Should Salaries be Transparent in Your Company
When we talk about transparent salaries, we mean that salaries are common knowledge to everyone in a company or salaries are released publicly. Traditionally, how much an employee makes is meant to be kept in strict confidence for most private companies. However, some companies with salary transparency policies publish the salary data of its employees. This may be for compliance with tax reporting requirements (i.e., nonprofit organizations) or as a response to public companies’ shareholders who would like to know the earnings of their top executives.
For some jobs in the public sector, salaries are determined strictly by their tenure and title. Thus, although a particular employee’s salary is not being published, the organization’s wage rates are still open to everyone. Moreover, salary transparency has become typical for high technology companies, particularly small startup companies that are trying to compete aggressively for talent in markets in Seattle, Silicon Valley, and New York City.
Whatever the case may be, the trend towards transparency has been driven by a couple of variables, at least according to the Society for Human Resource Management. One is the rising availability of such data from sites like Salary.com, Glassdoor.com, as well as compensation benchmarking programs such as PayScale.com. Another is the ever more tightening labor market and the recognition of pay equality. The last is the effect of millenials, who are used to transparency and openness in social media.
There are advantages and disadvantages to informing employees how much their fellow employees are making. At any rate, it is still a very tricky subject on whether a company should reveal how much their employees earn. This article will feature the advantages and disadvantages of companies making their salaries transparent. Moreover, it will discuss whether you as an employer should make salaries transparent in your company, given your circumstances.
ADVANTAGES OF TRANSPARENT SALARIES
Ability for Employee Negotiations. In knowing how much the range is for particular positions, employees and job candidates have the evidential support to negotiate for higher raises and higher starting salaries, respectively. This, of course, benefits the employee or would-be employee. In so doing, salary transparency can also help address any pay inequalities.
Closes the Gender Gap. Based on a survey by Salary.com, 36% of men always negotiate their salaries when they receive a job offer, while only 26% of women do. This hesitance of women to request for more money is a main contributing variable to the existing gender gap. Furthermore, in a study conducted by the American Association of University Women, they found out that the full-time beginning salary of newly college graduates were 18% less for women, compared to their male counterparts.
By being transparent with your salaries, it can aid in increasing your female applicants, since it lowers their uncertainty on working conditions and salaries for your company. Research shows that women are less likely to negotiate their pay compared to men. However, research has also shown that the transparency can aid in closing this negotiation gap in salaries among men and women.
Encourages Trust. When a company is more transparent with something as sensitive as salaries, it shows that its employer and its management trust its employees sufficiently to allow them the information of other people’s salaries. This can lead to more satisfaction in their jobs and hence, better productivity.
Hires Applicants with Better Fit. Since applicants have more and understandable information about your company, this can better improve the job matching process. This means that even before they apply, they already know whether a job provides too low a salary range for their liking. In the long run, it would decrease unemployment periods.
Holds Human Resources Accountable. By being transparent in your salaries, it would hold your human resources responsible and accountable for precisely gauging the salaries for the true value of a job. Think about it this way – in order to make someone accountable, you would need information. With the lack of information (or even valid data), actions made by individuals are difficult to ascertain and could be gravely misconstrued. The secrecy of information makes it challenging to hold organizations and individuals accountable for their actions and behavior. It also makes it problematic for those who are treated unjustly to establish a case for just treatment, in this case, in terms of salaries.
Motivates Productivity. Transparent salaries can motivate employees who are paid higher to work even harder and in a productive manner. In a way, they are trying to demonstrate their higher value to their peers and management. According to research, employers that move from pay secrecy to pay transparency undergo big and permanent increases in their productivity levels. When pay information remains a secret, employees typically overestimate the salaries of others, leading to job dissatisfaction and lower productivity levels.
Prequalifies Applicants. If a company does not disclose salary data, you as an employer and your human resources department could spend hours going through resumes and interviewing job candidates – only to find out eventually that your top choice is disinclined to work for the salary you are offering. In revealing your pay scale and its structure, you can avoid wasting time on applicants whom you cannot pay to their satisfaction. Moreover, you can draw in candidates of high value who would have assumed that the salary would be lower than what they had expected.
DISADVANTAGES OF TRANSPARENT SALARIES
Applicants Request for the Highest Salary Possible. Many employers choose not to post salary ranges or exact salaries on their job listings because they think that job candidates would be adamant that they receive the maximum amount indicated in the posting. This is even when they cannot meet the qualifications and competencies for that level of salary. The problem that employers have with transparent salaries is that it makes negotiation for them a bit more difficult.
Employees Getting Upset. If you are a new business and if you published your salaries since your inception, that is good and well. However, if you already have existing employees and did not reveal the salaries previously or maybe did not consider the factors that composed their salary composition in detail – allowing access to payroll information to all may cause strain in the office. There would probably be a number of employees who would protest simply because they do not want people to know how much they are earning. In polite conversation, money is still a sensitive and private matter.
