure your organization has an anti-retaliation policy in place to follow and help set the standard.

Some companies have taken more extreme measures to promote pay transparency, such as paying everyone in their organizations the same salary. However, these companies have had varying levels of success. One example is Spill, a company providing online therapy to other organizations’ employees. After a few months, their employees demanded to be paid based on performance, and the higher performers felt underappreciated in their compensation. Another company, Tunnel Vision, implemented the same salary method and achieved more success. While this pay model may be extreme, it does represent the feelings employees have about wanting to be paid fairly.

EMPLOYEE CONSIDERATIONS

As an individual, you may want to keep your salary private, or you may want to talk about it openly with others to understand where you rank in pay. If you are in an organization with several people in your role—like an associate at an audit firm—it would be interesting to know if you are being paid close to the same amount and why there are differences. However, if you are the only leader with a CPA at your organization, then it may not benefit you to share your salary within your organization since no one else has a similar role or shares your qualifications at your level.

When engaging in salary discussions with colleagues, it can be difficult to know if people are being honest. As an alternative, you could compare your compensation to salary guides, websites, or job postings for similar positions to gauge fairness.

Most importantly, be sure to research and know your rights before engaging in discussions with others or disclosing components of your compensation. For example, you may have signed a document from your employer that asks you to not discuss details of your compensation with others. However, the document may not be enforceable if you fall under the eligibility of certain laws, such the National Labor Relations Act, which gives many employees the right to talk about their wages with their colleagues. Notably, only a few employers are excluded from this act, which can be found on the National Labor Relations Board website, nlrb.gov.

Ultimately, both employers and individuals should consider compensation clarity at the beginning of an interview process. If there is a mismatch between what the employer will pay and what an individual is seeking, it can save time for both sides if they have the discussion early in the process.

As pay transparency continues to gain traction in state legislation, be prepared to handle the compliance of it as an employer, and as an employee, ensure pay practices align with your values.

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