It seems like a pretty straightforward question, doesn't it? Shouldn't we all know, intuitively, at the gut level, what pay transparency means? It's a term that's used by everyone from practitioners to policymakers. You've probably heard it - or used it or thought about it - so much you're thinking "Really?!? Another Compensation Cafe post about pay transparency?"
Yes, really - because you probably think you have a solid grasp on the concept. But you, as a compensation professional, may be using a definition that differs markedly from the definition that your employees are using. Based on my experiences in the last two weeks, I've come to realize that there is no consensus as to what we mean when we say "pay transparency"; the meaning of this term couldn't be more complex, subjective and fluid.
I recently received some feedback from a continuing education course on compensation. One of the modules in the course focused on pay equity, and included a discussion of pay transparency. I began this discussion by stating that in my mind, there is a difference between "pay process transparency" and "pay disclosure": pay process transparency refers to being clear and open about how compensation decisions are made, what information is considered in those decisions, etc., and pay disclosure refers to revealing employee-level compensation information to other employees. It's a distinction I've been making for a while (see my August 25, 2015 post for a refresher). One of the students in this course took me to task for failing to adopt the "generally accepted internet definition of pay transparency" (i.e., pay disclosure) and suggested that I misunderstood what pay transparency was about.
The convoluted nature of defining pay transparency doesn't end with this example. WorldatWork recently released a position statement on pay equity (my Cafe colleague Margaret O'Hanlon wrote a great summary of it in her March 16th post). To see why "pay transparency" is a slippery concept, we need to look no further than this position statement:
"WorldatWork supports pay transparency. (A) We support policies that protect an employee who voluntarily discusses his/her pay or compensation with other employees. Employees must not be retaliated against or fearful of discussing their compensation. (B) An openness on compensation topics and a stronger understanding of an organization's compensation philosophy will give employees the information they need to make informed decisions about their personal employment and compensation status. (C) WorldatWork respects privacy concerns and does not support initiatives that require employers to disclose confidential pay information of one individual to another interested employee." (letters inserted for explanatory purposes)
- This refers to pay transparency in the context of employee-led transparency, or employees being free to discuss their compensation with one another without fear of retaliation. This definition of pay transparency is guaranteed under federal law. The National Labor Relations Act gives employees the right to discuss the terms and conditions of employment (which includes compensation) with others. All employees - even those who are not covered by collective bargaining agreements - are guaranteed this right. This same act also prohibits retaliation against employees who do discuss the terms and conditions of their employment with others.
- This refers to pay transparency in the context of pay process transparency. It centers on the idea of the organization providing to employees enough information to understand how compensation decisions are made within the organization. This information, in turn, empowers employees to make informed decisions about the terms and conditions of their employment with the organization.
- This refers to pay transparency in the context of pay disclosure, where employee-specific information on compensation is disclosed to other individuals. This is the "generally accepted internet definition" of pay transparency: organizational disclosure of what each employee earns, so that comparisons of "Abe earns $X, Bella earns $Y, and Charlie earns $Z" can be made directly by employees themselves.
Here's my take on the multiple interpretations of "pay transparency." You're free to disagree with my interpretation (and if you do, let's have a dialog about it!): Discussions using definition (A) above are not really open for discussion - it is simply against federal law to prohibit or discourage your employees from discussing compensation. Imposing a policy of "pay secrecy" violates the National Labor Relations Act, and you can't do that. Definition (B) is, based on my experience, the one that most organizations have in mind when communicating about pay transparency. Being open and transparent about your pay practices and providing information about the pay process and how decisions are made is in the best interest of both the organization and its employees. Definition (C) is, based on my experience, the one that most employees have in mind when thinking about pay transparency. They may support it on one hand, hoping to be able to make those "Abe - Bella - Charlie" comparisons, but on the other hand may not support it due to privacy concerns.
The bottom line is that "pay transparency" means different things to different people. When an organization talks about pay transparency with its employees, you must communicate exactly what you mean by "transparency." We simply cannot take it for granted that everyone shares the same understanding of what is meant by pay transparency - specificity is required.
Stephanie Thomas, Ph.D., is a Lecturer in the Department of Economics at Cornell University. She teaches undergraduate and graduate courses on economic theory and labor economics in the College of Arts and Sciences and in Cornell’s School of Industrial and Labor Relations. Throughout her career, Stephanie has completed research on a variety of topics including wage determination, pay gaps and inequality, and performance-based compensation systems. She frequently provides expert commentary in media outlets such as The New York Times, CBC, and NPR, and has published papers in a variety of journals.