@adlrocha - Why aren't salaries transparent?
To companies salaries are just a line item in the budget. To employees, they're much more.
|Alfonso de la Rocha||Mar 15|
This will be a controversial publication, I know that. A lot of people will disagree with my view of the matter and, obviously, my opinion may be biased and segmented. I may be disregarding important facts which destroy my whole arguments, but it was still a topic I was really eager to research and share with my audience in an attempt to open a discussion, and know your view of the matter.
The topic I am referring to is transparent salaries. I’ve been wondering lately why, in general, companies are so intent on hiding what they pay their employees. Why can’t we know what our peers and team mates earn for their work? What evil issue will arise if this happens? Even more, why shouldn’t we know our manager’s pay, or the annual salary of C-Level executives in the company? I am an advocate for transparency, so companies eagerness to actively discourage staff from talking to each other about their salaries, even forcing employees to sign agreements stipulating they won’t disclose pay, benefits, etc. to other employees messes with my mind.
Disclaimer: Throughout the article I will talk about salary as a general term. This includes your gross salary, social benefits, perks, and why not? emotional salary.
Benefits of knowing salaries within your company
Knowing the salary of your peers can be beneficial in may ways: It can help you understand your company’s salary policy. It is a way of learning what does the company values in its employees, its criteria for promotions, your potential progression in the company, or the salary rises you can expect in the future. In short, it is a way of digging a bit deeper in the company’s culture, its values, and its level of caring of its employees.
Public salaries triggers and interesting consequence in a company and is that the salary of every single employee in the company has to be able to be clearly justified if you want transparency to work, retain your talent, and avoid potential unbalances. And this is something that, in my opinion, is good for all the company’s workforce. Paying scales are a pacifier in many companies, but they seem arbitrary for individuals. Someone’s salary must be justified through their actual responsibilities and the value they add to the company, and not through a general paying scale computed by the years they’ve been in the company or role title they hold. Some people’s work may look great and be flashy in paper, but its productivity may be limited and the value it actually brings unknown but due to inefficiencies in the system still earn more than your best employee. Are these people worth their salary? As long as salaries are not transparent, we don’t know.
Managers should be able to explain, discuss, or at least justify the following items to their employee:
Explaining the salary range for the employee’s current position
Outlining the maximum earning potential in the position
Explaining how people move through the salary range
Discussing whether movement is based on performance or tenure (or a combination of these factors)
Outlining ways an employee might earn more money or be promoted (such as training or certifications)
The non-written flexibility and added benefits he can enjoy without fearing the company’s retaliation (such as remote work, flexible working hours, etc.).
Employees shouldn’t be blind about all of these aspects. The same way the company is shaping the future of his business, employees are trying to build their own future, so in the end his current and potential salary is not just another item in the company’s budget or an operational cost. So they deserve to understand all of this in order, as far as possible, for them to choose a company that fits their long-term plans.
Even more, transparent salaries can motivate employees who are paid higher to work even harder and in a productive manner. In a way, they are trying to demonstrate their higher value to their peers and management. According to research, employers that move from pay secrecy to pay transparency undergo big and permanent increases in their productivity levels. When pay information remains a secret, employees typically overestimate the salaries of others, leading to job dissatisfaction and lower productivity levels.
And finally, a delicious consequence of transparent salaries people don’t usually realize: it closes the gender gap. If salaries are public for everyone, companies where there is a gender gap would be immediately identified. This has its clear benefits to companies also, as making their salaries public will prevent them from unfounded allegations about how they pay more men than women in the same position. In my opinion, transparent salaries could also do a lot to our quest towards gender equality.
Two recent surveys support this kind of transparency. A study conducted by Cornell University and Tel Aviv University found that employees work together more effectively when knowing the salary information of colleagues. The earning hierarchy helped employees better understand who were experts in the workplace and could more easily seek out the right people for help.
Another study by an economics professor at Middlebury College found that employees worked harder and were more productive when they could compare their earnings with those of coworkers. The researchers also found that a lack of transparency led to inefficiencies and had a negative impact on the retention of high performers.
Benefits of publishing the average pay for different roles in your company
Companies transparent about their paying policies and disclosing how much they pay their employees can also benefit their attraction and retention of talent. I will never understand companies that enroll you as a potential candidate for a job opening process without disclosing the salary range you can expect for the position until the end. What is the reason for this? This leads to candidates investing their time on successfully passing all the tests and interviews of the process only to learn at the end of it that they are offered less money than in their current job. This is a waste of time and resources for recruiters and candidates. Why not be transparent upfront of the money your are willing to pay for the role? (Because, let’s be honest, if you are happy at your current job, you would seldom switch for less money as long as the new position doesn’t give you other things apart from the salary to improve your level of happiness at work).
The more companies to adopt a transparent salary policy, the less an issue money will be to retain talent as long as your pay is reasonable. Employees always want higher salaries, but they are also smart. They understand market conditions, financial constraints, revenue shortfalls, and increased competition. They understand when you can’t pay top-of-market salaries. What they don’t understand is when they don’t feel fairly compensated compared to other employees in similar positions, both inside and outside your company. Once pay is reasonable and fair, other things become important: recognition, respect, challenging work, opportunities for development… the feeling that their job is more than just a job, i.e. the kind of things that make you happy at work along with money (check my publication dedicated to happiness at work for a deeper analysis about this matter). Higher pay is great but the effects are fleeting. Respect, recognition, and a sense of real purpose last forever.
