Compensation isn’t always easy to talk about. In fact, it’s one of the most closely guarded topics, even among family and friends.
While we’re reticent to discuss how much we make or how much we pay in our personal lives, we have to be a bit more open when it comes to managing people. In fact, compensation (due to its social taboos) is likely one of the least understood areas of HR. Here, we explore compensation, the recent trend of pay transparency, and whether or not this controversial compensation policy is right for companies of all shapes and sizes.
The Importance of Salary as ‘Carrier’
“If you pick the right people and give them the opportunity to spread their wings and put compensation as a carrier behind it, you almost don’t have to manage them.” – Jack Welch, former chairman and CEO of GE
Jack Welch, one of the world’s most famous bosses (for those of us over 30) discussed salary as a motivator in a time when he himself was being blasted by the media for lavish corporate perks and corporate plundering. The drastic chasm between pay and compensation for the top and bottom levels of organizations has led some companies – particularly in the startup world – to do a complete 180.
Buffer Leads the Way
“One of the highest values we have at Buffer is transparency. We do quite a number of things internally and externally in line with this value. Transparency breeds trust, and that’s one of the key reasons for us to place such a high importance on it. Open salaries are a step towards the ultimate goal of Buffer being a completely ‘Open Company.’” – Joel Gascoigne, CEO of Buffer
Buffer announced its pay transparency concept in 2013 and was one of the first startups to become widely known for an open policy not only in compensation, but also in equity, revenue, and all things financial. The social sharing platform was soon sharing the pay transparency space with SumAll and others. While this concept seems to work for many, how do HR Pros feel about pay transparency? Does it fit every culture?
See-Through Salary, Anyone?
“Many believe that sunshine is the best disinfectant and that providing full exposure to everyone’s salary will not only provide employees with information that will help them determine their value to the company, but will also force employers to really think about salaries and possibly fix inequities that have become part of the system.” – John Challenger, CEO of Challenger, Gray & Christmas, Inc.
Fifty-five percent of HR executives want to make pay transparent throughout the organization, while 42 percent think that only pay ranges should be available to employees.
Show Me the Money
However, there are questions about whether pay transparency can scale past the startup phase. While some companies engaging in pay transparency seem quite big, most haven’t reached the behemoth status yet.
Doug Shaw, a UK-based workforce and engagement consultant, wrote an anecdotal piece about his experience with pay transparency in which he offers a glimpse into just how the practice can break down. In the end, though, he had this to say about the dramatic event:
“From my experience, the only people who have anything to worry about in terms of pay secrecy are those who aren’t quite sure they’re worth as much as they’re paid. And it seems I’m not the only one who feels this way. A recent article in People Management indicates that pay transparency is linked to improved employee relations … I think the company is better off for it.”
Clear Parameters Needed
On Kenexa’s blog, Allison French, who handles strategy and market insights at IBM, discusses the need to have clear parameters laid out in order for a truly transparent arrangement to work. In the case of SumAll, she notes the company appears to have the following in place:
- “a clear, unambiguous pay structure from which there is (most likely) little discretionary deviation.”
- a “selection process [that] ensures that only those who are a good cultural fit will be hired.”
- “clear, formal channels [employees can user] for raising concerns about pay fairness.”
According to French, Kenexa research shows that how employees feel about their pay is a significant contributor to their level of engagement and can be even more important than their actual pay levels. So, if you can achieve the appearance of transparency – particularly in a corporate or long-running company where the full transparency hasn’t been proven successful (in part, perhaps, because it hasn’t actually been tried) – it may go a long way in creating happiness among employees without the resentment that total pay transparency can breed.
The Tough Conversations
If your company does decide to bring pay transparency to your workplace, it won’t be easy. There are variables of tenure in older companies that startups simply don’t have to deal with. And as an organization grows, specialized skills may make a rigid pay scale irrelevant.
Bottom line? To decide if pay transparency is right for you, you must
- know your work culture intimately;
- assess where your company is on a organizational maturity level;
- build strong parameters into the plan;
- be willing to iterate often;
- and build in contingencies for employees’ emotions.
A version of this article originally appeared on the Reviewsnap blog.