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Pay Transparency Dont Drink the Kool-Aid

August 27, 2008
Related Topics: Compensation Design and Communication, Corporate Culture, Benefits


Both John Hollon here at Workforce Management and Ann Bares at Compensation Force both recently provided good, quick primers on Glassdoor, the latest entry into the space. You know the sector—the one designed to arm employees with everything they need to determine if they are underpaid, fairly compensated or overpaid.

Now that I think about it, rapper Notorious B.I.G. did a similar primer a while back. It was called "Mo Money, Mo Problems."

Seriously, has an employee ever gone to one of these types of sites and walked away saying they were fairly compensated or overpaid? Are there any HR pros out there who have experienced the fulfillment of an employee approaching them and saying, "My wife looked up my job on last night, and I just want to say thanks for fairly compensating me for what I do"?

I didn’t think so.

As an HR pro, I am not bothered by sites like and Glassdoor. They serve a need, and employees who use them seem to understand the information is self-reported by random individuals and, at best, indicates a general range. It’s the free market at work.

The bigger issue is the emerging belief that full pay transparency is in the best interest of your organization. It’s becoming trendy and progressive to say that you should arm employees with all types of pay information, up to and including the salaries of other employees.

Be a skeptic when you hear this type of recommendation. It will nearly always come from people who don’t have to live with the decision to publicize pay info.

To break this down, let’s cover what your options are regarding transparency. In the simplest of terms, most companies have one of the following philosophies surrounding pay transparency:

  1. We share nothing. These companies have compensation programs but don’t share anything, even when asked by employees. Of course, some companies may not have a structure (or a plan) regarding compensation, at which point sharing doesn’t really make sense.

  2. We have a compensation program/system, but don't share it broadly. These companies generally only share comp data with employees during the merit review process, and certainly if pay issues come up with an individual employee who feels underpaid. There is no broad distribution to all employees within this philosophy.

  3. We share a lot. These companies publish their compensation guidelines and ranges to all employees, and employees may have access to the salary grades for every job in the company.

  4. We share it all. Not only are the salary grades available to all employees, but with a little digging, you can find the salaries of some, if not all, employees as well (common in the public/governmental sector).

As your company and human capital function mature, you’ll find yourself being pressured to consider increased levels of pay transparency. The primary driving force behind this pressure is technology, both internal and external. With and Glassdoor, the free market is delivering imperfect information. Internally, you’ve got an amazing capability to deliver real-time comp data, thanks to your HRMS. In some cases, you can even put it right on an employee’s desktop. Add data and technology to the desire to be a progressive employer, and it’s easy to rationalize that increasing pay transparency is a good thing.

Of course, it’s never that easy. There are real costs associated with increasing transparency. Before you decide to reveal more than you currently do, consider the following powerful realities:

  1. Privacy issues reign supreme when it comes to pay transparency. You have a silent majority in your company. This majority doesn’t have fundamental issues with the way they are paid, and are fine with your system as is, especially if they are high performers. They also value privacy over transparency. Increasing your level of pay transparency, even by publishing ranges for every position in your company, will feel like an invasion of privacy to this majority. Pay is personal to them, and they don’t want people speculating about where they’re at in their own job’s salary range. When you increase your level of transparency, they’ll feel sold out. They’ll also blame you.

  2. No one ever looked at a salary range and focused on the minimum. You sit down with your employee and provide a brilliant discourse on your compensation philosophy, including an explanation of the range and the fact that most people migrate to the midpoint after five years in their position. You’re waxing poetic like James Taylor on VH1 Storytellers. Nice job. Now flash to the employee’s mind. He sees the salary range and wonders, "Why am I not past the midpoint? I’m the best service rep they have." The employee automatically feels undervalued. Additionally, no one has ever looked at a list of companywide salary ranges and felt contentment. There are comparisons with the midpoints, the maximums and with higher ranges to breed discontent. Your best training and explanation won’t transcend the employee relations issues you’ll cause.

  3. Your managers will pay the price and become deer in the headlights. Managerial training has been an issue and a priority at every company I’ve been a part of, and I’m sure it’s the same for you. Increasing pay transparency puts even more pressure on your least experienced managers, placing them in the cross hairs of employees unhappy about their pay situations. True, we would love all of our managers to be able to explain our compensation philosophies like a sales pro dropping an elevator pitch, but let’s face it: It’s not going to happen. When thinking about increasing your level of pay transparency, think about the folks on the front lines who are going to have to defend your plan, even if it’s the most progressive plan in your industry. Most managers won’t be able to defend themselves, and the company, to the employee who feels undervalued. Better for you to restrict access a little bit and be involved in those conversations to ensure that the message is consistent.

  4. The invisible hand of the market is at work with both individual salaries and job ranges. Inside your compensation program are some hard realities. Certain jobs have higher grade assignments than others, based on market data. Some employees have skills that are more critical to your enterprise than others. Your compensation plan rightfully values all of that so you can maximize the return on your people investment. It all makes sense at a macro level. Unfortunately, all politics is local. When you move to increase transparency, the employee three grades from the bottom of your compensation structure is going to feel a sting. So will others. Your decision to increase transparency caused it.

Before you label me a control freak, let me outline the transparency level I believe in. According to the ranking I laid out above, I’m a 2. I believe every company needs to have access to great compensation professionals and needs a plan to value talent. I also believe that every company should communicate openly and honestly about their compensation philosophy, and that communication should flow to the individual employee level on a routine basis—on demand, when the employee has a need, question or concern.

The law of unintended consequences is alive and well when it comes to increasing pay transparency in your organization. If you make the choice to increase transparency, do it for the right reasons, because you are creating employee relations issues that didn’t previously exist.

Life as a forward-thinking HR pro is hard enough. You can be trendy and progressive as a human capitalist without shooting yourself in the foot.

Workforce Management Online, September 2008 -- Register Now!

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