At most companies, salaries are rarely disclosed or discussed. Employees speculate and gossip around the water cooler, wondering how much the CEO pulls in every year or if they're making as much as someone else in their department. Discussing salaries is often a taboo subject, but some companies are implementing salary transparency policies that reveal just how much every employee at the company is making, from a newly hired employee to the CEO.
Whole Foods pioneered the policy of transparent pay. Co-CEO John Mackey introduced the concept in 1986, six years after the company was founded. Eliminating the secrecy around salaries, Mackey allowed any employee in the company to look up anyone else's salary or bonuses for the previous year, even Mackey's own compensation. He also extended the sharing of information beyond salaries: each store and region post daily sales data and detailed reports for each location's profitability, and sales are available for any employee to view.
Buffer, a social media start-up, has taken transparency to a new level. Last year, Buffer's co-founders Joel Gascoigne and Leo Widrich instituted a completely transparent policy around compensation for all employees and for the public as well. Buffer decided to disclose not only what each individual was making at the company, but also the formula used to decide how much a person will make. Anyone can find that Gascoigne, the CEO, makes $158,800 while the front-end engineer makes $88,000 a year. Buffer instituted this policy because it believes "transparency breeds trust, and trust is the foundation of great teamwork." Like Whole Foods, Buffer does not just extend transparency to pay. All of the equity distribution is made public, along with revenue; user numbers; and performance in customer support, media, and business. In the month after announcing this change, Buffer received more than double the amount of job applications than it had in the previous 30 days. Gascoigne said Buffer's new policy "scares the right people away," like potential employees who are not a good fit with company culture.
Proponents of these policies -- like Buffer, Whole Foods, and the market analysis start-up SumAll -- claim that increased transparency leads to increased trust. CEO of SumAll, Dane Atkinson, also says that it allows for more rational and open conversations about not just what an employee is making, but why they are making it. An employee challenging compensation opens the door to discuss how the person can add more value in order to reach a higher pay rate. Transparency advocates insist that revealing compensation improves company trust and employee morale, lessening the divide between employees and managers while also eliminating suspicions of favoritism or discrimination. Supporters like Atkinson believe that transparency "is the single best protection against gender bias, racial bias, or discrimination bias." Atkinson does not pay all of his employees the same salary, but his stance demands that higher salaries be justified with demonstrable reasons why that employee is adding more value and eliminates gender, race, and other factors from the equation.
Companies could also find more profit in public pay. A recent study by the University of Berkeley found that when people were informed of their relative earnings position, they increased output and productivity by 10% (A Field Experiment of Relative Earnings and Labor Supply, 11/2013). However, skeptics of ending salary secrecy can simply point to different studies that have found that not disclosing information about how an employee ranks actually increases productivity by 11% (Rank Incentives: Evidence from a Randomized Workplace, 07/2012). Additionally, informed workers may not necessarily be happy workers. In one study, when a university published all salaries to staff, high earners were not necessarily more satisfied with their jobs, and low earners got discouraged and began looking for new work (National Bureau of Economic Research, 10/2010).
Also, employees themselves may not want to switch over to salary transparency, preferring to maintain confidentiality. Public pay may not fit with the culture of that organization, and once you implement public pay, you cannot backtrack. Demystifying compensation brings with it a huge amount of chaos as well as difficult conversations about why some employees are being paid more than others.
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