Transparency and Salaries

Some former co-workers emailed and touched on the idea of salary transparency. My initial emotional reaction to this has always been “uh oh”. That doesn’t mean I’m against it, but it does acknowledge that there is a huge amount of risk to rolling something like this out without the right forethought, culture and strategy.

When you talk about an organization focused on transparency – whether it’s with company performance, finances or salaries – the goal is to show people that you have nothing to hide because you truly believe you are being fair and you have a sound strategy. Transparency also functions as the check/balance/accountability system to address any issues. But that removes the human element and our cultural biases from the equation. And we are all human bringing our own experiences to the mix.

The first time I looked at payroll files in a job, I was surprised to see what some people were making. In my head, I compared their performance to the money, to their peers’ salaries and to my salary. But I knew it was part of the job and I’d have an opportunity to influence compensation based on performance. But that’s not easy for everyone to do in a productive way. So why would anyone open up the books? Can it work? I think so in some places. I think these are the pieces you need in place for it to potentially be successful.

Leaders who communicate well. This is a multi-prong requirement. First, you need leaders who can communicate the why’s behind the switch – both to current employees and to candidates. Most people won’t have experience with knowing their peers’ salaries and probably will feel a little nervous about the concept. Your leaders need to be able to sell the benefits and the reasons behind the philosophy. After roll-out, be very cognizant to take note of the good its done or things you were able to fix because of the switch. You can use these as examples explaining the value you policy has to the organization to future candidates.

Secondarily, you inevitably will have more people coming to you asking about why their salary is less than someone else’s in a similar or identical role. Or a high performer asking why they are paid equal to an average performer. Your leaders will need to be capable of having very frank discussions with their teams on performance – where people are strong, weak and how they can improve to hit their salary goals.

A solid formula or philosophy on pay. This is beneficial everywhere, but there is room for more employee discontent when compensation is fully disclosed to all parties within the organization. Expect you will need to answer “why” a lot. In most organizations, it’s just “why aren’t I paid more?”. In your organization, it’ll be “why is Joanie paid ‘x’ and Andrew paid ‘y’?”

I’ve seen case studies on companies that incorporate position, tenure, performance, management and location into a formula that spits out a salary. While everyone may not be happy with the end result, it is completely understood why people receive the compensation they do. Other companies base comp entirely on market data. You may approach it however works best for your organization, but be sure you have iron-clad reasons behind the “why’s”. Use the transition to salary transparency to audit the fairness of your pay structure and address any inconsistencies. Opening up the books and having a system is probably the best lever to pull to address salary gaps you didn’t intend to create (i.e. gender differences).

Transparency (and accountability) within the organization. Trust your team to know your company goals, strategy, priorities and finances. Communicate why those decisions were made and what you hope accomplish with them. Share what other teams are doing and what their KPIs are, then share the results. Broadcast the wins and acknowledge contributions. Talk about your investments in people (compensation, benefits, perks, etc). Be open about the market rate for different roles. When your team can see the big picture and understand what everyone is doing to hit goals, it’s easier to put compensation into perspective.

Wrap up. You likely already trust your leadership, HR and finance teams with salary information, so there’s little reason others can’t learn to function productively with it if given the same visibility. But also be ready to help people through the transition by answering their questions honestly. In HR and Finance, you go in expecting you’ll know this information. Others never had that expectation and it can be a longer adjustment.

 

I think the upside to transparency is always better than siloing information – whether in pay or other areas of the organization. However, it’s also much harder and requires a much more deliberate communication strategy with leaders people trust. If you don’t have that in place, the downsides can be much worse than the status quo. Companies have become more open with some aspects of their organizations … it’s interesting to think about if salary transparency is the next wall to fall.

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