Should Your Business Try Wage Transparency?

A long time ago, I had a boss who opened a drawer and showed me where he kept a spreadsheet with information about everyone’s salaries. “You’re welcome to look at it, but it might become the source of great discontent,” he said. I never looked at that file. I loved that job and knew that, for me, ignorance was bliss.

Now, wage transparency — making salary information accessible to all employees — is a tool that’s transforming businesses. If you want to have an edge on your competition, you must consider whether wage transparency is right for your company!

Can transparent salaries fix the wage gap?

Today’s businesses must contend with the thorny and much-discussed problem of the wage gap. Many people think that wage transparency is one way to solve this troublesome issue — though not everyone agrees with this.

There are pros and cons to wage transparency that companies must carefully consider.

Wage transparency put to the test

In the private sector, pay transparency is more commonly found in tech start-up companies. Businesses such as Buffer and SumAll have received lots of attention because they give employees access to the wages of everyone in the company, all the way up to the CEO. This idea actually isn’t a new one, however. Whole Foods has had a policy of wage transparency since 1986.

Salary decisions are complex

Salary decisions involve many factors; it’s a complex equation even without considering wage transparency. When we make compensation decisions, we consider many variables — some of which are intangible.

Buffer uses a straight formula for making pay decisions: Job Type x Experience + Location

But in our own companies, it isn’t so simple and straightforward.

Wage transparency in small businesses

How does wage transparency work in a small company? In a small company, you might have several managers who are all at approximately the same level. For instance, let’s say you have an accountant, a director of operations, a human resources manager, and a purchasing manager. Their jobs require the same amount of education and experience. But does that mean they are all paid the same?

• What if it is extremely hard for you to find a qualified accountant, and in order to attract a candidate you have to increase that job’s salary?
• Would that mean all the others get a salary increase too?
• How do you handle it if one employee has a special skill that gives your business an edge against the competition?

Performance-driven wage transparency

Not every company with wage transparency utilizes a strict formula like Buffer does. Many make it very performance driven — and this requires the company to have a culture of trust and openness. When an employee asks, “Why her and not me?” their supervisor needs to be:

• Ready to talk about performance expectations
• Trained to conduct a clear, open dialogue about how or if the employee can increase their wage

Employees can talk about their salaries even without wage transparency

Whether or not you decide to embrace wage transparency, remember that the NLRB protects employees’ rights to “act together to improve their pay.” This is the definition of protected concerted activity. This applies even in a non-union environment. So if one employee wishes to share their pay with another, or even discuss it on their Facebook page, as a means of improving their pay, you cannot retaliate against them.

Wage info may become public even without transparency

If your business doesn’t embrace full wage transparency, you must nevertheless remember that we live in a world of instant communication and information sharing Your employees can go on numerous websites such as Glassdoor.com or Salary.com to figure out what companies’ salaries are, or even what the salaries are within your business if it’s big enough. And in a day and age where people share their most innermost thoughts and private issues on Facebook, sharing salaries and other private info just isn’t as big of a deal anymore.

Mixed reactions to wage transparency

I queried business acquaintances to get their reactions on this topic and their responses were very mixed. Some felt that wage transparency would:

• Help solve gender pay discrimination,
• Encourage higher performance

Others believed transparent salaries would be:

• An invasion of privacy,
• Impossible to implement because there are too many variables to consider.

In a formal survey of HR professionals by Challenger, Gray, and Christmas, 55% were in favor of some form of salary transparency.

Experiment with transparent pay ranges:

If your company wants to move to more transparency, a step in that direction can be transparency about:

• Pay ranges
• The factors considered in salary decisions
• The context and strategies utilized by management to determine overall compensation issues,

Armed with this information, employees will have the ability to understand what they can do themselves to increase their pay through their performance.

The wrap-up:

Wage transparency is clearly not a one-size-fits-all strategy for businesses.

If you do choose to utilize wage transparency in your business, you should accept that some employees will probably choose — like me at that job when I was young — to remain ignorant about their coworkers’ compensation.

And some will arm themselves with information to negotiate a higher salary.

You should be prepared to address discontent caused by making this sort of change to your compensation structure.

• Ensure that your wage decisions are fair
• Consider your company culture and values
• Do what is in the best interest of your entire enterprise