Outing Employee Pay

In a few weeks, I am going to talk with a local compensation association about pay transparency. As I've been writing over the last few months, I think there's a cultural shift underway, with pressure building from various angles to "out" employee pay.

It's natural that employers in Silicon Valley are feeling the most pressure. Many of its company cultures strive to live up to open communications standards like "don't be evil."  The rest scramble to lure talent away from these companies, even though their own devotion to core values is not as obvious to employees.

I'm stating the obvious when I point out that most company's efforts at compensation communications have fallen under the motto that Dan Walter talked about in his recent Compensation Cafe article, "First, Do No Harm." In spite of how doctors deliver on their oath, our own interpretation has often been, better to do nothing or nothing much, rather than take a risk when it comes to speaking openly about pay. Our prognosis for current employees seems to be no more complex than: They're lucky to have a job. And, for some reason, using a risk management strategy for compensation communication has rarely been palatable to us, even as research accumulates that the ROI for effective communication can be clearly measured in the bottom line.

Look where that leaves us.

What if your company wanted to follow Brent Rasmussen's advice from Harvard Business Review for improving recruiting practices?

Include salaries in your job descriptions (of job openings) to attract more candidates . . . if you make the salary known, you’ll gain a leg up over your competitors who don’t. Transparency can be a huge advantage — especially if your company is offering compensation packages at or above the market rate. Job seekers are more likely to apply when they see a salary range listed. The disclosure also signals that your company is forthright and willing to engage in dialogue.

I can hear the "yikes!" now and you'd be right. How could you possibly start posting salaries with job openings again when current employees a) don't know their own salary ranges, b) will be paid less than the new hire and/or c) may feel stymied anyway because of negligible increases for many years.

And yet, things are changing. The time is coming when you'll do more harm by not communicating well and openly. At this point, there's no perfect place to start. You'll have to invest the thought, time and money in strategy not just Qs and As. Take the recruiting example above as an example. To implement it in a way that improved the overall health of, and avoided doing harm to, your organization, you'd have to identify everything and everyone that would be affected by posting salaries on job offers, understand every intervention that would be needed, and be prepared to fix the compensation system not just the recruiting practices.

Like any other bad habit you want to break, you'll have a better shot at long-term wellness if you start now. Even if you avoid real illness, things are just going to get more and more unhealthy if you don't practice better communication habits.

On the plus side, working on compensation communication will show your fitness to take thoughtful risks that pay off. Resolve to do no harm, do the tough work that implies, and your innovations will have real meaning for your company and your career.

Margaret O'Hanlon, CCP is founder and Principal of re:Think Consulting. She brings deep expertise in communications, compensation and career development to the dialog at the Café. Before founding re:Think Consulting, Margaret was a Principal with Towers Watson. She's proud that Everything You Do (in Compensation) Is Communication, will be released as an ebook next week on www.everythingiscommunication.com. Margaret collaborated with Ann Bares and Dan Walter to bring the ebook into the world. Filled with innovative ideas, practical tips and experienced advice, it's a quick read and a valuable resource for building your influence as a compensation strategist. 

Comments

[Dan Walter]

Communication is essential. Transparency is misunderstood.

I look at transparency like windows into the company. Each window is glass and provides some protection for wind, weather and UV rays. Each window provides some important light for those inside and a specific view for those outside. The view can, and should, be controlled through use of curtains, blinds and other means to ensure some privacy when needed.

But, no one would live in windowless house. And no one really wants to work in a windowless building.

When companies understand that its best to build a welcoming place for employees and potential employees they will start putting in more windows and opening their blinds. Until then, prison seems nice?

[Margaret O'Hanlon]

Thanks for the great visual, Dan. I have been hoping to hear from some of our colleagues who are feeling like the walls are closing in. Guess they are used to keeping mum buttttttttt, this is a great place to say what needs to be said without fear of repercussion.

A warm invitation is open for some thinking, opinions, or experience on transparency and what it has to do with compensation communications.

[Randy]

I'm sure you have many valuable personal experiences helping companies make pay more transparent and open to share with the HR group. Employees are just dying to have their co-workers know what they make and what others are making, we're just slow to realize it.

[John A. Bushfield]

Excellent post! I'm among the converted, and I'm delighted to see this august forum discuss pay transparency. Organizations cannot (or should not) go from secrecy to transparency overnight, but a well thought out strategy that gets them there in a relatively short period of time is the answer.

[Margaret O'Hanlon]

Thanks for chiming in, Randy and John. I wish I could say I was as confident as both of you, but I think we have an awful lot to learn about pay transparency. As a whole, business has done so little on compensation communication that we don't really have a sound foundation from which to spring into transparency. Nor do we have real case studies. What we do know for sure is that we have is a building that needs a awful lot more light in, to follow up with Dan's metaphor. And that research indicates more light will lead to more communication will lead to, most likely, higher Total Shareholder Return. It's nothing to sneeze at!

