By now, I'm sure you've heard about The Panama Papers, more than 11 million leaked confidential documents spanning more than 40 years from the Panamanian law firm Mossack Fonseca. According to the New York Times, these documents "exposed how some of the world's most powerful people were said to have used offshore bank accounts to conceal their wealth or avoid taxes."
I haven't read all 11 million documents, but I have read a lot of summaries and synopses. It seems as though there are two important - and interrelated - lessons for compensation that we can take away from The Panama Papers:
Transparency is, and will continue to be, a shaping force in our world. Transparency is about openness, communication and accountability. Growing pressures for transparency are extensions of societal trends, technological advancements and organizational evolution. Delayered organizations, team-based work environments, the rise of "Big Data", widespread access to instant information, and the channels through which we constantly communicate with one another are pushing us to demand more transparency is every aspect of life. In light of this, the increasing demand for pay transparency should come as no surprise. Organizations will be well-served to be open about their compensation policies and practices, providing potential and incumbent employees with information about recruiting ranges, minimums / maximums / midpoints of pay ranges by job category, pay band, etc., and what is expected in order to earn the next merit increase. Failure to be transparent about your compensation policies and practices could lead to an employee-sponsored exercise in "extreme pay transparency" similar to what Google experienced last summer.
Optics matter. According to CNN, The Panama Papers reference 12 current or former world leaders, as well as 128 other politicians and public officials. The alleged activities in The Panama Papers are only that: allegations of wrongdoing. No illegal activity has been proven yet, and it may turn out that what occurred was "wrong" but not illegal at all. Addressing the leak during a press conference, President Obama said "it's not that they're breaking the laws, it's that the laws are so poorly designed that they allow people... to wiggle out of responsibilities that ordinary citizens are having to abide by." Yet the leak has led to the resignation of the Icelandic Prime Minister, and calls for the U.K.'s Prime Minister to follow suit. Why? Because of optics. It's not illegal to provide executives with very high levels of equity compensation, limo service and floor seats to Knicks games. But it "feels wrong" when top executives of Dunkin' Brands each received $2,160 worth of Red Sox tickets (which, in the broader perspective, is not that much money) while lower levels of the organization are asked to tighten their belts.
Concern over social inequality and all the various forms in which it manifests is on the rise, and the workplace is not immune. With increasing pressures for transparency, whether regulatory (think Dodd-Frank and Say on Pay Votes) or organically generated amongst workers and customers, it's time to deal with the issue proactively. Be transparent about your compensation policies and practices. And when you do, think critically about what story that information tells. Organizations cannot afford to ignore how their compensation policies and practices are perceived by their employees, their customers, and the public at large.
Stephanie Thomas, Ph.D., is a Lecturer in the Department of Economics at Cornell University and the Program Director for the Institute for Compensation Studies (ICS) at 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 a media outlets such as The New York Times, CBC, and NPR, and has published papers in a variety of journals.
(image courtesy of BBC)