The benefits of a transparent salary strategy – Q&A with Dan Harris
8 MINUTE READ
Discussing salary with co-workers has been a long-standing office taboo. However signs of change are beginning to emerge, with millennials in particular being far more open to discussing salary than previous generations.
This shifting attitude combined with new research supporting the benefits of salary transparency means more and more companies are now taking the idea seriously.
Dr. Dan Harris, Lead Researcher at Quantum Workplace, believes more businesses should take the leap and move towards a transparent salary structure. With potential benefits including reduced turnover, increased motivation, and a greater sense of trust at work, it’s certainly worth thinking about.
Dan has a PhD in industrial-organisational psychology and strives to use data to tell meaningful, actionable stories that inspire change. He also hosts his own podcast ‘Managers,Mysteries & Mishaps’ which aims to take the mystery out of what it takes to be a good manager.
We caught up with Dan to discuss how salary transparency can increase productivity and transform organisational culture.
How does a transparent salary culture benefit a company?
There are numerous benefits, but for the sake of space, I’ll review three of them.
First, from a broad communication perspective, having a transparent salary culture allows top leadership to frame the narrative of pay philosophy. It’s almost always best for top leadership to formalise and drive the communication of any organisational philosophy, and pay is no different. This ensures that all employees have a consistent, unified standard to compare themselves and their situations against. Formalised philosophies also allow for topics to be more easily managed and discussed.
Second, having a transparent salary culture enhances organisational accountability. Pay decisions and pay structures that are standardised are more justifiable, trackable, and fair. Without transparency, decisions are susceptible to tweaks and alterations by various divisions, departments, or teams. In the minds of most employees, this means salary strategy is a free-for-all, dependent on the whims of their managers or the department head, rather than something that’s adopted across the entire organisation. With a consistent and standardised pay practice, decision makers are more accountable for the pay decisions they make.
Third and finally, employees appreciate transparency. In the case of pay, a study conducted by PayScale found that 82% of employees who felt they were underpaid were also satisfied with their jobs when their employers could explain why their salaries were smaller. Justifiable explanations can go a long way to reduce uncertainty, rather than keeping employees in the dark. Being underpaid while in the dark allows employees to make monsters out of shadows, but shining a light on their situation can be satisfying despite their still being underpaid.
Not everybody is comfortable sharing their pay with others. What do you do then?
Find out why they’re uncomfortable. Think about it like a root cause analysis; you need to dig to find the core reason. It could be only two layers deep, with their discomfort—the first layer—being due to an honest misconception – the second layer. That misconception could be corrected by leadership, HR, or managers by communicating more clearly and effectively, and then that misconception could be addressed more broadly across the organisation.
For a lot of people, talking about their pay is like politics and religion; it’s a deeply personal matter that’s rude or taboo to discuss in the open. But why? It could be multiple layers deep. Like the top layer is discomfort, followed by perceptions of it being taboo, followed by fear, followed by what it is they fear. Salaries are often deeply personal because they are, technically speaking, an indication of how valued you are by society. We so strongly attach ourselves and our self-worth to our jobs that transparent salaries offer line-of-sight into that supposed value. Such transparency can be invasive to some people, leaving them feeling vulnerable and exposed.
That second reason is much heavier and delicate than simply correcting a misconception. With such a variety of possible reasons for discomfort, HR and managers need to be trained on effective navigation of those conversations. If they’re not trained, then they themselves could become uncomfortable with the discomfort of whoever it is they’re talking with, making things much worse off than before.
What are the main fears that owners or leadership teams have about salary transparency, and how do you turn their fears into positives?
Here’s a list of some fears you might have if salaries became transparent in your organisation:
- Your organisation will be exposed as an old boy’s network or full of cronyism
- Your organisation will develop a negative public image
- Employee engagement and satisfaction will decrease
- Fewer people will want to work at your organisation
- Employees will believe they’re not being paid fairly
- You or your organisation may face legal action
- Productivity will decrease
- Turnover will increase
I’m not going to review or “myth bust” every bullet. Instead, I wanted to list out several possibilities to show the breadth of reasons that might be considered, each of which could singularly be used by leaders to conclude that any benefits of salary transparency wouldn’t outweigh the costs.
Various combinations of the above reasons roll up into two questions that leaders might ultimately have: “Is there systemic unfairness in our salary strategy?” and “Will changing how we communicate salary hurt the bottom line?” The fear is that one or both of those questions will be answered with “yes.”
