HR and 'Radical Transparency'

More than half of HR executives surveyed want some form of salary transparency at their organization, but experts wonder whether it creates more problems than it is worth.

Thursday, February 19, 2015
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Do you want to know how much the accountant down the hall earns? What about the CEO's executive assistant? More importantly, do you want your coworkers to know your annual salary?

Last quarter, Challenger, Gray & Christmas surveyed approximately 100 HR professionals representing a variety of industries, regions and company sizes. Surprisingly, 41.9 percent wanted to provide salary ranges for departments and positions; 12.9 percent believed employees should know exactly how much everyone at the company earns, and 38.7 percent thought salary transparency was just a bad idea.

While disclosing employee pay is further being explored, it does seem to have some merit. It can reveal pay gaps and potentially expose discrimination practices. Still, it does pose some risk. Consider angry employees who firmly believe they should be paid more than their coworker. There may be nothing more disruptive or damaging to employee morale and relationships than publicly disclosing everyone's pay. Since this issue is anything but black and white, HR executives need to carefully evaluate the benefits and risks before diving in the deep end.

"In most companies, compensation is not consistent," says John Challenger, CEO at the Chicago-based global outplacement & career transitioning firm. "What do you do when the inconsistencies are [based on] more than just performance? Some of your [workplace] norms get turned upside down."

In the long run, Challenger believes that disclosing salaries is likely to produce a healthier business culture, which in turn, can build a more productive workforce and create better business outcomes. More HR professionals want their company's culture to mirror this new technological transparent age, he says, and are yielding to societal pressure by becoming more open about their compensation practices.

Meanwhile, HR professionals should anticipate obstacles when changing this practice that's so deeply rooted. There will be some loss, some damage, he says. At the top of the list may be discovering that pay is not fair between genders or specific age groups.

"That damage is what leads to change," Challenger says. "There's a lot of pressure to try to create change... . This may be the key to breaking down those old habits."

Times are indeed changing, but slowly. In late 2010, Precision Opinion collected data on pay secrecy as part of a broader survey for the Institute for Women's Policy Research, says Ariane Hegewisch, a study director at the Washington-based institute.

Based on responses from 1,072 employees, 61 percent of private-sector workers stated that they were formally prohibited from discussing pay with colleagues, that the discussion of wage-and-salary information was discouraged by managers, and that employees caught doing so could be punished.

Since then, some things have changed. Hegewisch says secrecy rules are no longer legal in 10 states, including California and Michigan, which passed laws that stop employers from retaliating against employees who share earnings data with their peers. The same holds true for federal contractors, who can't prevent employees from discussing pay.

Still, only a handful of companies are transparent, says Hegewisch, pointing to Whole Foods as an example. "The issue of transparency is on [HR's] radar screen, partly because employees . . . have tools [such as Glassdoor or Monster] to find out wage information and [HR] has to react to it," she says.

One reason why HR and managers don't support pay transparency involves concerns on how managers would handle conversations with employees or if those talks would cause discord between workers. Would it create more problems than it's worth?

PayScale recently trained some of its customers' employees on how to converse with workers about pay; more specifically, what drives pay for jobs in their market and how salaries are determined.

"Organizations have a huge desire [for] their line managers to have these effective conversations with employees," says Tim Low, vice president of marketing at PayScale in Seattle."This is another way to build trust with your employee population."

Still, it's hard to align the thoughts and perspectives of four generations now present in the workforce. As expected, he says, salary transparency is less accepted among baby boomers and in conservative industries like financial services but is more acknowledged in sectors like technology that tend to employ a younger workforce.

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"A lot of [tech] start-ups are very open with their employees about how much money was raised, how much [everyone] earns every month-the nuts and bolts of the business from Day One," he says, referring to this approach as radical transparency. "The technology industry is the most wedded to the idea."

Despite their eagerness to share such sensitive information, however, some employees may be startled by how much their colleagues earn. Low offers the indispensable administrative assistant who has worked at the company for 25 years as an example. This individual may earn more than a highly trained professional who was just hired, he says.

"Know who these outliers are and be prepared to explain their intrinsic value to avoid enraged employees," he says, adding that the same approach applies to "purple squirrels," those highly compensated employees who hold very unique, hard-to-fill positions.

But HR must first lay the groundwork by determining how transparent the company wants to be about pay. Transparency doesn't mean leaning far left or right. There is room in the middle. 

Low says many organizations are transparent about how they make decisions about compensation without releasing employee salaries. Likewise, government entities typically post salary ranges for job classifications, something that's been done for decades, seemingly without objection. Whatever approach is used, he says HR must clearly articulate the employer's philosophy and tactics, such as it supports market-based pay and applies fresh market data when developing its compensation structure.

"The worst thing you can have is employees believing their pay is capricious," says Low. "You want them to believe there's a rationale so they can feel good about how you're paying them . . .  and be happy doing their job. Communicating pay is all about that."

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