Salary Bands: Good Intentions, Bad Outcomes

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Could something as simple as offering candidates and employees an expected salary range actually diminish workplace performance and equity? I believe so.

Salary bands (also called “salary ranges”) are growing more acceptable in companies worldwide. While they’re intended to create transparency in pay grades and elevate equity, diversity, and empathy in the workplace, they can have unintended consequences.

A solution doesn’t always fit the problem it seeks to solve, and salary bands are part of that ever-widening pool of great ideas on paper that don’t work as expected in the real world. There are much better ways to support positive work environments, equity, and diversity without the disadvantages inherent to salary bands.

How We Got Here

Interestingly, the movement to adopt publicly disclosed salary bands seems to be driven by employers more than employees. Under pressure from investors and boards of directors, C-suite executives turned to salary bands to demonstrate a commitment to justice in the workplace.

However, there’s evidence that employees oppose more pay transparency. In a 2018 survey by researchers at the University of California, Los Angeles, and Harvard Business School, 80 percent of respondents said they would prefer to keep coworkers from learning their salaries, and 40 percent would even decline a $125 payment in exchange for telling peers their wages.

The events of the past 12 months have pushed salary bands further into the spotlight. The genuine paradigm shift in employment as millions of Americans left their offices to work at home yielded some startling attitude changes. Gone was the long-held notion that remote workers were less productive. An oft-cited 2014 Stanford study that found workers were 13 percent more productive at home proved accurate. Combine this paradigm shift with a social justice movement that seemed to touch every facet of American society, and soon workplace taboos came pouring into the light. Salary disparities became not just a worker’s issue but a community problem.

Understanding Salary Bands

A salary band is a scale designating upper and lower limits of compensation for a specific job. Within each band, there are minimum, maximum, and median pay amounts. There’s nothing terribly new about such calculations; HR departments have been using them for decades.

However, in a rush to commit to equity and inclusion, many companies have made their salary bands public and readily available to current and prospective employees. The idea is that when everyone knows what people are being paid in their organization, discriminatory salary disparities can be caught and remedied.

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But salary bands have profound — and potentially negative — effects on a business beyond pay transparency. The fact of the matter is that employees have always shared information about what they make, and there’s very little an employer can do about it. Aside from the futility of enforcing a ban on such disclosures, some laws expressly forbid it.

I believe that workers rightfully want a corporate culture that values fairness and trust. I also believe that pay transparency punishes the best performers. Salary bands create a dynamic of mediocrity in an organization. They limit a company’s access to the A players in the market by restricting how much a company can pay any given employee. In my experience as a recruiting executive, I have seen many top performers reject offers limited by salary bands. That hurts my clients’ innovation and their bottom lines.

Put simply, salary bands inflict limits on the best performers. If everyone is equal, no one is free, and if everyone is free, no one is equal. Like it or not, an employee is worth the value they bring to an employer.

Mediocrity Over Individualism

To be clear, I’m not suggesting employers are off the hook in creating a more equitable workplace just because salary bands are a bad decision. Rather, I think companies need to tackle pay inequality with these three steps:

  1. Be proactive: Take a proactive approach to identify similar jobs with substantial pay differences and investigate reasons for those disparities.
  2. Address inequalities: After the investigation, explain to employees the reasons for disparities and address questions in a transparent, top-down manner.
  3. Share the path forward: Commit to articulating a pathway for all employees to achieve the upper echelons of salaries and positions.

While most organizations consider years of service, education, and employment history as relevant benchmarks for compensation, I encourage my clients to seek forward-thinking mileposts. Look to experience, commitment, competency, and value to celebrate solid performers who rise to the occasion and remain engaged. Employees and candidates will value up-front and honest communications about how the company makes pay decisions. For instance, if payment is strictly based on competency and performance, clearly establish the benchmarks for achieving raises and promotions.

There’s nothing wrong with good intentions — unless they create bad results. In general, legislated outcomes suffocate incentive for performance. Let’s throw salary bands and their unintended consequences into the scrap heap.

Joe Mullings is the CEO and founder of The Mullings Group and chief visionary officer of MRINetwork.

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Joe Mullings has been building companies and careers since 1989. He founded and is chairman and CEO of The Mullings Group, a leading search firm in the medical device industry whose clients include Google, Johnson & Johnson, Abbott, and Siemens. He was recently appointed chief visionary officer of MRI, a top-3 executive recruitment firm with 400 offices worldwide.