Pay Transparency – A Controversial Approach to How Compensation is Handled

In American society most of us have been raised to not ask what someone earns; it’s considered rude, perhaps because many people correlate someone’s status and worth with how much they get paid (a notoriously poor measurement). I wonder if the prevalent, long-standing “don’t ask, don’t tell” policy about compensation was created by managers that view this is as a threat, i.e. if you know what others in that job make you will want it too!

Some business leaders are saying that without pay transparency there is a big power differential in favor of the company because information asymmetry exists. The hiring organization has the information which equals power in negotiations with applicants. But this may be changing; in some states employers can’t legally ask an applicant what their current compensation is. It’s really a no-win situation for the job applicant: tell the truth and you might get a lower offer than others with the same skills and experience. Or, the hiring manager might feel you want too much money and rule you out even though you would be happy to work at their target salary based on location, hours, etc.

While still taboo in most companies, some have adopted a salary transparency policy that allows employees (not outsiders) to look up what every employee is paid and their title. The goal is to have a pay policy their people believe is fair.?Most people in these companies have found that at first pay transparency is uncomfortable but not as uncomfortable as always wondering if you are being compensated properly in comparison to your co-workers. ?

Companies like?Whole Foods?have adopted salary transparency policies. Buffer, a social media startup, took transparency a step further by publishing all?employee salaries publicly on their website. There isn’t comprehensive research on how pay transparency affects employees because, so few companies have these policies, according to Todd Zenger, presidential professor of strategy and strategic leadership at the University of Utah’s David Eccles School of Business. But anecdotal evidence ??suggests it can make workers more productive and satisfied.

“If I don’t know my co-worker’s pay, I assume that I might not be getting paid as much, and I decrease my performance,” says Elena Belogolovsky, who authored a 2016 study in in the?Journal of Business and Psychology? when she worked as an assistant professor of human resources studies at Cornell. “When people don’t know each other’s pay, they assume they are underpaid.” But when employees can compare, they might realize they’re being paid market rate and spend a lot less time being dissatisfied, says Chandra Childers, a senior research scientist at the?Institute for Women’s Policy Research.

Frank Manfre www.frankmanfre.com/career-coaching

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Most motivation science research shows that employees tend to be happier and more motivated when there is transparency about salaries because they know the system is fair.

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Another benefit of pay transparency is that helps attract good employees who feel they are probably underpaid in their current job since people have no idea how they compare. A recent survey shows that 60% of employees felt underpaid and were looking to leave in order to make more. What if they knew exactly where they stood compensation-wise? That could reduce employee turnover, which is very expensive.

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In addition, pay transparency serves as a motivator when it is supported by a “Here’s how to earn more” development program. In this approach, the company lists the criteria to qualify for that position and posts the salary. What to earn what Melissa does? Sign up for training to become certified in your profession or take advantage of company-paid tuition for specific college coursework.