The Executive View: Pulling the Curtain Back on Pay

​Pay transparency.

There's a phrase that might rattle some company leaders.

What does one do about workers who discover they're being paid less than someone performing a similar job? How many applicants might turn up their noses at a job posting that specifies a salary range they think is too low? How many competing companies might see that salary range and steal away potential employees by offering them more money?

The secrecy that typically surrounds pay is so ingrained that it "feels almost illicit" to talk about it, noted The New York Times, which interviewed several women at the same company who talked openly about their salaries. It was, the Times writer said, like hearing "the confessions of a stranger oversharing at a bar."
Their company decided several years ago to disclose every employee's salary online. The idea was to ensure that men and women at the firm were paid equitably. But as The Times discovered, "It didn't entirely work."

"It turns out that the gap between men's and women's earnings is a numbers problem; making those numbers public doesn't make them even."

A Taboo Topic?

Inc. recently wrote that pay transparency's "days as a taboo subject are numbered" and called 2022 "the year of pay transparency." The publication asserted that company leaders who want to create more equitable workplaces "are expected to embrace the policy of full transparency around salaries."

Why this year?

Because there's increasing pressure on companies to close the gender and race wage gaps. Because companies that are open about what they pay will have a leg up when it comes to hiring and keeping talented workers during the Great Resignation. And because brand-name organizations and big cities are taking the lead: Companies from Netflix to Whole Foods to Amazon are embracing pay transparency, while localities such as New York City now require companies to put salary ranges in their job postings.

"Openly sharing the salaries of employees could soon become the norm at companies big and small, as employers look to create more equitable workplaces where people in comparable roles are paid similar wages," Inc. wrote. 

Executives' Experiences with Pay Transparency

Boyd Davis is the global head of compensation at cloud software company Unit4. HR leaders, he said, must arm managers with more information and data to share with employees to exemplify that they're being paid fairly, and companies should be openly telling employees how salary changes are determined.

"Employees usually know more about their peers' compensation than managers would like to admit, independent of any pay transparency initiative," he told SHRM's Executive Newsletter. "The most critical step in avoiding problematic conversations is to make sure any pay disparities aren't driven by implicit or explicit bias, or by favoritism or rewarding behavior that doesn't contribute to an organization's mission. In short, make good compensation decisions based on data rather than personality."

Everett Harper, author of Move to the Edge, Declare It Center (Wiley, 2022), introduced salary transparency in 2017 to help solve racial and gender pay inequities at engineering firm Truss, where he is the CEO.

"The data is absolutely clear about the salary disparities between men, women and BIPOC people doing the same job," Harper told the Executive Newsletter. "It is an old, persistent problem, but we treated it as a big obstacle we needed to overcome to build the diverse, inclusive company we wanted. There weren't many companies to emulate, and we couldn't find any that were doing it explicitly for diversity, equity and inclusion purposes."

Some of the key questions company leaders had to confront were:

Would people leave if they discovered genuine inequities, such as if they discovered a pay disparity between a Black woman and a white man hired on the same day, for the same job, who could perform equally well? "How long do you think that a high-performing Black woman will remain at the company after they find out?" Harper asked.

Would workers trust that company leaders were being fully honest about salaries? Would they discover not just that their employers might be underpaying some workers, but perhaps overpaying others?

Truss conducted a survey of its 20 employees: 19 out of 20 gave a thumbs-up to moving forward with a salary transparency effort. The 20th had concerns but wanted to keep exploring the idea. "No one wanted to leave," Harper said.

The company spent 10 months putting its salary transparency policy in place, then announced it in its fourth-quarter stakeholder meeting with employees.

What happened?

"Nothing," Harper recalled. "No fights. No resignations. People were curious, of course, and I'm sure most checked the salary spreadsheet that day."

A week later, an employee did tell company leaders that another worker, based on the salary guidelines, should be paid more. After looking at the data, Harper realized not only was she correct, but also that the company needed a plan for quickly rectifying such inequities.

"Other than that, people returned to doing great work, because we included our employees in all of the steps, either as participants in the research or including them in feedback. There was a significant effort in communications, and in retrospect, it was absolutely crucial," he said.

 
Transparency Fosters Trust

Research from the Society for Human Resource Management (SHRM) found that pay equity audits and transparency foster trust within organizations.

Nearly 3 in 5 (58 percent) of U.S. organizations voluntarily conduct pay equity reviews to identify possible pay differences between employees performing similar work. Of those organizations, 83 percent adjusted employees' pay following a pay equity review, SHRM found.

The surveys, which received responses from more than 3,000 workers, managers and HR professionals, were fielded in the summer of 2021.

Among SHRM's key findings:

• Colleagues discovering gender-based pay differences. Around 1 in 4 workers (23 percent) found out someone of a different gender at their organization was paid more than they were, even though they performed the same job and had the same experience.
• Colleagues discovering race-based pay differences. Around 1 in 5 workers (19 percent) found out someone of a different race or ethnicity at their organization was paid more than they were despite having the same job and experience.
• Colleagues discussing their pay rates. About 1 in 5 workers (19 percent) who found out they were being paid less than a colleague of a different gender or race said they talked to other employees about the pay difference, and more than 1 in 4 (27 percent) started looking for a new job.

 
"This research shows that workplace culture starts at the top—and organizations with forward-thinking leadership are in the best position to win the global competition for talent," said Emily M. Dickens, SHRM chief of staff, head of government affairs and corporate secretary.