Greater Pay Transparency
How to Persuade Your Leadership You Need It
5 minute read
You’re ready to roll out more pay transparency within your organization but your leadership isn’t on the same page. I have been in your shoes and I want to walk you through the data points I have used to persuade leaders to introduce pay transparency as part of the company culture. Increased pay transparency can improve morale, reduce turnover, improve productivity, and so much more.
To get leadership onboard with this positive change for the company, use data and storytelling to prove your point. First, discuss companies that have had success with pay transparency.
There are several companies who have led the conversation in pay transparency and seen much success. In 1986 Whole Foods co-CEO John Mackey decided to make salaries at all levels transparent to everyone in the company. More recently companies like Buffer in San Francisco, SumAll in New York, and Verve in London have publicly shared their salaries creating a culture of total pay transparency. The United States government is another example. According to a 2011 Institute for Women's Policy Research report, the gender wage gap for full time-workers was 23%, compared to 11% in the U.S. federal government, where pay is public.
Next comes the data. When working with apprehensive leaders the key is repetition and small changes. If you have the platform, put together a presentation that shows data supporting your claim and how you would roll it out to the company. If you have the budget and haven’t done this before, hire a consultant to help with the training and roll out of your program.
Here is some data to help your case:
Employees are happier with their pay when they understand it
PayScale research showed that even when an employee is paid below market but the reason for their pay is explained, 82 percent of employees still reported job satisfaction. They were also happier than people who were paid above market but didn’t understand their pay.
Payscale states, “Through this research, we’ve seen that there is still a perception gap on matters related to pay between employees and employers. In fact, we’ve found that only one in five employees feel that they’re paid fairly, and less than half of employees feel valued at work. Communication around pay decisions to employees is either not happening as frequently as it should, or the message isn’t landing with employees.”
Increasing the communication in this area, when done correctly, can have outstanding impacts on employee morale.
Transparent pay means more equitable pay
There is data that supports both greater pay transparency and other data that supports keeping pay information private. That being said, data consistently supports the fact that greater pay transparency leads to greater pay equity. This information alone is reason enough for me to advocate for more transparency.
The Lilly Ledbetter Fair Pay Act of 2009, and federal and state laws protect against pay discrimination, and many support pay transparency. This is because the problem still occurs despite these protections. Researchers say transparency is important because keeping salaries secret reinforces discrimination. Hidden pay is a system that gives companies the ability to discriminate. In addition, laws like the National Labor Relations Act of 1935 allow employees to discuss pay and prohibit employers from retaliating when they do, but workplaces are still rampant with environments of pay secrecy.
Another way transparent pay helps eliminate pay disparities is that it helps open jobs up to more diverse candidates: “A study by economists at the University of Chicago and Stanford University suggests that opening up professions to women and Americans of color accounted for between 15 to 20 percent of economic growth.”
Pay transparency leads to greater productivity
A 2014 study conducted by economist Emiliano Huet-Vaughn showed that when a group of employees was separated into two groups, and one group was given pay information, that group worked harder. What Emiliano discusses is how he thinks the way this information is shared makes a difference in the impact on productivity, and I completely agree. Shared in the correct way, greater pay transparency can increase employee productivity.
A New York Times Article written in 2019 agrees stating, “Workers are more motivated when salaries are transparent. They work harder, they're more productive, and they're better at collaborating with colleagues.”
So why does pay transparency have this impact? Emiliano proposes that the answer may be that people care about their position relative to their coworkers and this bit of friendly competition motivates employees.
Pay knowledge motivates employees who want to grow within the company
When pay is shared across the company, current employees can see where they can grow. An important piece of executing this properly is training managers on how to have these career growth conversations and be able to set realistic expectations for growth. Discussing what needs to be accomplished to get to the next level and giving regular and consistent performance feedback is incredibly important.
Co-CEO John Mackey from Whole Foods made salaries transparent for this very reason. His goal was to encourage competition and conversations among coworkers about growth within the company.
Pay Information Increases applicants
Jobs where salary ranges are posted get more applicants than ones without. One example of this is the company Buffer who has fully transparent salaries. In the month after making salaries public, Buffer’s job applicants increased by 229%.
Companies are able to use this tool as a cultural differentiator. Since pay transparency is still not in the majority and Millenials and Gen Z have pushed for greater transparency in their workplaces.
Pay transparency saves time in the recruiting process
When a pay range is posted on a job, an applicant likely won’t waste their time applying if it is not in their desired range. In addition, candidates can feel more comfortable discussing pay from the beginning of the process since posting the salary removes some of the taboo around talking about it.
Companies who posted ranges also found that it makes pay negotiations easier. Candid meaningful communication on equity attracts talent.
How pay transparency looks in a company can certainly vary. In addition, there are arguments for different levels of transparency for all sides as discussed here. If your company currently has no transparency, my recommendation is to start small and build transparency from there. The process of rolling this out and educating managers and their teams is incredibly important. We live in a culture where speaking about pay is still taboo, and people will be hesitant at first. But the benefits I have seen definitely outweigh any uncomfortableness that may occur.
Another thing to remind leadership is that asking someone’s salary history in a job interview is often illegal. Instead ask what their desired salary is. There are currently 19 statewide and 21 local bans on salary history questions in the job interview process. Basing someone’s pay on their salary history often contributes to pay inequity and the wage gap.
With this information in your tool belt, I hope you can make progress with your leadership towards increased transparency and greater training around pay.
