Hang around the break room, and there’s likely to be a conversation about whether Peyton Manning is overpaid, what Warren Buffett’s latest mega-deal is worth or how much Angelina Jolie will earn from her next movie. People enjoy gossiping about what other people earn.
In most businesses, however, sharing employee salary information has long been taboo.
This attitude may be changing, as a growing number of workplaces are making pay transparent, according to several industry and university experts on employee compensation.
“Salary transparency has become a hot issue, because it’s a departure from the secrecy that has traditionally been associated with compensation,” says Tim Low, vice president of marketing for PayScale Human Capital in Seattle. “Employees and candidates are more informed about their value to employers than ever before because they have access to websites that provide real-time market data about specific jobs.”
Christine Ko, general manager of salaryBOOST in nearby Bellevue, Washington, sees the same trend.
“The number of companies who [provide salary transparency] are small,” she says, “but I’m sure many companies have at least entertained the idea. Companies that have implemented salary transparency include Buffer, SumAll and Whole Foods.”
Although businesses of all types are moving toward transparency, it may be easier in industries with a homogenous workforce, Low says.
“Think about a company with many entry-level sales reps or customer service reps, all having approximately the same skills,” Low says. “These employees will be compensated in a similar fashion. However, a company that requires very specific skills — seasoned software architects, for example — may have a huge salary range for the same position. When there is a wide variation in wages across an industry, it makes disclosure more challenging for the company.”
Any discussion of salary transparency must begin with a good working definition, says Stephanie Thomas, a research assistant at the Institute for Compensation Studies at Cornell University and a lecturer in the school’s department of economics.
“There has been a lot of buzz lately, and we need to be clear about what we mean by pay transparency,” she says. “We can think of pay transparency in terms of transparency of pay policies and practices, where there are clearly established guidelines for pay decisions; those guidelines are communicated to employees; and employees understand what they need to achieve in order to earn the next merit raise, incentive bonus, or promotional increase.
“This is very different from thinking of pay transparency as posting a spreadsheet in the company break room detailing everyone’s hourly rate, annual salary or total compensation.”
Because salary usually accounts for only about 70 percent of an employee’s total income, it may be more helpful to think in terms of compensation transparency.
“While salary is the component that most people think about, other benefits also have a big impact on the overall value of the compensation package,” Ko says. “Company equity, vacation days and flexible work options can add value to a compensation package that the salary doesn’t show.”
Several workplace, technology and demographic trends are fueling the conversation. Low points out that workers now are far more mobile; union representation has declined; and most pension plans are now defined-contribution plans.
“One of the pros of salary transparency in this modern environment is that it can be an opportunity to cultivate deeper trust with employees,” he says. “When employers lift the veil of secrecy and offer salary information, it can be a powerful element in cultivating a shared understanding and openness. When this happens, employees feel more aligned with the organization overall.”
More compensation information is available than ever, thanks in part to third-party websites such as Glassdoor.com, PayScale.com and Salary.com, which release salary information. Millennials, who grew up in an age of instant information, appear to be open to the concept of greater transparency.
“Typically, younger employees are far more familiar with social media,” Thomas says. “It’s something many of them have grown up with, and I think they are comfortable sharing information, whether it’s about where they went and who they went with, what they had for dinner or how much they’re getting paid.