Is salary transparency a good idea?

Research shows that, despite the buzz, salary transparency doesn't work for some businesses. We take a closer look at the arguments.

A recent survey conducted by Love Energy Savings showed that the majority of UK employees don’t want any salary information to be made common knowledge throughout their businesses.

When asked which approach to salary transparency they would prefer in their company, eight per cent of UK respondents said they didn’t want any salary information shared within their company.

Meanwhile, only 26.9 per cent said they wanted everyone’s salaries to be shared and just 7.3 per cent wanted to know the salaries of senior management staff only.

The debate around salary transparency

Love Energy Savings set out to gather data about salary transparency to test the notion that lifting the veil around staff salaries will make a positive change in all businesses.

The conversation about salary transparency began when social media management platform Buffer famously disclosed staff salaries to the public via an online spreadsheet. In the month following their publicised adoption of salary transparency, they were inundated with twice the number of job applications they normally received.

The success of Buffer’s gamble sparked plenty of debate between business leaders as to whether it should be rolled out on a mass scale. Some leaders — like CEO of AMV BBDO, Ian Pearman — embraced the idea and implemented it in their own companies. Pearman said the key reason to adopt it was that it helped to dismantle pay inequality, particularly any differences in pay that correlate with gender or race.

However, others found that the positive buzz around sharing salary details internally wasn’t enough to convince their employees that it was the right decision. SEO management platform MarketGoo came close to rolling out a salary transparency policy — until their employees voted against it.

As the new research suggests most workers aren’t yet willing to embrace a change that makes salary information freely available to everyone in the company, despite the potential improvements in pay equality and staff satisfaction.

Why employees might not be ready for salary transparency

One explanation for workers’ hesitancy to embrace a transparent salary policy is that it means their own salaries will be on display.

For professionals that have negotiated a higher salary than others, it could mean that they’re targeted by peers that earn less than them, which — if not handled properly — can lead to messy internal conflicts.

Internal conflict as a result of salary transparency

For employers, salary transparency is particularly risky if their company has a history of pay inequality. Not only would it be costly to ‘level the playing field’ if businesses feel obligated to compensate workers that argue they’re underpaid compared to colleagues, but it could have a lasting impact on employee productivity.

A study conducted at the University of Michigan found that when taking on a task that involved counting dots, participants performed worse when they knew they were being paid less than others.

With these issues in mind, it’s easy to see why established businesses risk suffering long-term damage to morale and productivity after sharing pay information without a clear salary policy in place.

It’s not a lost cause

Phil Foster, managing director of Love Energy Savings, says that workers aren’t yet convinced by the idea of salary transparency, which suggests that businesses should include employees in the conversation.

It’s possible that some workers anticipate a backlash from having their salaries revealed to others, a fear that currently trumps the potential good that transparency can bring. Businesses that want to be innovative need to speak to their employees about change; firstly, to see whether it’s right for them, and secondly, to help alleviate concerns that employees might have.

Whether salary transparency is right for your business or not, the most important thing is that staff have their say.

Helen Walton, marketing director – Gamevy

Helen says that having salary transparency within the company encourages valuable conversations, even if they’re difficult. 

Gamevy has always had transparent salaries.

As a start-up that was partly because people were working at a lower-than-market salary and were ‘investing’ the difference between their take home salary and their market salary in the company.

For that to work, everyone had to know both those figures in order to understand what your investment level was. Agreeing on a market salary wasn’t too difficult – you could look at what the person was earning in their last job. And the take-home salary simply depended on personal needs – the founders took 0, and other staff members took discounts of up to 70 per cent and were deemed to be investing that and they’d be rewarded with ownership shares.

As Gamevy grew up and we were able to start paying more people in line with market rates, we continued to share salary information transparently. Of course, sometimes there are issues. But we’d argue that the same issues happen even where organisations keep them secret and a lot of time gets wasted in rumours and subtle attempts to find out whether someone is being paid more or less and then deciding what to do about it.

At least any differences are out in the open – it means we guard against issues such as gender pay gap and have conversations about performance faster. In our experience it actually leads to fewer arguments.

Anyone who feels they are being underpaid can look at their colleagues and the market and is free to make a case for a pay rise. If we accept the case, they get the pay rise; if not, and they still feel hard done by, then it may indeed act as a sign that the company isn’t valuing them as highly as they feel they should be valued – a helpful and very practical form of performance review.

Transparency about salaries is part of a much larger commitment to transparency within the company. Our decisions are made openly – whether that’s about strategy or finance. We don’t use email, but rather open messaging. Anyone can join any meeting, and all documents and files are open to all employees.

We believe that access to information enables people to make better decisions and encourages collaboration. Salary transparency is part of that. It fights against cliques or empire building by ensuring that decisions are exposed to wider scrutiny.

“At least any differences are out in the open – it means we guard against issues such as gender pay gap and have conversations about performance faster”

Transparency on what you earn doesn’t go far enough. Gamevy wants to do more. We plan to give everyone a set budget each year as a pay rise. The only rule is that you can’t keep it. You have to divide it between others. Maybe you give it to the person who helped you the most; or the person you heard complaining they didn’t get paid enough; or maybe you can’t decide and you divide it equally between everyone.

Just as with transparency there will be issues. People might swap the entirety of their salary increase with a friend or ignore a vital function that seems less visible, but that’s OK. We think that the benefits outweigh the downsides because surfacing problems beats keeping them repressed – at the least we expect to spark valuable conversations – even if they are painful.

See also: Employees willing to cut salary to secure their dream job

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Anna Jordan

Anna is Senior Reporter, covering topics affecting SMEs such as grant funding, managing employees and the day-to-day running of a business.

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