[E. James (Jim) Brennan]

Randy's provocative post made me realize I had actually forgotten the time I gave a world conference audience of executive secretaries a command to immediately write down their annual salary, fold it, mix it with the others at their tables and each select and read one out loud to their table-mates. There was a loud gasp and much frantic whispering, but these were gutsy professional women (with one token male member). It only took five minutes, but all who spoke to me afterwards said it was scary, terrifying, shocking, revealing, and immensely comforting to all. They were typically extremely relieved and comforted, feeling like a great burden of stress had been taken off their shoulders.

[Sid Anderson]

Following are conclusions from a recent article on the research supporting open pay systems. (http://cbr.sagepub.com/content/early/recent)

In general, a clear-cut body of research supporting the use of open pay systems does not exist at this time, and researchers have not indicated a strong interest in investigating the effects of pay secrecy policies in recent years.

Several employee compensation scholars do not believe the topic is important enough for coverage in college textbooks and major reference books on employee compensation.

A majority of organizations have not established basic open pay policies such as informing employees of the salary range of their pay grade. In addition, the need to establish open pay policies was not among the 127 workplace trends that HR professionals were asked to rank in importance in a 2012 survey conducted by the
Society for Human Resource Management.

The apparent low level of interest throughout the compensation profession may indicate that many believe the subject is
of minor importance.

Most important, current levels of employee interest in open pay systems have not been established, and studies that directly measure the effects on employee satisfaction
and job performance of moving from a secret to an open system could not be found. A 2012 Conference Board survey of working Americans found that only 35% are
satisfied with their pay, making pay satisfaction a subject worthy of investigation, but pay secrecy does not
appear to be a fruitful area to pursue to try to explain their dissatisfaction, based on what we have learned from the research studies available to us at this time.

[Margaret O'Hanlon]

Sid, all true and important to point out. And frankly, those have been the facts, more or less for as long as I've been practicing. And yet, any time there is a possibility that we can have a fruitful discussion about improving compensation communication practices, it is worth doing.
There are lots of reasons why now is a good time. We are too comfortable with a very mediocre status quo, the premise behind salary ranges (that you will move up to and beyond the midpoint as you succeed) is pretty iffy right now leaving our basic ethics open for question, and the media is questioning employee pay practices more than it ever has before making them open to public skepticism. It's time for some open discussion and, I hope, more thoughtful practices in that area.

[Tony Bergmann-Porter]

Someone of the stature of GE, Google or Goldman Sachs would have to go first, and in doing so, "break the logjam" in much the same way that Microsoft's movement from stock options to restricted stock grants changed thinking about best practices for stock awards ten years ago.

We should note that in that case, changes in the legal/regulatory environment drove the decision. There is no evidence that any such changes are in the offing around the topic of pay transparency, and even less chance that they could be enacted in the current US political environment.

Nonetheless, the million dollar (to the consultant who can answer it) question is "what is the first mover advantage in making this change, and how will it outweigh the very obvious costs that it will entail?"

[Margaret O'Hanlon]

Tony, the ground would open and all pay surveys would self immolate if a company of that size went for full disclosure.

Just kidding! I'd settle for a better understanding and a clearer demonstration of the fact that everything in compensation is communication.

Thanks, btw.

[John A Bushfield]

Tony - The difficulty faced by large organizations is the embedded bias against open pay, since almost all of them have compensation anomalies that cannot be justified, and managers fear exposure will put THEM at risk.

Disclosing salary ranges is not new; I worked for Data General (remember the 32 bit super-mini computer?) back in the late 70's and grades with min/mid/max were available to all. It was a hugely dysfunctional company, but some of it's HR practices were bleeding edge.

I think open pay leadership will come from earlier stage organizations with younger, more enlightened executives. They will recognize it's importance as a key cultural attribute which responds to the newer generations of employees, and especially the millennials. The war for talent rages on, and pay transparency is a potent weapon for those who know how to use it.

[E. James (Jim) Brennan]

I seem to remember that some major consulting firm not long ago found a statistically significant engagement improvement among employees who were aware that their personal pay exceeded their job midpoint or Market Reference Point (MRP). Hay? Mercer? And maybe the outcome was overall job satisfaction... but I recall the object lesson was the advantage of revealing a nominal target rate lower than personal salary.

Pay secrecy implies skullduggery and coverups of abusive and otherwise indefensible practices. Disclosure deters skepticism and deflects criticism. Even NSA found that exposing process details about the pay program at the secret agency yielded impressive positive employee attitude results. Chris Dobyns did a presentation on it at the Dallas WaW Conference a few years ago.