Pay transparency is a topic whose popularity appears to ebb and flow over time. Recently, we appear to be at a point where the topic is once again top of mind for many, especially following the announcement of new executive action to increase pay reporting and fairness, and an increasing number of platforms that crowdsource pay information.
With these changes happening largely outside the control of any one organization, the question may no longer be whether pay transparency is the right approach or not, but how an organization can begin to integrate greater transparency alongside other aspects of the organizational experience.
First things first, the traditional argument against pay transparency suggests that employees may become dissatisfied due to perceived discrepancies in the relative effort being contributed by others, the compensation for that effort, and any number of other factors that contribute to or correlate with pay satisfaction.
Advocates for transparency acknowledge the possibility of this dynamic- as with any distribution of individuals, there are likely to be those who are predisposed to dissatisfaction almost regardless of circumstances. But if the compensation structure is generally fair, the problem should not be insurmountable. Instead, once some of the novelty wears off, transparency can serve as a strong foundation for productive discussions around both pay and performance.
These discussions can fill a vacuum that pay secrecy leaves behind, which employees will often seek to fill on their own absent information from leadership. Even with pay secrecy, some employees will leave their companies for better pay elsewhere, so there is little downside to being more transparent and actually provide an opportunity to address any mistaken perceptions. Communicating how and why the compensation structure was developed also provides strong signals about trust and respect for employees, who are given a bigger window into the positioning and health of the organization.
Building out this idea further, pay transparency is actually one part of a larger culture. A culture of transparency is focused broadly on employee inclusion and involvement, contributing to a positive organizational experience. The discussions encouraged by transparency – whether focused on pay, performance, or other aspects – allow an organization to accurately and collaboratively set expectations and goals. But that is only half of the picture.
The second important piece is appreciating when those expectations and goals are met, and recognizing when they are exceeded. The ultimate value for organizations lies in combining pay transparency with mutually reinforcing solutions like recognition into a shared culture. Much like pay, moments of social recognition provide opportunities to discuss performance and reinforce motivation. More importantly, they develop a shared understanding of the behaviors that are valued by the organization, transparently aligning employees to a set of core values, mission, or purpose.
Combining solutions - like those mentioned above that share a common goal of transparency and alignment - organizations will be better equipped to deliver a compelling employee experience, demonstrate fairness and respect to employees, and respond to the increasing trends of externally crowdsourced data that was formally only the province of a select few inside the organization.
How has your work experience been influenced by transparency around pay and recognition?
As Globoforce’s Vice President of Client Strategy and Consulting, Derek Irvine is an internationally minded management professional with over 20 years of experience helping global companies set a higher ambition for global strategic employee recognition, leading workshops, strategy meetings and industry sessions around the world. He is the co-author of "The Power of Thanks" and his articles on fostering and managing a culture of appreciation through strategic recognition have been published in Businessweek, Workspan and HR Management. Derek splits his time between Dublin and Boston. Follow Derek on Twitter at @DerekIrvine.
Can you please cite a recent study that shows the percent of the US workforce that is interested in public release of salaries by employers.
Posted by: Skylar | 03/16/2016 at 07:39 AM
Also, perhaps a few words on the impact knowing what others are paid has in the public sector.
Posted by: Jay Schuster | 03/16/2016 at 08:38 AM
Hear, Hear, Derek! Well stated. I have personally found "open" public pay consulting projects refreshingly peaceful, compared to the highly politicized selectively-secretive environments of private industry. Anything publicly shared tends to be well founded and highly defensible while whatever is kept secret is automatically assumed to be unjust and unfair.
Skylar: http://fortune.com/2015/10/15/pay-transparency/ and https://www.washingtonpost.com/news/on-leadership/wp/2015/07/21/breaking-the-taboo-of-sharing-salary-info-in-silicon-valley/ support Derek's points, but I'm unaware of any comprehensive national survey about support for pay disclosure. It works in Scandinavia. Here, SEC forces corporate NEOs and IRS compels executives of tax-exempt entities to reveal their incomes. Only the extreme outliers catch any flack.
Jay: since Derek tends to be shuttling between Dublin and Boston, I'll continue to "intrude" with this reference to some Cornell research http://www.theatlantic.com/business/archive/2011/07/the-case-for-making-wages-public-better-pay-better-workers/242238/.
