Exposing Pay Secrecy: What It Means for Employees and Employers
Traditional etiquette dictates that it is impolite and inappropriate to discuss wages and compensation with colleagues. However, long gone are the days when money was seen as such a taboo subject. The salary transparency movement is becoming more common across the world since the practice is perceived as one further step towards instilling equity at the departmental level.
Within this context, all scale-ups must consider what changes this legislative act brings to global employment in order to prepare a sustainable and fair workplace.
The Push for Transparency
In broad terms, transparency in compensation means being open about processes, policies and criteria used to set pay levels within a company. Openly available knowledge of salaries does not mean that a company should openly disclose financial information to the public without showing careful thought. Generally, there are two levels of pay transparency:
- Full transparency: refers to the extent to which a company voluntarily provides details about the compensation of every individual worker from CEO to interns. In this scenario, employees can negotiate compensation within a reasonable range for the role. The American multinational supermarket chain Whole Foods was the first company to implement a policy of full pay transparency not only internally, but to the general public as well.
- Partial transparency: refers to the extent to which a company divulges pay ranges for different roles without going so far as to reveal individual figures. This form of transparency can usually be observed in job advertisements. The model does allow for inequalities between employees with the same job responsibility, which at times, could cause workplace discrimination.
However, the degree of transparency ideal for a company depends upon various types of factors, including the type of employment, workplace culture, or practical possibilities.
You’re Paid What You’re Worth
Having trouble talking about money is affecting more people than salary show-offs. According to OECD’s 2022 Pay-Equity Audit, full-time-employed highly educated women earn about 12% less than similarly educated full-time-employed men. The gender wage gap is concentrated within firms, tends to increase with age, and reflects differences in job mobility. Similarly, the Pew Research Center’s analysis of median annual earnings found sizable income gaps persisting across racial and ethnic groups with White men earning €5.5 more than any other group. Consequently, increased transparency could be the key to creating an effective and successful workforce that leverages talent across all genders, ethnicities and cultures.
Why pay transparency is here to stay
For one thing, it attracts and contributes to the retention of diverse talent. According to PayScale, if employers cannot ensure a fair recruitment process, new employees are more likely to quit their job within the first 6 months of hire. Pay transparency helps to reduce turnover rates and in this way, it can become a powerful tool to build trust in the workplace and boost individual task performance. Because the payment systems are less opaque, employees will feel more comfortable sharing salary expectations and reducing pay inequalities. For employers, pay transparency helps to open the door to fairness in pay practices and introduce a more targeted recruitment approach. As such, companies can be more certain that recruits are willing to work for publicly disclosed salaries based on merit and not just on negotiation skills.
What It Takes to Be a Fair-Pay Workplace
On December 15, 2022, the EU Commission adopted a legislative proposal to ensure pay transparency for workers and employers. As part of the general strategy which comes into force in 2024, prospective candidates will have the right to receive information on the pay range of positions they apply for and ask their employer for sex-disaggregated information on the average pay of other workers doing the same work. Additionally, employers will have to provide information about the general conditions and documentation used to define salary and pay rises and will be prohibited from asking applicants about their salary history.
Practising Salary Transparency
Aside from moral considerations in wage-setting policies, scale-ups can implement a series of effective measures to close the inequality gap that has resulted as a direct consequence of the lack of salary transparency:
- Conduct an effective pay equity audit to determine if any statistically significant pay disparities exist;
- Base the compensation model on solid pay data provided by the government or private salary databases;
- Encourage salary negotiation by showing salary ranges;
- Introduce transparency to promotion, pay and reward processes;
- Get feedback from employees and take data-driven actions;
- Appoint diversity managers to improve talent management and increase the representation of small minority groups;
- Create a gender-balanced pool of eligible candidates together with a requirement for gender-balanced shortlists.
Final Thoughts
The push for pay transparency has been lauded as a movement that drives transformational change for current and prospective employees. When the practice is implemented correctly and fully complied with, it establishes trust and reassures employees that their workplace is committed to becoming a more ethical business. Rather than determining how much employees should be paid, scale-ups with large pay gaps, should flip the question to ‘how much revenue does this role create for the business?’ Pay transparency is not about numbers and costs, it is about added value.