Reasons Why Salary Transparency Is Gaining Popularity

Salary transparency is an approach to pay and compensation that is the exact opposite of the longstanding norm among most employers, in which what the organization pays to whom is kept largely secret. The only exceptions normally are the compensation packages for senior executive officers at publicly-traded companies, which must be disclosed to the investing public in financial reports per SEC rules.

If you have or want a career in human resources, you will know to justify the maintenance of opaque (as opposed to transparent) salary structures as a means to protect the privacy of individual employees and to avoid the outbreak of workplace jealousies and hostilities over differences in pay. While this is true, there are other, unspoken, reasons as well.

These typically motivate the reluctance of most employers even to disclose the salary bands or salary ranges that apply to given job categories, job titles, job descriptions, and are related to discussions of salary policies and salary negotiation tactics.

The Exception to Pay Transparency

For sales personnel paid a commission basis, the pay formula, if not the actual amounts paid to each employee in sales job categories, is known and transparent. For example, in securities brokerage firms the broker payout grid is out in the open for all people paid thusly to see. The incentive structure is thus made clear to all concerned. 

In regards to the actual amounts earned by salespersons in fields such as securities brokerage (nowadays officially called financial advisory services), insurance sales or real estate sales, what the top earners are making is revealed through the existence of recognition events and recognition awards.

The minimum production, gross sales or commissions required to earn a given award are well-publicized, to give prestige to the winner and to offer incentives to everyone else. Since the formula for converting these metrics into pay also is known, so is the minimum amount earned by the winners.

Nonetheless, it is possible for a company with a commission-based pay formula to be opaque rather than transparent in this regard. That is so if the parameters of the pay formula differ by an individual employee, and those parameters, as well as the reasons for the differences therein, are kept secret by the company.

A Study on Pay Transparency

Chicago-based Challenger, Gray & Christmas, a leading outplacement firm, believes that salary transparency probably will become an increasingly hot topic in the next few years. According to their January 28, 2015 press release on the topic, "While salary transparency is still far from widespread, the idea of instituting an open-book policy on what every employee earns is starting to gain traction."

In a survey that they conducted among human resources professionals in the final quarter of 2014, 13 percent responded affirmatively to the radical proposition that "employees should know exactly how much everyone at the company earns. Another 42 percent were in favor of a less extreme measure, agreeing that companies should "only provide salary ranges for departments and positions." Thus, 55% favored some degree of salary transparency. On the opposite side of the ledger, 39% favored keeping all data on pay secret.

A caveat with this study is its rather small sample. Challenger says that it contacted approximately 100 human resources professionals. The firm indicates that "blind responses were submitted from a pool representing a variety of industries, regions and company sizes."

Issues With Salary Transparency

In his statement releasing the survey results, John A. Challenger, CEO of the firm that bears his name, made these salient points:

• Small differences between co-workers’ salaries can lead to resentment and conflicts over who earns what.
• An employee with a higher salary may have a unique or in-demand skill.
• It may have taken a high salary to lure one worker from their previous employer.
• Maybe the higher earner is simply a more skilled and aggressive negotiator. 
• Even if an employer reveals the reason for a certain worker’s higher pay, those earning less are likely to remain unhappy. 
• Resulting acrimony could hurt morale and productivity, and spur increased turnover.

Ways to Disclose Salary Ranges

Challenger believes that, while sharing individuals’ salaries is bound to be highly problematic, sharing information about the range of salaries for each position can make a great deal of sense. In particular, employees should be advised on what they can do to move toward the higher end of the scale. 

Offer varying levels of transparency depending on the employee's level.

The example that they offer is the North Shore-LIH Health System in New York, which was featured in a recent HR Magazine article concerning salary transparency. This hospital system offers varying levels of transparency depending on the category of employee.

Go fully public, inside and outside your organization.

Union workers’ salaries are fully public under collective bargaining.

Go semi-public by department or position.

Nonunion workers only know the salary range for each position. That reflects the opinion of the 42 percent of respondents to the recent Challenger survey that (also as noted above) favored disclosing information on salary ranges for departments and/or job categories.

Disclose everyone's salaries within the entire company.

On the extreme end of the spectrum, the proposition favored by 13 percent of survey respondents was that employees should know exactly how much everyone at the company earns. It is practiced by New York-based business analytics firm SumAll. They also were cited in the aforementioned HR Magazine article.

If you choose full disclosure of everyone's compensation in your company, John Challenger nonetheless notes:

• Many believe that sunshine is the best disinfectant.
• It will help employees determine their value to the company.
• It will also force employers to really think about salaries and possibly fix inequities.

Ultimately, the decision of whether to institute a policy of salary transparency, the level of transparency, and success of that policy, is likely to be determined by the culture of the company, John Challenger wisely notes. Moreover, he feels strongly that organizations must take a long and honest look at the cultures that they have created.

In particular, he warns that "opening up the books on salaries" is not a magic cure-all. Indeed, in organizations that suffer from long histories of "distrust, animosity, perceptions of favoritism, etc.," such revelations are more likely to heighten tensions than to relieve them. Instead, salary transparency must be preceded by a fundamental change in the company culture that inevitably will take time.

On the other hand, in a company with "a highly collaborative workforce, engaged workers, open-door policies, and a bottom-up management style" salary transparency is likely to be "a natural extension of the culture already in place."