Previously posted for SteelBridge Solutions, Inc.
Back in the 1960s, Baby Boomers were famous for the mantra, “don’t trust anyone over 30.” Now Millennials are following their example. They don’t trust leaders, or politicians, or the companies they work for. As a result, they insist on transparency in all things.
According to generational experts, Millennials thrive on knowledge. They demand feedback, communication, and the truth about their employers. They also like to share, and that includes personal information, including their salaries, a topic that most of us consider taboo. That said, pay secrecy is a myth that needs to be busted.
In spite of popular belief, companies cannot forbid people to discuss their compensation. That right is protected by the National Labor Relations Act of 1935 and a 2014 Executive Order signed by President Obama extending the same protection to employees of Federal Contractors. There are a few exceptions: Employees who have access to company wage and salary information as part of their jobs cannot reveal it without the order of their employers or an investigating agency, and employees of municipal governments and religious schools aren’t covered by either the NRLA or the Executive Order.
Because discussing your compensation is a right, it has also been a personal choice. If colleagues tried to pry your salary out of you and you didn’t want to tell them, you just said no. (Although Whole Foods has been publishing an internal document that tells employees what everyone else is paid for 30 years). Recently, however, a growing number of companies have adopted a full disclosure environment. These companies point to full salary transparency as a hallmark of their culture, a demonstration of fairness and openness, and a boon to motivation and productivity. Others view transparency as an opportunity to have frank discussions about performance and pay, as well as a way to keep themselves honest when it comes to individual and gender equity. On the surface, it sounds admirable, but experience shows that full transparency has a downside.
The CEO of a well respected nonprofit determined that his organization had grown large enough to require formal salary administration. He hired a consulting firm to develop job descriptions, price the jobs in the market, develop salary ranges, evaluate the jobs, and assign them to salary grades. The CEO, COO, and CFO reviewed the results and revealed them in an all-employee meeting. Afterward, they posted the salary structure for all to see.
They were shocked by the fallout. Although leadership had worked very hard to build an environment based on trust and respect, they underestimated the impact of disclosure on high performers who set exacting standards for themselves. Professional and program staff took pride in the organization’s accomplishments, but they were specialists who owned their program areas and worked primarily with external agencies, building their personal reputations. Not surprisingly, they scrutinized the grade assignments and pay ranges with the fierceness of competitors, and more than half requested private meetings to plead for higher grade assignments. Administrative staff grumbled among themselves, except for the receptionist. Finding herself in the lowest grade, in the “least valued” job in the organization, she burst into tears. Until then, she had been proud of her contribution as the face of the organization, the first point of contact with the public.
Which begs the question, is full salary transparency worth the disruption to employee relationships and morale? Sometimes knowledge leads to resentment and jealousy, or causes feelings of under-appreciation or discouragement. On the other hand, secrecy about pay may breed distrust. When a CEO says, “I don’t want to open that can of worms,” it’s a safe bet that his reluctance rests on either suspicion or certainty that salary inequities exist in his organization. He is probably right: Most companies have inequities and the majority are accidental, not intentional. Whatever the cause, ignoring the problem only makes it worse.
Fortunately, transparency doesn’t have to be all or nothing. When Buffer, one of the pioneers of “full transparency”, first announced the change to its employees, the company discussed it as a continuum from “Mum’s the word” to “Everybody knows.”
Wherever you fall currently on the Transparency Spectrum, these steps will help you decide whether it is appropriate to change your approach, and by how much:
- Begin by asking yourself what degree of transparency your company culture supports. Buffer, for example, is transparent about everything: Company revenues, the ownership and equity breakdown, salaries, and even pricing. They tell customers exactly what their money is used for. On the flip side, a few years ago a Google engineer made waves by creating a spreadsheet to expose unequal pay, and later left the company. The moral: Even companies whose cultures are thought to be open and trusting may find full salary transparency too much to handle. Most will fall somewhere in the middle.
- Review individual salaries so that you have a clear picture of the nature and extent of inequities. Do not underestimate the time, effort, and thoroughness required to establish fair and reasonable adjustments and determine how much corrections will cost. When Salesforce announced that it would be assessing the compensation of its 17,000 employees, it disclosed that the process could take a year to complete.
- Develop a plan to reach market and internal equity. A workable plan requires an iterative process influenced by strategy, financial realities, and culture. In addition, forecasting salary costs requires assumptions about market movement for key jobs, expected salary inflation, budget constraints, strategy changes, and other competitive and financial factors. Don’t be surprised if achieving equity takes more than one year.
- Validate policies, structures, and guidelines. It makes no sense to adjust salaries without reviewing the infrastructure that resulted in inequities. Reconsider hiring guidelines and promotional increases, linkages to performance and tenure, and other factors that influence salaries so that systemic issues do not perpetuate existing inequities or create new ones.
- Limit unintentional disparities by keeping salary structures up to date. Maintain a regular schedule to refresh market data, including assessing your competitive set in case it has changed. Update salary structures often enough and by amounts large enough to keep up with market pay rates. Even one year without a market review can cause rates to fall behind, especially for high-demand or critical jobs, making it necessary to pay new hires higher starting salaries than some long-term employees.
- Train—and encourage—managers to have performance and salary discussions. Obviously, pay is personal and these conversations can be awkward, as well as open to challenge. Even if pay is fair by objective standards, it is human nature to lack objectivity about one’s performance and worth relative to others. Managers must be willing and able to explain how salary decisions are made and be clear with employees about the reasons for differences. Doing so on an ongoing basis avoids surprises when increases are given.
- Involve managers in compensation policy decisions. Managers must take ownership of salary administration rather than blaming it on “the policy” or senior management. They must express their confidence in and support for the systems they use—as well as taking true inequities to whatever governing board reviews them.
While the onus for salary transparency is on the employer, all employees—not just Millennials—should take responsibility for their salaries and their progress. In Surprising Dangers of Talking Pay at Work, Stacy Carroll, pay expert for PayScale, suggests employees ask these questions:
- Do we have a salary range for this position?
- What is my maximum earning potential in this job?
- How do people move through the salary range?
- Is movement based on longevity or performance?
- Are there certain skills or certifications I can earn that would help me earn more money?
These are reasonable questions no matter where an organization falls on the salary transparency continuum, and your employees should be asking them. Set a minimum standard of communicating the whys and hows of salary decisions, as well as telling employees how their roles help the company succeed. It may represent all the transparency you need.