In addition, misinterpreting salary information may create larger problems than those caused by not being transparent with salaries. Since employees do not know all of the facts that factored into a salary decision, employees can end up being upset and demoralized without reason, just because they failed to view the full picture or know the decision-making process behind the scenes.
Harder Determining Consistent Salary Formulas for Big Businesses. Transparency has proven that it can work for many startup companies. However, can this translate to bigger companies that have many kinds of roles? A policy of salary transparency can create huge hurdles in the instance of buyouts and mergers, case in point.
Holding Difficult Conversations. There are some instances wherein management and human resources would have to hold difficult conversations with its employees concerning their salaries. If you have a company with hundreds of sales representatives with basically the same job title, description, and incentives, it is not so risky to be completely transparent with them. Actually, such data could be encouraging for them and can offer a roadmap on how to be successful in the business.
It can be difficult to discuss, however, if you are dealing with different kinds of job families in a company. Moreover, what if you have someone who has particularly specialized skills that is truly unique, who needs a higher salary? This can begin to reveal significant differences in pay that may be difficult to explain to your regular employees.
Case in point, what if you have an administrative assistant who has been with the company for more than 30 years who is making more money than your assistants are or even your employees who have several degrees? How can you explain this? If you choose to be completely transparent, you have to be ready to go through some difficult conversations. Employers have to have credible and new information, wherein they can share how they made job salary decisions for different instances.
Increases Overall Salaries. You have to remember that once you publish your salary levels, this would increase overall salaries. Not only would new hires want to be offered the amount published on the job posting, but existing employees would want to have salary increases as well, depending on the current standards of their level. Thus, if your books are still somewhere between a loss and breaking even, you may have to rethink about being transparent with salaries, as it would definitely increase your salaries across the board, affecting your costs.
Infringes on Some Privacy Levels. By revealing salary information on existing and new job positions, it could infringe on some privacy levels of your employees. This is because of traditional thinking of salaries. There used to be the notion that releasing salary information could go against the privacy of an employee. However, if these are clearly stated in your policies, rules, and regulations and your employees agree to such, you can feel somewhat safe in this case.
No Backing Out of Transparency Once Started. Transparency is not something you can turn on and then off again. Once you decide to be transparent with your salaries, you have to stick with it – there is no going back. Hence, what is important to take note of, is that besides making salaries transparent, you should also be clear on the technology and methodology you used to get to decisions on compensation.
SHOULD YOU MAKE SALARIES TRANSPARENT: VARIABLES TO CONSIDER
There is no clear right or wrong answer to making salary information transparent in a company. You should consider your company in order to determine whether it is suited for this kind of transparency.
Communication of Rationale and Strategy
If you think your company will be able to communicate your rationale and strategy for salary transparency well, then consider making salaries transparent. Effective communication is important – otherwise, you run the risk of alienating your employees instead of making them feel in synchronicity with the company.
Create a communications plan and equip your managers with the important information so that they can better handle challenging communications with employees on how their salaries were decided. Employees would feel the reassurance when they find some market data on compensation and are shown how each salary decision was devised.
Definitely, the approach to being transparent about salaries is not the same for all companies. Companies that are smart should take a more introspective approach to salary transparency. Know your employee demographic first. Case in point – millenials may be alright with their salaries being made public because they are used to sharing personal information via social networks; however, baby boomers might react negatively as they see this as an invasion of privacy.
Moreover, your choice in salary transparency depends on your culture. As soon as you have a viewpoint on your compensation, look at how you would communicate this message to your employees. Will they see the compensation as how the company values them or will they see it as the company not taking care of them? You should also factor in the size of your company. While you can accomplish these things when you are merely 35 persons, this could make no sense for a company with thousands of individuals.
Outliers or Unique Positions
Make sure you know who your outliers are in your company. These are people who have unique backgrounds, professionally and/or academically. You have to be prepared to describe what it is about them and their positions that made them receive such high compensations.
Of course, there should be reasons as to why they received higher salaries. It could be because of the different responsibilities they carry; the departments they are working for; the expertise they lend to a job; and their career paths. By being ready with your answers, you eliminate the possibility of employees getting upset. So determine whether you have one or two outliers or just too many. This could influence your decision on whether to open up your salary information to scrutiny.
AT THE END
At the end of it all, keep in mind that if you would like to be transparent in your salaries, you can do it gradually. Some companies have simply disclosed pay grades or salary ranges for a couple of positions and at varying seniority levels. Sometimes they share past undisclosed details, without providing particular salaries for specific employees. Thus, while this discloses some information, it still engages employees and encourages openness and trust but at the same time, you do not give up your negotiating and competitive advantages.
Remember, when it comes to salary transparency, it does not mean you are completely good if you are transparent or completely bad if you are not transparent. While salary transparency can be wonderful for one organization, it could be disastrous for another. The important thing to note is what your whole company and employees can stand in terms of salary disclosure. Make sure you accommodate the needs of your employees but simultaneously keep your company’s mission and strategy also at the forefront.