Talking about pay is uncomfortable. Our culture puts “pay” in line with religion and politics as “what not to talk about at a dinner party”. Some companies have even forbidden this conversation in the workplace. But why should we avoid this important topic? It’s time we stop being afraid and conquer the “FOPT”, or “fear of pay transparency”.
A word about pay secrecy
If your company is choosing “pay secrecy” over pay transparency, chances are you fall into one or more of these buckets:
you’d like to avoid difficult employee conversations;
you’re trying to save on labor costs by paying some employees less than they’re worth;
you’re lacking a defined compensation program (in which case you yourself might have more questions than answers about employee pay); or...
even with a defined program, you fear the - however unintended - biases that may be uncovered in your pay practices.
Keeping pay secret, however, fosters discrimination and pay gaps. It can lead to unrealistic perceptions, jealousy and employee retention issues, and eventually, have a negative impact on your business.
The rise of pay transparency
With crowdsourced pay information readily available on Glassdoor and through social media campaigns like #TalkPay, and with high-profile gender pay gap cases (like that of Catt Sadler leaving E Entertainment), the demand for pay transparency is on the rise.
In its 2017 Compensation Best Practices Report, PayScale reported that nearly half of all US organizations are aiming to be transparent with pay. On January 1, 2018, Iceland enacted the world's first equal pay law (followed by Germany) that forces companies to reveal gender pay gaps to individual employees. Other countries will follow.
Although employers may be slow to expose pay information - worried about the conversations on equality it may spark - employees are asking for it, new talent is looking for it, and the public is demanding it.
The fear of pay transparency
I recently talked to a partner in a small business who had a problem: His employees discovered what a recently promoted manager was paid. Rumblings amongst the team created a negative vibe – and potential retention and productivity issues. He immediately considered asking employees to sign a non-disclosure agreement, banning them from discussing salaries. He is not alone in this fear. Many managers are afraid of employees being armed with this information and they are ill-prepared to talk about it. I encouraged him to think about ways to better communicate to employees why they’re paid what they are and what they can do to get that next pay increase.
Understanding the benefits of pay transparency
Don’t let your fear call the shots when it comes to pay transparency. Understand WHY it’s so important for your company - and for your employees - before deciding what to do next:
Pay secrecy allows speculation and rumors. If pay information is hidden, employees will think they are underpaid, even if that’s not the case. Imagine a scenario where your employees are paid fairly and their effort is well-rewarded – and they know it.
Pay transparency increases employee engagement. According to a PayScale study, employees are more satisfied and productive when armed with pay information.
Pay transparency sets and manages expectations. Being transparent also means telling your employees about your company objectives and the value their contributions provide to the company’s success. They will know how they are expected to perform, what it takes to grow, and what rewards are in store for them.
Pay transparency shows your integrity and openness to potential employees. It’s an opportunity to demonstrate that your organization is taking steps to eliminate discrimination. Millennials, in particular, don’t see pay conversations as taboo and are attracted to companies that are upfront about pay. This generation values equality, fairness, and collaboration more than others - and being open about pay demonstrates these values.
The public is demanding it, and legal changes will follow. Gender and ethnicity wage gaps have sparked increasing interest from the public. New laws have been enacted and more may come, along with the responsibility of disclosing this information to shareholders. Being more transparent about pay practices is a step towards ensuring pay equity.
Conquering the fear: Make a move towards pay transparency
The pressure is on. It’s not a matter of “if” organizations need to be transparent anymore, but “how” and to what degree. Moving from “pay secrecy” to “pay transparency” can take on a lot of different forms, depending on what works for your company - from making all your employees’ salaries fully available, to disclosing parts of the pay structure, to having individual pay conversations.
There is no doubt this is a cultural shift, and should be treated as one. To start, have your compensation program in order, driven by unbiased criteria and explainable - then you will be prepared to make the right decisions on how, what and when to communicate effectively with employees.
Come clear in the face of “FOPT”. It will pay off in the long run.
About the author:
Laura Muldoon is an HR Consultant at Nua Group, a San Francisco-based human resource consulting firm specializing in total rewards. Laura spent 10 years helping companies in various industries develop innovative compensation and performance management programs.