The position of most organizations is not to reveal the salaries of employees. The reasons are well known: If everyone knows what everyone else is paid, there could be jealousy, in-fighting and even departures from a company.
However, employers don’t always agree with this strategy. According to PayScale’s 2019 Compensation Best Practices report, employers indicated that they would like to be more transparent about pay and compensation plans. The report based on answers from over 7,000 organizations also found that 28% of them aspire to adopt full pay transparency.
In other words, every employee should know what everyone is making. Or, at least the pay ranges for individual departments and positions.
For organizations that use this approach, HR plays a significant role in putting it into practice. LinkedIn lists pay transparency as one of the four biggest trends transforming recruiting and HR.
Why is Pay Transparency Important?
Pay transparency is important because it could, in theory, lead to pay equality. Sunshine, as they say, is the best disinfectant.
For example, Time reports that pay transparency could help close the gap between pay for men and women – especially women of color. An American Association of University Women report found that white women make 79% of what white men make. That same number for black women is 63%, while it’s even lower for Native American women (57%) and Hispanic women (54%).
Many experts believe public disclosure of what everyone makes could go a long way toward ending that kind of pay discrimination.
Advantages and Disadvantages of Pay Transparency
In an article for The New York Times, Kristin Wong, author of “Get Money: Live the Life You Want, Not Just the Life You Can Afford,” said that pay transparency helps eliminate discrimination. And, employee motivation, productivity and collaboration improve with pay transparency.
The newspaper also quoted Angela Cornell, director of the Labor Law Clinic at Cornell Law School, as saying pay transparency can protect companies by “minimizing the risk of disparate treatment claims and increasing job satisfaction for workers.”
However, while many have advocated pay transparency, private companies have not yet followed suit. According to the Institute for Women’s Policy Research, about 41% of private companies still have managers that discourage wage and salary discussions. The primary concern is that knowledge of everyone’s pay will lead to discontent among employees.
Is Talking About Salary Illegal?
Employees cannot be stopped from discussing their salaries under provisions of the National Labor Relations Act of 1935. For example, the BBC became entangled in controversy after staying clear of transparency practices and publishing pay data for the first time in 2017. The results? A startling pay gap between the broadcaster’s senior male and female journalists followed by an employee-wide open letter demanding pay transparency to “correct years of gender inequality.”
Not speaking about salaries benefits the company more than employees, according to Forbes. When employees don’t know they are being paid less, they aren’t as motivated to ask for more. Or, as Forbes noted, it allows more money to go toward “those who negotiate more aggressively, those who threaten to quit, or those who are friends with the boss.”
Can a Company Pay Different Wages for the Same Job?
According to the Society for Human Resource Management (SHRM), companies can have different levels of pay for people who are essentially doing the same job. Nepotism, favoritism and cronyism “are not illegal.”
SHRM points out that such pay disparity can also happen for legitimate reasons, such as one employee having a higher level of education or more years of experience. One employee may also be more productive than another.
The Role of Human Resources
HR works at the heart of the pay transparency issue. Even if a company does not promote pay transparency, HR personnel will have to sort out any issues that arise when someone does discover they make less than someone else.
HR also has the responsibility for ensuring an organization follows regulations. For example, states such as California and Colorado have passed laws prohibiting employers from penalizing workers for discussing salaries or asking about salaries. Other states like Michigan have proposed laws allowing employees to ask an employer to disclose wage information regarding similar positions, including the employee’s gender and seniority level.
In a move toward transparency, some HR professionals are already sharing information about salary ranges for jobs early in the hiring process, according to LinkedIn. Those who practice this approach report four benefits:
- Streamlines negotiations
- Ensures fair pay
- Filters out those who would have declined
- Allows interviews to focus on other things
In a related issue, some states have passed laws that prohibit HR departments from asking potential hires how much they made at their last job.
Examples of Pay Transparency Practices
According to another LinkedIn report, 51% of companies don’t share salaries and are unlikely to do so. However, the professional networking site does list three companies that have decided to use pay transparency.
- Social media management platform Buffer decided in 2013 to not only make salaries transparent but also to publish them online. Employees, who permitted the plan, are still happy with the change. The company also saw an increase in applicants.
- Software company Glitch opted to share the salary ranges for specific jobs. The company’s CEO told LinkedIn: “Transparency isn’t the goal. The goal is paying everyone fairly, and transparency forces us to do that.”
- Coffee giant Starbucks, on the other hand, proposed complete pay transparency in 2018 and pledges to publish its pay equity process annually and address pay discrepancies that arise in the future.
Policies and guidelines concerned with employee perceptions are topics that professionals in fields like management and human resources need to tackle daily. Whether you already work as a human resources professional or are interested in the human resources field, learn how Florida Tech’s online BA in Human Resources Management can equip you to manage employee issues and improve processes.