Full transparency about pay: is it right for you?

Full transparency about pay is it right for you

At the beginning of the year, it is not unusual to read articles about pay transparency, like this recent one from the Wall Street Journal : “Psst… This is what your co-worker is paid”.

The season of questions about pay transparency

In December-January, many organisations focus on evaluating past performance and setting goals for the new year. The results of this appraisal are often tied into decisions and rules about salary increases, bonuses and promotions. As a result, many employees begin to wonder about salary structures in the organisation, the rules for career advancement and pay progression, and the obvious question : “Am I paid fairly ? And how do I compare to my co-workers ? It wouldn’t be fair if I get less than “John”, while everyone knows that this guy does nothing all day long !” And so the newspapers write a few pieces about how such-and-such company have decided to be fully transparent about pay. I have commented before on the advantages of being as transparent as possible on pay matters, even though there are challenges to it.

A realistic path to openness about pay practices

What I liked in the WSJ article was the fact that they also commented on possible drawbacks, and even included an example of a company that had to retreat from making their salary ranges available, because this transparency eventually created bigger issues to the business than being a bit more traditional and secretive about the pay information. President Obama launched an initiative in 2009 focusing on accountability and transparency from the US government, in a bid to show to citizens how their contributions (through the taxes they pay) are spent. This is a great idea, especially as it helps educate citizens on the real costs of managing a country, and helps maintain some cost control on the government budget. But I am not sure that full transparency will lead to guaranteed success in all organisations. I do believe in pay transparency, but in a practical, manageable way. For example, bonus/incentive rules, the criteria used for calculating salary increases, what is discussed in a calibration meeting, and the minimum requirements to be even considered for a promotion should all be very clearly explained upon hire. The message should be reinforced regularly, at least once a year, usually at the time of review. Explaining the rules, as long as your organisation follows them (and keeps exceptions as such, meaning : they are rare), makes everyone’s life better and easier in the company after the initial education effort that also includes managing the complaints or individual challenges coming from employees. As far as salary ranges are concerned, some very large companies are successful at making them available without creating mayhem. But, as the last example in the WSJ demonstrates, it can be very difficult to manage. Two cases come to mind :

  1. In an organisation where the maturity may not be high enough, for example because employees are young and have not been exposed to much experience in other companies.
  2. Or environments with a shortage of talent, where pay compression may happen and create strong feelings of resentment, especially when salary ranges are known and everyone can figure out where the new joiners are positioned in the structure vs the current employees.

Therefore, I guess that I’d advocate taking into account many things when deciding to open up and sharing salary ranges.

Get maximum impact from your communication about pay

Transparency for the sake of transparency is not necessarily what is best for the organisation at that point in time. Remember that employee engagement is mostly driven not by pay fairness, but by the perception of pay fairness – and that this perception is driven mostly but how well the compensation philosophy and rules are communicated by the direct manager of the employees. So gear up your education efforts not only towards the employees, but also to their managers when you decide to open up and become more transparent about pay practices at your company – and even when you can’t be much specific. This will significantly impact the perception of pay fairness in your organisation, and help smooth some of the challenges that come with transparency.

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  1. […] of such a policy. As I’ve written before, pay transparency has many advantages but also contains a few challenges. She covers some of them when envisioning the future of this policy on full pay […]

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