If you don't know the meaning of the contract theory and economics term, "information asymmetry," what would you do? What I did and what everyone who has a smart phone or computer would do, Google it.
And that brings us to the heart of the matter when it comes to the issue of pay transparency. In an era of almost limitless information access, pay may be one of the few remaining examples of rigid information asymmetry. In most companies, HR keeps all the relevant information about compensation for services provided close to the vest, even though I (the employee) have essentially contracted to provide those services.
And we often take this information imbalance to an extreme. Compare pay increases to the everyday transactions of buying a house or even an insurance policy. The exchange of goods and services are also asymmetrical in these cases, as the seller will limit what s/he tells us to what we ask about -- but we can do some additional, independent research as a consumer.
I bring this up to highlight the inevitability of change in our pay communication practices. With so much data available about just about everything else, how long is the working person going to put up with severely restricted access to compensation information? At some point, we're going to have an Edward Snowden event if we don't start to evolve our thinking and practices.
This came to mind while I was researching today's article. I ran into an HBR.org article, "Why Keeping Salaries Secret May Hurt Your Company" and a related TED Talk, "Why Do We Keep Our Salaries Secret?" A stickler for practical advice and solid research, I was uncomfortable with the studies quoted, especially since the speaker, David Burkus, doesn't seem to have had a business leadership role where he would have to deal with the practical implications of his recommendations. When he talked about revealing the "formula" for calculating pay, I wondered what he was referring to.
I count myself one of the loudest voices for more, and more effective, compensation communications in our community, but I was not comfortable with the case he seemed to be making, with two really meaningful exceptions. Here's what I want to pass on:
- The way we communicate compensation right now makes it easier to ignore the discrimination inherent in our practices. We have known for a long time that women, for example, are routinely paid less than men. We have data that people of color run into similar discriminatory trends. Shine a brighter light on these pay trends, as the federal government does through broad-based reporting of employee salaries, and the prevalence of this problem drops by double digits. This should teach us that we and our employees would benefit from the self-policing inherent in making pay data more open.
- It's just common sense. Information asymmetry in transactions is an economic boon to the entity that owns the information. In other words, our companies save money by barricading the information about pay practices behind executive and HR doors. Shine a brighter light on that operating principle and the question arises, "Are we being frank with ourselves about our motives when we don't communicate in detail about compensation?" Maybe we don't want to invest the time or budget because we unwittingly work toward limiting compensation?
You can decide that I am advocating publishing everyone's salary but you would be wrong. (I am no Snowden supporter.) But right now, most employees who are being paid market rate believe that they are unfairly and uncompetitively paid. Why? For one thing, all they have to do is ask PayScale, a dubious but easily accessible online information source.
But if employees knew and understood the steps that you and your colleagues take to address their pay issues, they would have questions (for sure), and concerns (pretty likely), but they would also have more trust that a systematic, time-consuming effort is being made on their behalf to recognize their contributions to the company.
We and our employees will benefit when we do a lot better job balancing out the information asymmetry currently involved in employee compensation. Don't call it, "pay transparency," if it gives you the willies, but do realize that the pressure to improve is here to stay.
Everything you do in compensation is communication, so why not do everything better? Prepare yourself for explaining the DOL overtime changes by getting yourself a copy of the popular ebook, Everything You Do (in Compensation) Is Communication @ https://gumroad.com/l/everythingiscommunication. Margaret O'Hanlon, CCP collaborated with Ann Bares and Dan Walter to create this DIY guide to compensation leadership. Margaret is founder and Principal of re:Think Consulting. She brings deep expertise in compensation, communications and leadership to topics like the CEO Pay Ratio and performance management discussions at the Café. Before founding re:Think Consulting, Margaret was a Principal at Willis Towers Watson.