This leads me to another great benefit of companies disclosing their employees salaries: hiring applicants which are a better fit. Since applicants have more and understandable information about the company and its salary policy, this can better improve the job matching process. This means that even before they apply, they already know whether a job provides too low a salary range for their liking, or if it lacks the career progression they are looking for in a company. In the long run, it would decrease unemployment periods for employees and the rotation rate of employees in a company.
In the end, the job market is, like its name suggests, a market, governed by the rules of supply and demand. Accordingly I feel prices in this market should be public, for people to be able to transparently compare different alternatives just like one would do in any other market. Not always is the employee looking for the company, but the company trying to attract the employee, and this is something companies should start realizing in many sectors. Times are changing.
It’s not all a bed of roses
Transparent salaries has also its obvious disadvantages. First and foremost, and I am aware of this, transparent salaries may foster envy between coworkers and trigger unhealthy relationships affecting the company’s productivity. Fortunately, this is a good way of identifying unreasonable professionals who do not fit the company’s culture. Transparency without the right culture may be bad for collaboration.
Our competitive juices begin to flow when we see what others earn, and the more competitive we are, the less likely we are to collaborate. “In environments where performance is difficult to precisely measure and isn’t observable to everyone, everyone believes they’re above average in terms of their contributions or performance. Broadcasting everyone’s individual pay triggers a process of social comparison.” This can lead to people feeling less and being really unhappy in their jobs. This is why I think it is so important for a company to disclose salaries in a way that fits their culture ensuring the privacy of its employees. Depending on the company, the owner, and the recipient of the information, the numbers may need to be shared differently. Within a company the exact salary for specific positions may be given, while to the rest of the job market only a salary range would be disclosed. Even more, depending on the company’s culture, salaries may only be published on-demand according to the preferences of its different employees. There are several possible formulas for sharing the numbers.
Even more, transparency without a clear salary policy can be troublesome. As I mentioned above, companies should be ready to be able to justify the salary of every single employee in the company. Implementing these justifications and consistent salary policies can be easy in small companies and startups, and a real nightmare in big companies (where they are most needed). This level of transparency leads to uncomfortable (and in my opinion needed and rewarding) conversations where managers need to reason objectively why he is being paid less than some of his peers. Understandably, no one usually enjoys these uncomfortable moments, but as a part of business and work, I think it is worth the benefits. In short, we should normalize salary discussions in the workplace.
For me, the benefits of transparent salaries overcome its disadvantages, but this something as personal as choosing your preferred underwear.
In one […] study, he found that when participants were given a task counting dots, they performed worse when they knew they were being paid less than others. In other research Rick has shown people are more likely to cheat when grading their own trivia quizzes if they know they’re being paid less than others. The participants earned money for each correct answer of the quiz. “For people on the low end of a pay discrepancy, if there’s no other recourse,” says Rick, “our study suggests that they may very well turn to cheating to even the score.”
How to share the numbers
Potential drawbacks make the way that you share the information important. Choosing a method that fits your company culture can help. For example, Buffer puts all of its salaries on its website for anyone to see. SumAll shares numbers within the company, and Whole Foods employees can make an appointment to view the company’s “wage report.”
Other companies post pay rates for certain positions and let employees figure out individual salaries based on the hierarchy or their organizational chart. Some companies share their formula for calculating pay rates, while others provide the median salary for key roles and make this transparent both inside the company as well as on the company’s Glassdoor page.
“Some executives are concerned about the privacy issues,” says Tolan. “A way around sharing exact amounts would be to use salary bands and provide ranges for each role–and while you would still know which band a coworker is in, you probably would have to guess at their actual salary.”
Sunlight makes it impossible to hide things, said Berkus in the HBR interview. “And so in a transparent culture, regardless of how you do it, you tend to find people who have a higher sense of the organization being fair,” he says. “You tend to see increases in collaboration and all sorts of other positive effects.”
A lot of work ahead
Every company is different, in terms of its culture, its business, and its employees idiosyncrasy, and transparent salaries may not fit everyone. Some companies may choose not to be transparent at all, some may want to gradually adopt means to become more transparent, and others may go all-in into the public salary world. The decision-makers of every company, individually, will have to choose this. What it is clear is that once a few relevant companies start adopting transparent salary policies, others will follow once they see the benefits. I myself would prefer to work for a company that discloses publicly its employees salary, and be able to openly discuss these matters with my peers.
Do not forget to share this publication, this newsletter, and sharing your opinion about the matter. Stay safe, stay home, and see you next Sunday!
Idea of the week #2: Open source salary policies.
Once we go transparent, why not modelling open source salary policies that companies can freely adopt and collaboratively enhance? Companies could start publicly sharing that they are implementing this or that open source salary policy without disclosing the actual pays of their employees.