Pay transparency (or salary transparency) is a policy that makes information about salaries and benefits available to any employee or even to general public.
- The origin of pay transparency idea
- Pay transparency enforcement on government level
- Companies that have transparent pay policy
- Benefits of pay transparency
- Dangers of pay transparency
- Summary
It is a quite controversial approach, so in this article I sumarise existing practices and share personal experience regarding pay benefits and dangers it brings. Pay transparency in context of this article means the situation when employees know the exact salaries of each other and, optionally, this information is available to the public. Companies sometimes position pay transparency as measure to deal with unstable tech market conditions that we witness right now, but sometimes it does more evil tan good.
The origin of pay transparency idea
Pay transparency discussions are a natural outcome of the labor movement of the beginning of the 20th century. Workers gathered into labor unions, shared salaries between each other, and demanded higher pay for everybody (at least, for the members of the union).
Another important milestone is the civil rights movements in different countries. These movements advocated for equal pay independently of skin color, gender, ethnic group, religion, or nationality. Inevitably, this sparked another round of making salaries more public and discussing if pay should remain public to avoid discrimination and ensure equal rights.
Pay transparency enforcement on government level
Some countries like the United Kingdom, Iceland, and the European Union do require companies to be open about salaries, mostly in terms of gender pay differences. However, there are no countries that enforce this information to be public for every employee.
Iceland makes companies pass a special audit that makes sure that there is no pay gap between genders, Canada requires companies to publish their pay expectations in job postings. Some Nordic countries still make the pay information public, but through open tax records for anybody.
Companies that have transparent pay policy
One of the most well-known companies with pay transparency is Buffer (marketing and audience growth services), you can literally see the salary of any employee starting from the company CEO, Joel. Surprisingly, salaries for Engineering people are not so different in different parts of the world (however, cost of living and taxes are different).
Some companies like GitLab (tooling for software engineering) provide a salary calculator, but it is available only for employees.
Benefits of pay transparency
The idea of transparent pay is not new, companies use it, governments enforce it, so is there something wrong with it since it is still quite unusual on the market? Usually people name these advantages of salary transparency
- reduces pay discrepancy and favouritism, rules of the career game are more clear
- increases awareness between employers, it is easier to compare yourself to others in terms of input (efforts) and output (salary and benefits)
- attracts high-profile candidates for the job
- encourages productivity
Indeed, I have talked to several people who work in such companies (or at least they have a clear career ladder with salary expectations like in Meta, for example) and they like it. However, these people are usually working in companies that are not typical. The next chapter explains when the company can actually introduce pay transparency.
Dangers of pay transparency
As any complex concept, the pay transparency is not good or bad. It highly depends on the market conditions, company culture, the nature of work, etc. After numerous interviews I came up with the list of things to take into consideration when introducing pay transparency in the company.
Do not introduce pay transparency if your company matches at least one of criteria below.
Low median salaries comparing to market
If your company has small median salaries, it is not something to brag about even in front of your employees. Unless you can make salaries more-less comparable to the market, do not expose this information to avoid frustration among employees.
Big difference in salaries for the same role
If salaries for the same role are very different and there is no budget to make them closer to each other, salary transparency can start bad blood between employees and will become a source of frustration. People will legitimately ask their managers about the difference, employees will start demanding more equal pay, managers will have a hard time finding words to explain the situation (and if they are good managers that value trust, they will show company in a realistically bad light).
Role descriptions are not clear
The more role descriptions are vague, the less it is possible to explain why Engineer John has a different salary from Engineer Bob. Employees with lower salaries can always play the “why I am not good enough, I do the same things listed in the role description” card. It is never possible to describe everything that role does, but at least invest some effort to guard your managers from the questions.
Promotions do not mean more money
In an ideal world all employees are motivated, inspired, never have bad days, go extra mile, and value the culture and their role in the company, even when reward is not really great (basically working in a founder mode). In reality people work for money (unless they have stock options, for example). If workers see that even when you are at the top of the ladder, there is not much increase, they lose motivation to grow and they quit.
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Summary
Pay transparency is a by-product of labor and civil rights movements and it does increase transparency on multiple levels. Originally it served workers, but nowadays it can be used as a tool to get rid off competition on a corporate level, as when you are the biggest and the richest player on the arena, it is not a problem to share how big and rich you are to attract employees.
When implementing pay transparency in your organization, be aware of the dangers and consider them with attention. Carefully evaluate all the negative effects (that will surely happen at some scale), plan the time and effort to explain to people why things are the way they are, and plan budgets for inevitable raises.