Many companies refrain from openly discussing their employee’s salaries thinking that it may do more harm than good. It is, in fact, seen as a taboo most of the time. This is particularly because money is a sensitive topic.
Pay Transparency refers to an organizational policy where the remuneration of employees is disclosed before all to see. It is a much-debated top whether having a transparent payroll structure is good or bad for the organization. Almost 17% of private organizations practice pay transparency, while 41% discourage it and 25% prohibit discussions about salary information.
The World Stands Divided
Honestly speaking, the right compensation is primarily the reason an employee decides to stay with a company or accept a new job. Thus bringing in sudden pay transparency can go both ways for a company.
If an employee discovers that they are underpaid as compared to their peers, it can bring down their morale. On the other hand, if an employee gets to know that they are fairly treated, it can earn their loyalty towards the company.
However, things are changing. More and more companies are revealing how much they pay. For instance, companies like Salesforce are trying to fill the gender gap through salary transparency. They announced pay transparency to make sure that female employees are treated equally to their male counterparts.
Pinterest announced a review of employee compensation data to ensure transparency. Whereas, Squarespace revealed employee salaries to everyone in the organization.
The bar was raised when Buffer, a social media scheduling tool company, released a spreadsheet containing the compensation details for every employee. This sheet can be viewed by the general public as well.
As you can see, each has its own approach when it comes to adopting pay transparency. This blog will discuss the following:
- Types of Pay Transparency
- Pros of Pay Transparency
- Cons of Pay Transparency
Types Of Pay Transparency
In general, there are three levels of transparency depending on organizational policies. Let us discuss them in detail.
1. Full Transparency
Full transparency means companies allow every member of the organization to see what their peers are earning.
The company here discloses the complete compensation sheet to their staff members, though the information need not be made available to the general public.
The advantage of this is that there is no pay disparity. Thus, every employee can look at their executive and stay motivated to reach there. However, some employees who are getting less for contributing more than their peers might resent it.
2. Partial Transparency
In partial transparency, companies don’t disclose complete salary information. But they communicate the salary range for specific positions while hiring. Though not necessary, that compensation information will be declared for every post. In fact, employees share their information on Glassdoor reviews too.
You won’t find a spreadsheet outlining the salary for every position, like in the case of full transparency. But in partial transparency, companies get the flexibility to pay more to an employee who deserves it.
This calculation can be done based on their performance as well as the number of years they have been working with the company and their contribution to the growth of the company. But this also leaves room for peers to think if they are getting less than their colleagues, and it could have direct repercussions on their performance.
3. Zero Salary Transparency
Some companies try to keep their employees’ compensation information hidden. They believe that sharing salaries openly might cause problems, especially when they follow a flexible compensation structure on every position based on performance.
Some might think they are underpaid, which can impact their performance.
But there are still chances that these data might get leaked. Sometimes, false information can get circulated around, and it might create a nightmare for the PR department.
In fact, when the details get out and the company has been unfair, it can create some serious issues for them. It can downright destroy their company’s image. For such companies, protecting their information can be a challenging task.
However, the number of companies that follow no salary transparency is less than those that practice partial salary transparency.
Pay Transparency: The Pros
Let’s look at some of the reasons why every company should practice pay transparency.
1. Fills Gender Gap
Even today, where people are fighting for women’s empowerment, there’s still a lot of gender pay gap that exists within the corporate world.
Pay transparency helps fill that gap as it helps create a female-friendly workplace.
Open salaries allow more and more female applicants to apply for the job. In fact, it makes it easy for them to negotiate the salary that matches their male counterparts.
2. Boosts Productivity
More often than not, it has been found that pay transparency at workplaces promotes productivity. When a company keeps its pay structure a secret, employees often tend to overestimate what their peers are getting. Thus, it directly affects their morale and reduces their performance. Implementing effective performance management software can play a crucial role in fostering transparency and improving overall workplace productivity.
That’s why workplaces switching from pay secrecy to pay transparency has often seen a rise in the overall performance level of the company.
3. Improves Job Matching
Another upside of pay transparency is that it smoothes up the whole hiring process. When a company specifies the salary range for a particular job position, a candidate will know what to expect.
If the salary matches their demand, they can apply for the job instead of backing out during the negotiating process. It reduces the chance of losing a good candidate.
Pay Transparency: The Cons
1. Uncertainty
The biggest uncertainty that lies here is whether pay transparency will act as a dividing factor or promote positive work morale?
This uncertainty arises from the fact that not every company is the same. They aren’t sure if their employees will react positively to pay transparency.
That’s why many companies refrain from supporting the concept of salary transparency.
2. Undervalued/Jealousy
Sometimes, not revealing employees’ salaries is seen as bliss. Mainly because when employees see that their peers are earning more, it leads to a sense of jealousy.
In some cases, it makes them feel undervalued when their colleagues in the same profile are earning more. It can have a massive impact on work productivity. Some staff members might even consider leaving the company to find another job.
3. Lawsuits
Pay transparency can also invite unwanted lawsuits as employees may feel cheated after discovering that they are being paid less than their peers. Pay transparency allows users to use salary information in courts, which can land a company in trouble.
Wrapping Up
You would be surprised to know that many companies make new hires to sign an agreement of non-disclosure of their salaries. This approach is not legal anymore. Employees are free to talk about their salaries under the National Labor Relations Act.
In fact, in countries like the UK, they have introduced laws whereby every UK business with over 250 employees is required to publish their salaries to reduce the pay gap.
As previously mentioned, not every company is the same. For some companies, taking the same approach as Buffer or Whole Foods might not be possible. It might backfire instead of offering them some advantages.
In such cases, a company can choose to reveal a pay range or median for a given role instead of giving out the exact numbers for each employee. Also, companies can choose to give a breakup on how their salary is calculated for an employee to create a more transparent atmosphere within the company.
It will allow employees to know how the salary is calculated and how they can improve to increase their earnings. This will also keep your employees motivated to work hard.
Do you think Pay Transparency is a good idea? Let us know in the comments below.
Amaey Anand is a certified accountant with over 10 years of experience in the finance industry. He has worked with various organizations to streamline their petty cash management processes and reduce inefficiencies. He has also written several articles on financial management for leading publications such as Zensuggest and The Wall Street Journal.
