Salary Transparency: Good or Bad?

In terms of salary transparency, I have worked at both sides of the spectrum. I had jobs where salary scales were fixed and everyone knew everyone’s salary (the civil service model). It was even available on the web for the public to see! The problem with the civil service model is that most its (usually) fixed structure does not allow to reward high performers and thus there is no financial benefit to go the extra mile. In opposition I’ve also worked in small companies where there were no human resources or much processes. Each year salaries were negotiated in confidentiality with the boss. Two people with the same job title and same experience could get out of the boss’ office with two numbers that were (sometimes radically) different. So, what is best?

Having undisclosed salaries can create tensions and affect employee morale. In the case where salaries are more or less ad hoc and based on an employee’s negotiation power, accidentally learning that a co-worker doing the exact same job but earning significantly more will create dissatisfaction and disengagement. If salaries are setup fairly, why not just reveal them? Are employers the only ones benefitting from the veil of salary secrecy?

Transparency can show what an organization values, foster healthy competition, self-improvement, and a general culture of trust and openness. It could even help to reduce gender or race discrimination. A recent study by Peter Bamberger and Elena Belagolovsky of Tel Aviv University found that pay transparency worked significantly better than pay secrecy at keeping employees engaged. Their analysis suggested that under conditions of pay secrecy, employees felt that they were not being treated fairly and therefore that greater effort wasn’t worth it. The demotivating effect was especially strong among talented workers. SumAll is a 40 employees company based in New York. There, every employee’s salary is included in a company-wide Google Doc. This policy has resulted in lower employee turnover rates because workers feel free to voice concerns when they’re unhappy with their pay. Whole Foods has had a similar policy since 1986. Under the company’s open policy, staff can easily look up anyone’s salary or bonus from the previous year — all the way up to the CEO level. The company’s open policy goes so far as to provide every employee with detailed financial data, enough for the SEC to classify all of the company’s 6,500 employees as ‘insiders’! Whole Foods’ CEO John Mackey has said that “if you’re trying to create a high-trust organization, an organization where people are all-for-one and one-for-all, you can’t have secrets”.

But complete transparency can lead to difficult discussions especially if there are many different job types and classes in an organization. Some soft skills are harder to quantify and value in absolute numbers. Transparency will always lead to cases of jealousy and infighting that will have to be handled properly.

I feel that the best practice is to reveal openly salary statistics (range, average, and median) for different positions in a company, and to properly disclose the methodology used to create them. This information should also be disclosed in job offers so as to provide a more fluid hiring process. In evaluations the employer can then openly discuss with an employee where she fits in the range and why, and determine objectives needed to be achieved in order to move up in that range. What do you think?

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