Pay Transparency: (Not) The Solution to Pay Discrimination

In this week's Balancing Act column in The Miami Herald, Cindy Krischer Goodman quotes me and others in her examination of fair pay legislation.  One of her key points: That salary secrecy contributes to pay discrimination.  She quotes financial analyst Suze Orman who is a big proponent of open discussion of salaries and who believes that access to salary information would empower and protect employees.

It sounds good in theory, I admit.  I don't believe it would work out quite so smoothly or easily in real life practice, however.  John Hollon, Editor at Workforce Management/author of The Business of Management blog, and I had a recent exchange on this topic, which he posts on here.  I find myself agreeing with John's take (as a longtime manager) on the issue, which is "nobody wins when workers know what everybody else makes."

One of the biggest problems with this "transparency doctrine" is that comparing salaries and drawing conclusions about their fairness requires a measure of independence and objectivity.  I have had many, many one-on-one conversations with employees about their pay over the course of my compensation career, and this experience has convinced me of a basic truth:  We simply cannot be completely objective about the value of our jobs and the work we perform.  Nor can we be completely objective when comparing our jobs, our work and our pay to others.  Can you say inherent conflict of interest?

Somebody would need to convince me of how the positive consequences of open access to salary information would outweigh the potential negatives - as John puts it, "bad feelings, bad blood and bad karma."

What's more, employees themselves hold a bit of a double standard in this regard.  According to recent research by Ceridian, while 46% of employees are interested in learning the salaries of colleagues, 89% are reluctant to have their own salary information shared with those colleagues.  That tells me that there is a privacy issue at stake as well.

I don't mean to get employers off the hook for transparency, though.  While I am not in favor of sharing the what (employees make), I am a big proponent of sharing the how and the why:

• The How is about the mechanics of pay in your organization; how jobs are valued, how increases are determined, etc.

• The Why is about your organization's pay strategy, the objectives management is seeking to achieve and the rationale underlying the pay program.  This includes questions like how the organization defines its competitive market for talent and the way in which performance influences an employee's pay.

To empower employees, to assure them that they are being treated fairly and to make clear the standards to which they should hold us accountable in that fair pay treatment, we must provide them with the information they need to put their pay situation in as objective a context as possible.  As I've said before, without this proactive communication employees are left with no choice but to draw their own conclusions about the organization's intent and practices.

Comments

[The Career Encourager]

Brilliant post - as always you are fair, balanced, and articulate in looking at multiple sides of an issue and finding a workable solution. As an HR leader I wholly concur with sharing with employees HOW and WHY they are compensated the way they are. This approach demands managerial accountability in terms of defining and measuring jobs, and coaching/supporting employees in their performance. The problem is that too many managers in the business community have never taken the time to (or been able to) explain the how and the why of compensation. Therefore employees feel (perhaps rightly so) that the comp structure is unfair. My concern with posting all salaries is that it will actually foster further lack of managerial accountability - that managers will now have an easy way out of the tough conversations about performance and can instead equalize the pay in terms of nickles and dimes and move on. One could theorize that smart employees will of course go elsewhere if they find themselves compensated on par with lower performing employees...but realistically speaking, in this job market, where are they going to go?

[E James (Jim) Brennan]

Agree.

Also strongly concur on the advisability of completely eschewing, barring, refusing, etc., any revelation of what any particular individual employee is paid (unless it's already publicly disclosed). Otherwise productive discussions devolve into finger-pointing ad hominum subjective opinionated debates when you permit employees to horn their way into the management perogative of performance appraisal and to substitute their biased and often incomplete views into what another "deserves" and what that implies about what "is fair" for them (strange, isn't it, that "fair" for themselves always equals "more," doesn't it?). I'd respond that their pay is based on THEIR job and THEIR personal work value and the performance of someone else has nothing to do with their own unique output achievments sustained over long periods of time.

Keep policy open but identifiable detailed applications closed. "It's none of your business," is a perfectly acceptable response. You might be suprised how often it shuts them up. Like kids, they had to try, didn't they?

[Sharlyn Lauby]

Your point about educating employees about the how and why is spot on. I would add that managers need to understand the how and why as well. I've seen several situations where managers have sent mixed signals to employees about how compensation is determined and then no matter what HR says...the employee leaves confused.

Thanks for the great post on this subject.

[Ann Bares]

Peggy and Sharlyn:

You both hone in on the crucial job of the manager in compensation communication, and I totally agree. While brochures, memos, emails, webcasts and all-staff meetings are an important part of effective pay communication, the role of the manager is the most critical. The direct manager represents the organization - and its practices - to the employee. If we don't prepare and support them in this role, or if we fail to hold them accountable for doing it well, communication ultimately fails.

