Pay Transparency Is Coming, Whether You Like It or Not

A move toward pay transparency is inevitable. Who’s willing to argue with Ed Lawler?

Let’s review why:

  • We’ve all heard about how transparency builds a more productive workforce, a healthier company culture, greater trust in company management, and better business outcomes. As the late Yul Brenner would say “et cetera, et cetera, et cetera …”
  • Millennials (aka Gen Y), which makes up a third of today’s workforce, is accustomed to sharing personal information through social networks and are instrumental in shaping this trend. Transparency also ties into some of the idealism underlying the sharing economy, with people crowdsourcing information on all sorts of things.
  • In addition, there is a huge amount of salary information available on the Internet, including third-party websites such as Glassdoor.com, Payscale.com, and Salary.com. Sharing salaries on social media is growing in popularity. Internet searches for the phrase “salary transparency” grew about 63 percent from March 2014 to March 2015, according to Google Trends data.

So like it or not, it seems there’s no putting the genie back in the bottle. Like nature, pay transparency will not be denied.

The challenges to pay transparency

However, with transparency comes obstacles.

Companies have to clean up all their pay discrepancies, gaps and other “dirty” compensation laundry. And transparency is anything but black and white.

In spite of clean ups there will still be some remaining outliers that seem out of whack at first glance but make perfect sense when understood. Companies must be prepared to explain them.

But let’s look 10 years out. Some economists and management researchers are already studying how transparency in salaries is affecting today’s labor market (see No. 3 below). Now trying to predict the outcome of that research is above my pay grade, but I can throw out some possible outcomes on compensation practices.

  1. Pay everyone in the company the same — like at Gravity.
  2. Let employees either decide or vote on their own pay, as in Figure 53. Similar cases for this exist at Hanno and Semco.
  3. Pay employees in each pay grade or job the same. There’s some interesting research that shows evidence of “compression creep” even today. (See Does Transparency Lead to Pay Compression?, Alexandre Mas, Princeton University, 2015)
  4. Give the same percentage of base salary increase each year, based on general market movement
  5. Use recognition, team bonuses for differentiation and premiums for critical skills

Transparency DOES have broad appeal

These kinds of pay practices would go a long way in eliminating such things as pay gaps including gender pay, pay negotiations, poor manager communication of current practices, etc.

Using such differentiators as team bonuses and recognition based on goal accomplishment or some other objective/measurable criteria might be easier to explain and more defensible. Also simpler, easier and more workable. Plus changes like this might be more appealing to younger generations.

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I don’t know if the future of transparency will lead to any of the possibilities I’ve listed, but it will be interesting to watch as transparency becomes the norm.

What do you think?

This was originally published at the Compensation Café blog, where you can find a daily dose of caffeinated conversation on everything compensation.