Why salary transparency can make your business better

Compensation & Benefits

What would happen if everyone at your company knew exactly what their coworkers—yourself included—were earning?

Transparent salaries are a reality for some companies. For example, Canadian public consultation company MASS LBP has just two salary levels: $55,000 for junior staff and $75,000 for senior staff with one year of service.

“MASS LBP’s approach to compensation, with its commitment to transparency, was definitely part of what attracted me to the company. Their approach to compensation helped reinforce my sense of the kind of team MASS LBP was building—one built on mutual respect, cooperation, and fairness,” said Alex Way, Managing Director at MASS LBP.

In addition to employee engagement benefits, salary transparency could boost your business’ bottom line. Here’s why pay transparency could work for you.

Transparency improves productivity  

Employees might work harder if they know what their cubicle neighbours are making.

A 2013 UC Berkley study by Emiliano Huet-Vaughan found that businesses could significantly improve productivity “simply by providing workers with information about the earnings of their peers,” according to the study.

The research didn’t determine why transparency improved productivity, but status might play a role. Employees may work harder knowing they’re earning more than their peers.

Salary transparency can also improve productivity by saving time and money on hiring and training employees who might not be a good fit.

Potential hires who don’t like what a business is willing to pay won’t apply and current employees know what role to work towards to earn their ideal salary.

Fairness pays off

A recent study by Payscale, an online salary information company, found that the main factor for employee satisfaction is whether or not staff think they’re being paid fairly—not if they’re actually being paid fairly.

The Payscale study surveyed 70,000 U.S. employees and found that two-thirds of people who are paid fairly (based on industry standards) think they’re being underpaid. About sixty per cent of that two-thirds reported that they plan to look for a new job within six months.

The study also found that eighty-two per cent of employees at businesses that pay less than industry standard were satisfied with their work because it was clearly communicated why they were being paid less.

The surprising findings suggests that being transparent with staff about where their pay falls compared to the industry standard—and more importantly, why—can have a big impact on whether or not staff believe they’re being paid fairly.

Based on his experience working at companies with and without transparent pay practices, Alex Way agrees that transparency plays an important role in fairness at work.

“People are motivated at work by so many different things, but I think one of the biggest is a sense of fairness,” said Way. “Transparency is an important ingredient to build that sense of fairness.”

The argument against transparency

Not all research on pay transparency is positive.

A 2011 study from Princeton University found that below-median earners reported a “significant increase in the likelihood of looking for a new job.” Above-media earners were unaffected. The study looked at staff from the University of California shortly after the university’s salary information was made public due to a new law.

It’s easy to imagine that salary transparency wouldn’t be warmly welcomed at most companies where salary secrecy is the norm. As a result, some companies are opting for semi-transparent alternatives.

Alternatives to pay transparency

MASS LBP is one of 30 Canadian companies that are Wagemark Certified, meaning the ratio between their highest and lowest earners is certified as competitive and sustainable (certified companies are not required to publish their salary info publicly like MASS LBP does).

Other employers are doing internal salary reviews to ensure pay is fair among employees. For example, in 2015 McMaster University increased the pay of all female faculty members after an internal study found female employees were earning less than their male colleagues.

Sharing salary ranges, median salary information or making salary disclosure optional are other types of transparency that can improve fairness and trust while still maintaining some confidentiality.

Could transparency work for you?

Research on the benefits of pay transparency is mixed. Many factors (like industry, age, culture and business size) will affect how employees might react to different types of pay transparency. Sharing specific salary information might work well for one company, while a policy of regular and honest pay reviews might have the same benefits at another.

What’s certain is that all employees want to be informed and feel valued, and that’s something that goes beyond what’s printed on a pay cheque.

 

See also:
Want a better culture? Set compensation strategy accordingly
Should your office have a gambling policy?

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