Jim:

Funny isn't it. What's fair virtually always means more. Ever had someone point out that they themselves deserve less and someone else more, in the spirit of fairness? Me neither.

I myself also favor the "none of your business" explanation. Because it's the truth.

Thanks, all, for the comments and thoughts. Appreciate them!

[Wally Bock]

Great post, Ann. It's that pesky human nature again. In my supervision training we talk about what makes a workplace "fair." The description always comes down to some version of "a workplace is fair when the consequences of performance and behavior are appropriate." Or, as one person in class put it: "The good are rewarded and the unjust punished in accordance with their deeds."

That's the long way around to say that it seems to me that the places where we have complaints about whether pay is fair or not are almost always the places where other rewards aren't fair. Pay is just one of the things you can measure.

[Paul Weatherhead]

Great insight on corporate communications strategies!

Check out the new post on the WorldatWork Bulletin Board asking members if their companies communicate the "whys", "hows", and "whats" of compensation to their employees.

[Ann Bares]

Wally:

Very insightful comment - and my experience would validate it completely. When people complain about pay, it is nearly always indicative of other broader issues. Pay gets the focus because it is tangible and (presumably) easy to change - when often it is the untangible and the (truly) difficult to change things which are at the root of the problem. Fixing pay alone in these situations will not do the job.

Paul:

Thanks for the comment and for the alert to the Bulletin Board link. Would love to have some of our fellow W@W members weigh in here.

[Dan Eustace]

Hi Ann,

A significant topic to bring up. Picked up on it from Barbara Safani.
There are too many solid and real life comments to point out just a couple.

This weekend at a career consulting conference, the topic was raised and shelved. Rely on the Bureau of labor statistics data, which we feel is not helpful, we were told.

The value of the range of compensation for a position has some informative value. As we all know, though, the value of a high quality benefits package is hard to fairly compare... (401K, preventative health programs, health and dental insurance coverage fine print, professional development, etc.)

On all of this, can I ask: what is the law related to the issue require and what really is the best practice?

[Hayli @ Rise Smart]

There's a lot of talk about gender gap in salary, and I have first-hand experience with this one. Myself and a female colleague received significantly less pay and fewer vacation days upon initial hire than did our male colleague with comparable experience. Turns out, the primary difference was that he asked. So that emboldened us to ask (in a professional way, not a "he makes more than us and that's not fair" way) and we got big raises. In the end, I left a year later because it was still an underpaying job, but sometimes the main "gender gap" difference is in the asking (and justifying with quantifiable results). Do you think males are just more likely to negotiate?

[Brenda Gallagher]

Without stereotyping, I do think males are more likely to negotiate. However, that is not an excuse for females to receive less pay and vacation time. It is still clearly discrimination.

[Suzanne Larsen Balaoing]

Very good points from all. I would add that the role of HR, in terms of the actual or real issue of equitable compensation across gender lines, is to conduct the investigation. It is our job to audit the practices/respond to concerns and be able to say (with a straight face) I have investigated and found the practice equitable (or not). The same with the leadership- when it isn't equitable- tell them the truth about pay: good and bad.

Then, the "it's none of your business" approach leaves them with something more than being shut out (which in my experience can lead to claims), without revealing information inappropriately.

Of course this strategy only works if we in HR actually have a reputation of trustworthiness and objectivity.

And yes, in twenty years of HR, I have always found it amazing- according to everyone, *they* are working the hardest.

[Ann Bares]

Dan:

There is no law requiring pay transparency. The debate is whether greater pay transparency is a way to address and prevent pay discrimination. What constitutes best practice has not been agreed upon; but the argument I pose here is that transparency about the pay system and its intents and its mechanics is good practice, while tranparency about actual salary levels is not.

Hayli:

If you go through and read the posts in my "gender equity" category, you will see that the concept of gender differences in willingness to negotiate is a frequent point in the discussion of pay equity. In fact, the Paycheck Fairness Act itself includes a provision in support of "negotation skills training" for girls and women.

Brenda:

I don't think it is stereotyping - this fact is supported by research. And while it can be argued (and has) whether "giving people what they ask for (and no more)" is a discriminatory practice, I think what is clear is that this attitude has played a role in getting us to where we are today - which is having the government poised to play a more active and intrusive role in pay setting in an effort to address discriminatory practices.

Suzanne:

Good points all - thanks for reinforcing them here!