Why All Companies Should Implement Pay Transparency
By Justin D'Onofrio
Pioneer computer scientist Grace Hopper once said, “the most dangerous phrase in the English language is ‘we’ve always done it that way.’” For a business, that phrase represents the organizational inertia that can often lead to its demise. New innovative ideas and strategies are always needed for a business to have any hope of succeeding.
Amongst those ideas and strategies is one of the biggest and most disruptive innovations to be seen in recent years: pay transparency, a controversial movement that has divided the opinions of many industry experts.
WHAT IS PAY TRANSPARENCY?
Pay transparency effectively allows employees to be aware of the salaries of their fellow co-workers and allows employees to freely discuss their salaries without fear of punishment from upper management. There are several levels of pay transparency that exist on a spectrum. On one end, corporations can simply be open with their employees about how their salaries are evaluated and decided at different levels of employment. This can be subsequently extended to the other side of the spectrum, which entails complete pay transparency, or “radical transparency,” calling for all employee salaries to be published throughout the firm.
Recent trends are showing a push for complete pay transparency in many companies, especially among start-ups. While large companies such as Whole Foods have also adopted pay transparency, it is mainly seen amongst small and medium sized firms that are more willing to take on the risk. With Millennials ranking transparency among one of the most attractive features when looking for employment, the trend is slated to grow further.
Though the idea of complete pay transparency can be anxiety-inducing to many, this concept isn’t entirely new; national and provincial governments, as well as organizations in the nonprofit sector, have been publishing the earnings of their workers for years. So, if this practice has existed for so long, why are private companies only now catching up?
THE MYTHS OF PAY TRANSPARENCY
Pay transparency hurts a company’s bottom line.
When employees are unaware and unwilling to know the earnings of their co-workers, managers immediately have the upper hand when it comes to salary negotiations. If employees don’t know the industry average salary for their positions, it’s easier for the company to continue to underpay those who have neglected to ask for raises. However, a study conducted at Middlebury College found that participants who were shown their earnings and how they compared with others generally worked harder and increased their performance, thereby offsetting the potential monetary loss created by higher wages. The study is also supported by additional research which shows that pay secrecy decreases employee performance and can take a toll on the ability of the firm to retain its best performers.
Pay transparency will create infighting and resentment within an organization.
There is a long-standing myth that under pay-transparency, employees could become obsessed with pay, creating a culture of jealousy and competition amongst employees. The truth, however, is that instating an open pay policy can improve cooperation among colleagues. In a joint study from Cornell University’s School of Industrial and Labour Relations and Tel Aviv University, researchers found that employees work together more effectively when they are well aware of each other’s salaries. Specifically, workers are better at asking for help from the right people when they know how much those individuals earn.
CLOSING THE PAY GAP
With regards to social justice, one of the greatest improvements that can come from pay transparency is helping to close the pay gap. Women of colour still make 32 per cent less than the average white male in the workforce, according to the Canadian Centre for Policy Alternatives. With the implementation of open pay policies, companies can become more aware of their pay practices and ensure fairness amongst their employees.
In September of 2017, a report obtained by the New York Times revealed the issue of the gender pay gap at Google. On average, women at some employment levels within Google could be paid up to $11,000 less than their male counterparts. What was remarkable about the report was that it was compiled by 1,200 Google employees with self-reported data on their own salaries and bonuses. The act demonstrated the need for pay transparency in the workforce. It reveals that employees are interested in participating in pay transparency, in an active way, in order to address the gender pay gap, which remains a pervasive issue in many organizations.
FUTURE OF PAY TRANSPARENCY
With Millennials and Gen Z-ers representing the vast majority of new workers, companies will have to make considerable changes to get rid of outdated workplace standards. In order to attract talented candidates, implementing pay transparency is vital for the survival and growth of any firm. This innovative change could revolutionize the workplace by increasing motivation, increasing co-operation and taking a necessary step toward closing the pay gap.