The Three Levels of Salary Transparency
Even though it has become common for companies to attract top talent with unique employee perks, most people value a solid and fair salary the most. Everyone has bills to pay and financial goals in mind and the right compensation is more often than not the main reason they accept a new job or stay with a company.
Since money is so important to people, compensation can be a divisive topic in the workplace. On one hand, an employee can feel they’re underpaid compared to their peers and let the ill-will affect their job performance. But on the other, someone can believe they’re paid fairly and even do great work in hope of earning more down the road.
Because attitudes about salary vary, companies take different approaches in revealing how much everyone earns. There are generally three levels of salary transparency that each have specific advantages and disadvantages.
It’s rare but there are a handful of well-known brands that allow every member of the staff to see what their fellow team members earn. Buffer, a social media scheduling tool company, is perhaps the most publicized company that has fully-transparent salaries. In 2013, they released a spreadsheet containing the compensation details for every employee, not only internally, but to the general public as well.
While Buffer is more publicized for their salary transparency, Whole Foods is the most popular brand that provides fully-transparent salary information. They’ve followed the practice since 1986 but compensation details are only available to employees, not the general public. Here are the advantages and disadvantages of fully-transparent salary information:
- There is no worrying or gossip among employees about what their colleagues make.
- Pay disparity among people who do the same job doesn’t exist.
- Team members can see what people in the upper-levels of their company make and use it as motivation to do great work.
- There aren’t difficult salary negotiations with candidates when hiring.
- An employee who has been with a company longer and is more accustomed to the way it operates earns the same as a newer employee who is still settling in. Unless the company’s salary formula accounts for employment duration.
- An employee who works harder or has more skills than an equivalent team member won’t be paid more unless they earn commission.
Companies that practice full transparency are hard to come by but there aren’t many disadvantages to it. Employees can focus on their job responsibilities without a doubt in their mind that they’re underpaid compared to their peers. They can also see what the people who make up the upper echelon of their company earn so they have something to aspire to.
Salary information for the vast majority of companies is partially transparent. Most don’t actively publicize compensation details but the pay ranges for specific positions are available on job descriptions or can be shared on Glassdoor reviews.
Partial transparency is far less structured than full transparency. There are no spreadsheets or other documents outlining the ranges of every position. In many cases, compensation information won’t be available for every position, especially if the role is held by a small number of people in the company. Here are the advantages and disadvantages of partially-transparent salary information:
- There is flexibility to pay more to an employee who outperforms their peers or has been with the company longer.
- You can offer a candidate slightly more or less depending on their professional background when hiring.
- Slight pay disparities can exist between people who do the same job. When hiring, some candidates will want to negotiate, securing the top level of the pay range, and others will accept the first offer, falling to the bottom end of the range.
- People can be left to wonder if a colleague earns more than them, distracting them from their job responsibilities.
Most companies practice partial-salary transparency. It gives the company room to maneuver when determining the proper amount to pay each employee, while also giving employees some idea of how their compensation compares to their colleagues.
No salary transparency
It’s less common than companies that practice partial salary transparency but some companies actively try to keep employee compensation under wraps. Their leadership can believe salary information is only the company and each individual employee’s business and sharing any details can cause problems.
While these companies won’t post any compensation details on job descriptions or share information internally, details can still leak out. It might seem like a lack of salary transparency requires no effort on the company’s part but it can often be a challenge to keep this information private and deal with the problems that come up if someone learns they are underpaid. Here are the advantages and disadvantages of providing no salary transparency:
- There is a great deal of flexibility to pay employees in similar positions different rates depending on their performance.
- When hiring, you can offer a candidate whatever you feel is appropriate based on their skills and experience.
- Employees will often wonder if they should be paid more and won’t know if they’re right or just being paranoid.
- Employees may gossip about what others make and false information can spread around the workplace.
- Hiring can be difficult if candidates have no idea what the position pays until they get to the offer stage.
- Extreme pay disparities can exist. If the problem comes to light, it can lead to a PR nightmare or even legal trouble for the company.
Providing no salary transparency can seem like a good idea at first. Money is often the source of conflict and problems can be avoided by keeping that information private, right? That might be true to some extent but people talk and candidates and former employees can share information online, making it nearly impossible to keep salary information 100 percent private. When the details get out, serious problems can arise if the company has been unfair.
Regardless of your transparency level, always be fair
Every company has its own philosophy on salary transparency. The key is to always ensure you have the necessary budget before hiring a new employee so you can fairly compensate them based on what you pay their fellow team members and the skills they bring to the table.