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07/11/2014

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This is great, Ann!!

About 100 years ago I was a 'scientist' at the Rand Corporation in Santa Monica. At the time a really challenging and interesting workplace with some of the smartest people in the world. (except for me, of course)

Everyone was paid on a 'maturity curve' system based on your date of PhD graduation and your years since degree. (The assumption was that 'old PhDs' were more valuable and that seemed acceptable in a workplace where people move from an organization like Rand to a university professor job and back again during their career).

At 'salary consideration time' all the PhDs appeared at the office of their boss (in a 'matrix organization' everyone had at least 5 'bosses' it seemed) Each scientist had in their possession elaborate statistics that projected their salary (and that of perhaps 40 or so other scientists) showing how their salary progression compared to that of other scientists. An impressive use of elaborate statistical analysis accompanied each presentation.

The 'clarity' came from everyone knowing what everyone else was paid but seldom WHY they were paid what they were. The 'multiple bosses' were also statisticians and brought their own analysis. The sum of this was that everyone tended to be paid closely to the salary 'predicted' by the curve drawn based on years since PhD.

The challenge we always had because of this state of absolute clarity was describing in understandable terms why one or more of the scientists might have a salary that varied from the prediction.

I always wondered if this was a case of 'tto much clarity' and a logic for pay that was just too good to change. What do you think?

Jay:

Great story. Based on this and my own experience working with scientific and engineering firms, I tend to think that the lesson is Beware Open Salaries in a Organization Populated by PhDs.

But that's just me. ;)

Also beware of engineers in managerial positions.

Interesting article Ann.

Transparency may be an interesting experiment but I think we will see mix results in application if it gets wider acceptance. I believe companies that do it as part of their core beliefs will have far better success because they will provide stronger clarity in their communication and approach. For companies that do it simply because they are following a trend it will be far less successful. In these companies I wonder if it will lead to an approach of paying everyone in the same role the same pay, or very close to it, to make it easy.

Why companies pay what they do is very inconsistent and not always “fair” or logical. Even within a company it is very inconsistent. If you say you pay for performance in many companies performance is not a perfect science and left to individual interpretation. Individual performance also varies year to year. Even outside of performance other factors come into play. With the lack of female engineers in High-Tech you could see companies paying more for them to bring a different perspective to the design process. What about the person that gets the dreaded counter offer? You could go on and on with different one-off examples. Some of them become harder for employees to accept. Limited merit budgets will only compound the difficulty keeping pay alignment.

I’m not against pay transparency, I just believe most companies will have a hard time implementing it if they go down that path. In compensation we and our teams see everyone’s pay all the time and know this does not have to be a big deal and maybe after the first year the noise goes down on its own as the newness wears off. After a while maybe most will just stop looking.

I also think of all the CHROs I have worked for and with that limit access of the HR team, outside of compensation, to see others pay in HR because they don’t want to deal with the potential conversations. When so many HR leaders can’t handle pay transparency within their teams you have to wonder if the rest of the organization will be any better.

For most companies I just don’t see the benefit outweighing the distraction.

Have you had any of your clients implement this approach?

One more than I will stop. Pay secrecy, pay openness, pay transparincy, etc., were 'researched' extensively about a dozen years ago. The conclusion was that the more 'open' the pay system was, the less difference there was between the pay of individuals. The academics came up with different conclusions as a result--some saying managers did a better job when they did not need to explain themselves, others said the opposite, and may said that an open pay system results in everyone being paid the same and high performers leaving open pay organizaions.

Truth is an open pay systems do seem to create 'sameness' and closed pay systems do seem to result in 'differences'. But you don't know which solution is a 'good thing' because universally the only variable studied is how 'public' and 'visible' the pay system is.

One interesting little study showed that in a couple of organizations that went from a 'secret pay system' to a 'more open pay system' (they did not say what a 'more open pay system' was), the result was less difference in what individuals with the same demographics (age, sex, education, etc.) were paid.

Good thing or bad thing? I don't know!!!

Jay's last comment about an "interesting little study" explains why pay equity proponents advocate as much openness as possible. Will full disclosure, it's much harder to justify inconsistencies that produce potentially illegal adverse consequences for protected classes of workers.

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