Salary transparency has become increasingly popular as a way of preventing pay discrimination. Women are more likely to experience unfair pay, whereby they are paid less for doing the same job as a male colleague. The argument is that if everyone is aware of everyone else’s pay, then discriminatory behaviours will be called out and eventually eliminated. We would no longer see a gender pay gap.
The benefits of organisations being open about salaries
There is evidence to show that salary transparency helps create fairer workplaces. It helps reduce unconscious bias because companies must be able to justify salary decisions. Implementing pay transparency is a straightforward anti-discrimination change that companies can make. Given that most employees are in support of employers implementing these changes, it can also benefit a company with attracting talent.
As reported in the AFR, “job ads with indicative salary brackets outperform those without – and, on average, attract 15 per cent more applications, data from jobs website SEEK shows.
Four out of five (84 per cent) candidates rank knowing a job’s salary as one of the most important factors in deciding whether a role is right for them and 79 per cent agree there could be more transparency about pay in job ads.”
Pay transparency also contributes to greater morale amongst employees. Everyone can see that their salary is fair and objective because they are being paid in alignment with their skills, experience and outcomes.
Then why are so many organisations resisting implementing transparent salaries?
The negatives of pay transparency
Discussing your pay with co-workers has traditionally been taboo or even strictly against the terms of your contract. This was the norm because it’s beneficial for the employer to keep salaries secret. It allows companies to allocate more money where they see fit, such as for new acquisitions or employees who threaten to quit. Many organisations worry that revealing employees’ salaries will lead to a significant number of disgruntled workers. If companies want to create fair and attractive workplaces, there needs to be a mindset shift.
However, there is a valid argument some companies are making as to why they haven’t implemented transparent pay – most employees view themselves as top performers even when they’re not. These workers will then be disappointed to discover they’re not on the top of the pay scale. In a University of Utah study cited in this Forbes piece, “professor Todd Zenger surveyed 700 engineers from two large Silicon Valley companies and found that almost all of them thought their performance was above average. Nearly 40% of the engineers felt they were in the top 5% of employees, and 92% reported that they were in the top quarter of performers. Only one of these engineers felt that their performance was below average.”
Humans are prone to this type of cognitive bias, known as the Dunning-Kruger effect, whereby people with low ability, expertise, or experience regarding a certain type of a task or area of knowledge tend to overestimate their ability or knowledge. So how can companies reduce this bias, thereby preventing lower performing staff from being irritated that higher performing colleagues are being paid more?
Objective performance measures
Every employer adds different strengths and value to a company. Measuring and quantifying the worth of each individual isn’t easy.
Key to companies successfully implementing transparent pay is creating objective measures of performance wherever possible. This is more straightforward in certain industries such as sales, where individual revenue contributions can be measured. However, objective measures can still be identified in most companies. For instance, pay increases should increase as an employer’s scope increases.
It’s also vital to determine what the current market value for different job roles are so benchmarks can be set and employees can see that they aren’t being undervalued.