Posted by: E. James (Jim) Brennan | 03/16/2016 at 03:13 PM
Thank you Jim! Great to hear about your experiences and those are some of the same sources I would point to as well. The only other research I might mention is a Glassdoor report that has looked at frequency of Google Searches as a proxy for national interest in transparency... https://glassdoor.app.box.com/s/j0ntaw9w0hib3mrcvxky5xjwzvgfb16y
Posted by: Derek Irvine | 03/16/2016 at 04:03 PM
Great catch, Derek. That Glassdoor roll-up article lists some of my research sources and cites other earlier ones, too. I'll forgive the economist cited there who misunderstands what "pay compression" means, however. It is not the same as "pay equity" despite involving similar comparative judgments. Except for that minor quibble, it gives a good summary of the issue.
Posted by: E. James (Jim) Brennan | 03/16/2016 at 05:05 PM
I did find one national survey and it found this:
Workers appear to be even less favorable to the idea, however. Two-thirds (65 percent) would not like it if their company openly disclosed all salaries.
http://www.careerbuilder.com/share/aboutus/pressreleasesdetail.aspx?sd=7%2F24%2F2014&id=pr834&ed=12%2F31%2F2014
Now how about the high performers? Jay Schuster's study that found that:
In 1973, researchers set out to explore the idea that motivational gains from an open pay system would benefit better performers by documenting that their pay raises were larger and more frequent than those of lesser performers. The research was conducted by surveying 575 professional employees at a major division of a large company. The results of the study indicated that better performers did not have a clear cut preference for an open pay system (pay levels and increase amount are public). They favored secret systems slightly more than did poor performers. The researchers predicted that “a great deal of dissatisfaction” would result from an open system in their company. They recommended that organizations implement such a system only after ensuring that employees understand the purpose of the change and after convincing themselves that it would increase employee motivation.
Schuster, J. R., & Colletti, J. A. (1973). Pay secrecy: Who is for and against it? Academy of Management Journal, 16(1), 35–40.
Posted by: Ross | 03/16/2016 at 09:19 PM
Can't argue wih what Colletti and I said in 1973 can I??? Ha Ha
Posted by: Jay Schuster | 03/17/2016 at 01:28 AM
Given the lack the wage growth and shift toward services, I wonder if's Jay's conclusions still hold true 40 years later.
Posted by: Ethan | 03/17/2016 at 08:30 AM
The ONLY value in something that old is the realization that we continually cycle through the same issues for decades without resolution. Frankly, I am 'done' with the issue of pay secrecy. It is my view that the public sector has an 'open' pay system to promote 'sameness' and not have to deal with issues of performance. And the only people in the private sector who will be willing to have an 'open' pay system are those who are willing and able to explain the reasons for differences. We are stuck with pay secrecy in most instances I fear.
Before I decided to 'retire' Pat and I were going to write another book. To this end we had conducted a 'host' of telephone interviews with executives on pay strategy, design, etc., etc. We just did not have the energy to convert this into a book but we have the data. As it works here I will try to put 'bits and pieces' of what we found in my comments. The reason we agonized getting CEOs to talk about pay and rewards is they have a vastly different view of rewards than do professionals in the pay and benefit business. And THAT difference is a ready made 'career builder' for people in our profession.
Posted by: Jay Schuster | 03/17/2016 at 09:26 AM
Regarding open pay policies effects on employees:
In 2008, several economists studied the effects of public pay information on the pay satisfaction, job satisfaction, and job search intentions of about 1,700 employees at three state universities in California. The researchers notified a random sample of employees of the existence of a new website that provided salary and wage by name for all university employees. All university employees were then surveyed about their use of the site, pay satisfaction, job satisfaction, and job search intentions.
The responses of those who visited the site were then compared to those who did not. Most new users (87%) reported that they investigated the wages of colleagues in their own department. Administrative data from the school was matched to the survey responses to compare the responses of employees above and below the median salary for their department and occupation.
Following are the important findings of the study:
o There were very few large differences, regarding pay satisfaction, job satisfaction and job search intentions, between the responses of employees who were aware of and those who were unaware of salary information on the website.
o Information about co-worker salaries in the department had the most negative effect on the attitudes of the lowest paid employees and no effect on employees at or above the median in their department.
Card, D., Mas, A., Moretti, E., & Saez, E. (2010). Inequality at work: The effect of peer salaries on job satisfaction. NBER Working Paper No. 16396. Retrieved from http://www.nber.org/papers/w16396.
Posted by: Ross | 03/17/2016 at 09:30 AM