Tipping the Scales: Transparent Salaries Ends Pay Gaps and Bridges Imbalances
How financial transparency leads to equality in the workplace.
5 min read
Lauren Voswinkel is is a software developer in Pennsylvania. It took years for Lauren to find out that she was being underpaid, saying it took three job switches and many negotiations before landing her current position.
“I just found myself thinking, how long have I been underpaid? How could I have prevented this? What was I missing? And I realized it was mostly because of a lack of conversation around pay.”
Could transparent salaries result in equality for everyone? It isn't uncommon. Currently, the UK gender pay gap stands at somewhere between 10 and 20%.
Twitter recently released its diversity report which showed:
70% of Twitter’s employees are male.
That number moves to 90% when you just count Twitter’s tech employees
79% if you’re looking only at its leadership.
50% of Twitter’s employees are white, 29% are Asian.
Only 2% of employees describe themselves as black or African American; 3% as Hispanic or Latino.
Worldwide, Facebook’s employees are 69% male, 31% female.
In tech roles, the gender gap was bigger again – 85% men to 15% women.
In the US, 63% of Facebook’s employees were white, 24% Asian.
Hispanics accounted for just 6% and African Americans 2%.
Google’s staff is 70% male and 30% female.
Some 61% of its workforce is white, 30% Asian, Hispanics represent 3%, blacks 2%.
Lauren is not alone. Whilst interim CEO at the social news aggregation and discussion website Reddit, Ellen Pao stated she would stop salary negotiations. This happened shortly after she lost a lawsuit with her former employer for gender discrimination, which sparked a debate about gender equality in Silicon Valley.
So what can we do to address this imbalance? Would transparent salaries help?
The Case For
David Burkas writes in his book Under New Management: How Leading Organizations are Upending Business as Usual, “In most of the Western world, salary just isn't something people feel comfortable talking about. To many people, it's the polite and right thing to do to keep salaries secret."
Burkas cite recent studies including research from Cornell University and Tel Aviv University and Amazon's Mechanical Turk platform, showing people armed with salary information "worked harder and significantly increased their performance".
He also states “When employees are armed with data about their pay and the pay of their coworkers, it provides the opportunity to bring inequities to the attention of management. Openness remains the best way to ensure fairness,"
Which companies follow this advice and have introduced transparent salaries?
Companies With Transparent Salaries
Whole Foods co-CEO John Mackey recognized that keeping salaries a secret was a problem a long time ago and made compensation data available to all employees in 1986. Mackey explained in his 2014 book The Decoded Company: Know Your Talent Better Than You Know Your Customers "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," Amazon’s big, fresh deal with Whole Foods shows this approach hasn't harmed the success of the company!
Happy Melly is a Global Professional Happiness Association dedicated to helping people be happier at work. They have a very simple salary formula: Base salary x Commitment level %. Each worker sets their own commitment level each month and Happy Melly does not distinguish the role each person plays. Which results in fair and equal pay for everyone and no gender gap…
The social sharing startup Buffer says one of its core values is transparency, from with salaries are calculated according to a set formula.
Courtney Seiter, a content crafter at the company says:
“You don’t have to negotiate, and you don’t have to wonder, am I being paid less because I’m a woman? It’s really appealing to different and possibly marginalized groups who’ve had to worry about that,”
The Case Against
In 1994 Zenger asked a group of 700 engineers from two large Silicon Valley companies to assess their performance relative to their peers. The results were alarming, with nearly 40% feeling they were in the top 5% and 92% feeling they were in the top quarter.
Zenger says open salaries create an obsession with pay and cultivate "inflated self-perception" among employees, making the organization’s task of linking performance to pay tremendously difficult. He also argues that:
Employees who suddenly discover they are “underpaid” become more dissatisfied with their employer and more likely to depart
Employees reduce their productivity when consistently reminded of what they perceive as unfair rewards
Employees suddenly made aware of their peers’ high pay take up politicking for change
Burkus, however, thinks the reason companies shy away from pay transparency is fear. "It's fear that when people find out that different people get paid differently, they're not going to be able to have the maturity and make the mental leap to see that there are reasons why a certain person is paid more than the other."
Where does it work?
Despite these concerns, some countries have made it work, with transparent salaries the norm for many Scandinavians.
Sweden's open salary policy reflects how much the country values trust and transparency. There is a similar research there, showing that pay transparency works . In 2008, Sweden passed the Swedish Discrimination Act, which requires companies with 25 employees or more to issue yearly surveys asking what people earn. If they discover a gender wage gap and don't make an effort to close it, they'll be forced to pay a fine.
I have worked in a variety of roles and positions within public and private sector both as a freelance consultant and a member of staff. However, I have never worked within a company that has a fully transparent pay scheme. Although, most public sector roles have grade and salary bands, so there is a level of openness.
We want the world to know that we pay people fairly for the value they create.
A good plan will let us attract and keep the right people.
A good compensation plan can create stability in uncertain times within an organization.
Of course, money influences motivation. A good compensation plan makes sure that joy and productivity stay strong too.
This all reinforces a culture of trust.
You can download a chapter from the book to learn the three ways a salary formula can be based, how to balance innovation and learning with best practices, how to create groups of people for compensation plans, and why not to include a performance metric
I agree with this viewpoint and believe salary formulas are a fair and transparent way to reduce the pay gap the gender imbalance. They don't rely on an individual person's negotiation skills and ensure everyone is treated equally. If all companies introduced and used salary formulas, like Buffer and Happy Melly, I believe there wouldn't be resistance to sharing salary information, resulting in pay equality for everyone.
What are your thoughts? Do you agree? Let me know in the comments below.
Claire Donald is a Project & Program Manager with over 15 years’ experience delivering IT infrastructure and application projects using traditional, agile and continuous delivery methods.She has a high tolerance for ambiguity and has worked within fast paced and high pressure environments, taking an entrepreneurial approach. She is currently completing an Executive MBA with Surrey Business School.