Pay Transparency Around The World

You’d have to be Rip Van Winkle not to know that pay transparency is an important issue today.   Compensation professionals are beginning to grapple with how to define “transparency” in their companies and to get their arms around the clean-up work that will be necessary to make transparency successful.

For those of you who have international responsibilities you may already know that the term “pay transparency” takes on different meanings in different countries.  Let’s look at a few and see just where they are in the process.

Russia

When you think about Russia, the word transparency in business is not the first thing that comes to mind.  Even years after the end of communism, corruption in state owned companies continues be a big problem. Transparency with respect to employee pay is nonexistent.

Local companies hide large portions of employee compensation.   Employees receive “white wages” ---- money that goes on the company books and is appropriately taxed.  They also receive “black wages” --- hidden/unreported income in the form of cash.   The benefit of black wages is that both companies and employees can avoid taxes.

Black wages are also used by management to reward or punish employees. This is part of the old culture of cronyism in the workplace --- a holdover from the days of communism.

Although the number of foreign-owned companies existing in Russia is very small, they are beginning to have an influence on local companies as employees begin to move back and forth between the two.

Brazil

According to the Brazilian constitution, no employee in the public sector can earn more than a Supreme Court Justice. Yet since the Freedom of Information Law was passed in 2013, it’s been discovered that many are paid far above that limit.  It’s the first time compensation has been made public, and it’s created quite an uproar.

In contrast, Brazilian executives in the private sector are fighting to keep their pay secret.  They claim that to disclose pay details would violate their privacy and put them at risk for kidnapping, which is a very real possibility.

The Institutional Shareholder Services (ISS), an advisory firm, is urging company shareholders to vote against pay increases for top management in an attempt to force more openness.

China

Lack of transparency has long been the norm with executive pay at State Owned Enterprises (SOEs).   Since SOEs are owned by taxpayers, the public has been highly critical of the fact that executive pay structures have not been open.   A new law for reforming the pay system is to take place by the end of 2015.

Similar to Russia, executives are partly paid “off the books”.  In addition, some executives take a second position at parent company subsidiaries which entitles them to another paycheck which is, of course, not made public.

Post-reform pay levels of senior executives will not be allowed to be more than eight times higher than the average income of employees.  Executives whose current pay is higher than this will have their pay cut up to a maximum of about 1 million yuan (US$163,340).  Currently executives earn, on average, twelve times that of employees.

Scandinavia

Sweden, Norway and Finland are operating light years ahead of the rest of the world.

Each year Sweden, Finland and Norway publish everyone's income tax returns. Pay transparency has been a practice since the 18^th century and is actually part of Sweden’s constitution.  For Scandinavians it’s a non-event.  It’s just part of their egalitarian culture.

Imagine the howl if the IRS put tax returns online, so co-workers, neighbors and in-laws could see what you earn!

With the exception of the Scandinavian countries, the focus on transparency has been on executive pay.   By contrast, publicly held companies in the U.S. have long been required by the SEC to show compensation paid to CEOs, CFOs and other senior executives.  In the U.S., the focus on transparency has moved to employee pay.

We can congratulate ourselves for having progressed as far as we have, but we still have a long way to go.  Maybe one day the U.S. will attain the same level of transparency as the Scandinavian countries, and it will be non-event for everyone.

Jacque Vilet, President of Vilet International, has over 25 years’ experience in Human Resources.  In her current role she works with start-ups and multinationals on both domestic and international HR issues including compensation, learning/development, talent acquisition, workforce planning and mergers and acquisitions.  Jacque has an M.S. in Psychology and an MBA from Southern Methodist University.  She has been a speaker at conferences in the U.S., Asia and Europe.  She is also a regular contributor to various HR and talent management publications and conducts frequent webinars. 

Comments

[E. K. Torkornoo]

Thanks for your pieces on these international dimensions. There is so much to learn from practices elsewhere. It is refreshing to read confirmations that interesting, creative, innovative, and/or worth-studying/adopting practices can and do come from diverse places.

At the time of writing, it is required by law that high--level government officials in a West African country I know should declare their assets upon coming into office. Unfortunately, hardly any of these officials do, even though they make repeatedly assure pre-appointment vetting committees that they would . It is therefore not uncommon for many to vigorously seek high--level government appointments because they have become known means of making lots of money (ostensibly not from their official pay). The pattern of flagrant non-disclosure of assets vis-a-vis pay rates for high--level public officials is echoed in several other countries.

Some cultures and countries tend to have relatively high-levels of secrecy relative to pay and wealth. In some countries, the biggest companies (often family-owned) are not systematically required to disclose their financials. Employees in such environments also tend to operate in the hush-hush mode. It is not uncommon to find privately-held companies in such environments attempting and succeeding to obtain market survey data from providers without furnishing their own. Some ‘world- class’ survey providers trying to get a footing in such markets are forced to modify requirements and practices in more established markets.

Thanks once again.

[Jacque vilet]

Thank you for your comment. I agree there is much we can learn by studying other countries' practices.

[Karen Kervick]

I am curious, do we know what the impact has been of the full disclosure in the Scandinavian countries? How long has it been done?

[Jacque Vilet]

Tax transparency has been in existence in Sweden since 1903.

Norway has made tax data public since 1863.

Good link to read on Sweden:
https://sweden.se/society/why-swedes-are-okay-with-paying-taxes/

Swedes have a high degree of trust in their government and in companies. There is much emphasis placed on equal pay for equal work ---- therefore relatively few pay gaps. When there are less gaps in pay, and high level of trust it seems to lead to greater acceptance of differences in pay and less incidents of gross inequality.

Scandinavian countries also believe that by making pay transparent it cuts down on graft and corruption on the part of high level politicians and private sector management.

Hope that helps.