Why Companies Should Make Their Pay Transparent
Jennifer Deal is a senior research scientist at the Center for Creative Leadership
and an affiliated research scientist at the Center for Effective Organizations
at the University of Southern California.
She is co-author of “What Millennials Want from Work.”
In the past, it was difficult for the majority of employees to know how much people
in their organization or in equivalent jobs elsewhere were paid.
Discussing pay was frowned upon in the workplace (and in some cases banned outright),
and people felt protective of their privacy.
But today, because of technology and changing cultural norms regarding
sharing personal information, everyone knows a great deal more about how much others
are paid. Employees have access to online systems like Glassdoor.com that provide crowd-sourced information about compensation searchable by job, organization, and industry,
in markets around the world. Individuals can look at equivalent jobs in their organization
and with competitors, locally or nationally, and see how their pay stacks up.
In fact, in our research, 60% of millennials and 53% of older staff said they use these sites.
In addition to online resources, we find that staff now discuss their compensation
with other people directly, in person or electronically. Millennials are most likely to discuss
their compensation with their parents (71%) or their friends (47%),
but are less likely to discuss their compensation directly with co-workers (38%).
In comparison, older staff are substantially less likely to discuss their compensation with co-workers (19%), friends (24%) or parents (31%).
In the past, hiding pay information was a technique leaders believed reduced pay dissatisfaction. But today, with the compensation information floodgates open, workers can use that information to decide which companies they want to work for. Though much of that calculation
is about the actual dollar figure and parity with other organizations,
part of the equation is about the perceived openness and honesty of the leadership.
And those who aren’t honest and transparent don’t win.
So leaders have a choice: Be open about pay, or leave a pay-information vacuum
that staff will want to – and can – fill. Distrust is toxic within organizations, and employers
who choose to hide information about compensation run the risk of staff thinking
they are being deceptive – or worse. When people are believed to be hiding something,
it makes others wonder what they’re hiding and want to investigate further. Recently some organizations have been perceived as discouraging staff from sharing information about pay,
which actually caused even more staff to share pay information, and many to come to the conclusion that the leaders of the organization were trying to hide unfair compensation practices.
Leaders who choose salary transparency reap the benefits of everyone at the organization
having a clear understanding of what the compensation situation is, and not feeling as if
the organization is trying to hide something, which increases trust. Pay transparency is likely to be especially important for those organizations that are trying to narrow the pay gap between groups like men and women, as it shows the leader’s commitment to pay equity extends beyond rhetoric, and all the way to providing real information showing what is actually going on
with pay in the organization.
If an organization pays well, leaders should leverage that information to increase trust
within the organization and build their reputation, while making sure their workforce isn’t always shopping for better compensation elsewhere. And if a company is just at the market norm,
being forthright about it may win points from employees who will feel respected and in the loop.
going waaaaaay out on a limb here - the author has never made a payroll in her life.
Secrecy can hide poor compensation administration or might be a legitimate factor when protecting the employer from predatory competitors. There are cases where industries,
like government, have pay transparency. The circumstances and competitive environment of each employer are different and so it is hard to generalize about whether transparency is good or bad from the employer's perspective. It is easier to generalize about the benefits to employees.
Caution should be used when viewing free data, whether crowd sourced or published by recruiters. As a retired compensation research professional, I have observed numerous cases
where information does not align with professionally gathered data or is so broad that it is useless. Free data may lead to unwarranted dissatisfaction.
The terms of my employment are voluntarily agreed only by myself and my employer...
and of no business of anyone else. It is a contract with NO third parties involved.
Why should either of us wish to make it known? Where would be the advantages to either?
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