To make a positive out of the first question, organisations would need to take a long, introspective look into their salary philosophy. Is it fair? Can it be justified or explained clearly without a lot of ifs, ands, or buts? If it’s not fair, then make it fair. Conduct compensation analyses. Make market corrections. Explain to the organisation that changes will be made to ensure a fair pay structure.
If your pay strategy is fair—which it probably isn’t when taking the entire organisation into account—then the second question is already answered: salary transparency won’t hurt your bottom line. If it’s fair, which implies a high level of standardised rigour, then there is little room for legal action. If it’s fair, then you should clearly and broadly communicate pay decision criteria and coach employees around those criteria. If it’s fair, then there’s no old boy’s network or cronyism at play. If it’s fair, then other aspects of your organisational strategy are probably also fair, which means your employees will likely already be pretty committed to your organisation and aren’t likely to suddenly disengage or think about leaving.
Perceived fairness is the top priority and the top fear. If you’re afraid of what you might find, then you need to look into the mirror more often.
If a company wants to begin sharing its salary information amongst employees but has no strategy for actioning this, what are the steps it should take to create a robust ‘salary communication strategy’?
With most organisational change, I believe in a cascade effect. Or in other words, start at the top and work down. Get clarity, understanding, comfort, and ultimately buy-in from the top leadership team. Then cascade that down to directors, then management, then eventually individual contributors.
That cascading will take time, with each layer having its own unique hurdles and considerations. For top leadership teams, the message should be framed more as a cost-benefit ratio (with benefits outweighing costs) and an action plan on navigating potential backlash from employees and the public. For directors, the message needs to be framed contextually on a functional, divisional, or departmental level, as well as a plan for managerial training. Managers need to be trained on not only how to have healthy discussions about transparent salaries with their teams, but also to have the knowledge to answer a variety of questions that their teams might ask or concerns they raise.
Regardless of position level, information needs to be presented clearly and without ambiguity. Why are these changes being made? Why now? How will these changes affect each level? What can each level do to best equip themselves, and be equipped, with the knowledge and skills necessary to traverse the landscape of emotions that is bound to result from this kind of change? Considering and answering these questions can go a long way in strengthening the likelihood that change in salary transparency will be more widely understood and accepted.
What’s also important to keep in mind is that during this cascade of information—which could take weeks or months—there will be leaks. By this I mean a simple organisational truth: people talk, and people overhear. Murmurs will start, which turn to whispers, which turn to rumours that take on a life of their own. Don’t try to be protective or secretive of your salary communication strategy. Address it head on through an organisation-wide email or townhall, framing it as an organisational change like any other. The more proactive you can be, the more trust and openness you can expect from your employees as the changes roll out.
How should an HR professional manage a situation where transparent pay has shown a salary divide between two employees doing the same role?
How this situation is managed depends on the reason for the salary divide. As part of a strong salary communication strategy, a cohesive salary philosophy should be shared across the organisation—typically communicated by leadership or HR—and individual salaries should be clearly justified, often by managers to their team members. Each individual employee should know whether differences in pay are influenced by factors such as training, experience, discretionary effort, service, seniority, etc.
At the highest-level decision point, it comes down to the following question: Are these two individuals, who have the same job role, “equal”? If yes, then that means they are the same gender and race, and are roughly similar in age, family status, and levels of training, experience, service, and seniority. This pretty much never happens. Given that the answer will undoubtedly be “no,” then you need to understand which differences are weighed more heavily in distinguishing why one employee is being paid more than the other. That distinguishing feature or set of features is part of your organisation’s salary philosophy, which may need to be reevaluated as part of your organisation’s broader salary communication strategy.
If the answer to “why is there a salary divide” is “there is no justifiable or defensible reason” (which is hopefully never the case), then other than a hard look in the mirror to reflect on your organisation’s salary practices, those two employees should receive equal pay. Period. If you can’t explain why there’s a difference—either at all or without skirting against legal boundaries—then raise the lower-paid employees salary to that of the higher-paid employee.
If the answer is “there is a reason, and it’s because of XYZ,” then formalise those reasons. Embed them into your organisational salary philosophy, and make it known that leadership emphasises certain factors or traits over others. This kind of philosophical formalisation will allow you to more effectively engage in some form of compensation analysis for your employees, as well as potential market correction for those who are under-salaried. Additionally, a stronger philosophy gives employees a benchmark to set their own developmental goals against if they desire raises or promotions, providing them a better map for future success within the organisation.
Planning to expand your tech team? Quick submit your vacancy to start your search today.