Does Salary Transparency Make Employees Feel Empowered or Disgruntled?

By

two employees working together

The modern office layout is open. The walls have come down, and even those that remain are usually made of glass. We continue to move in the direction of transparency, yet there is one thing at work that most people still keep to themselves: their salary.

But the movement towards full transparency has few boundaries, which is why at SumAll, a social media analytics company, CEO Dane Atkinson lists everyone’s exact salary on an internal document accessible to all company employees.

If this sounds a little extreme to you, you’re not alone. British TV producers found the concept so dramatic that they made it the basis of a 2012 reality TV show, where, after all employee salaries were disclosed at a British plumbing company, bitter arguments broke out among workers who felt they weren’t being paid fairly.

But it doesn’t have to be this way, Atkinson says. In fact, he believes that this kind of transparency, called “full-salary transparency,” is beneficial for the employees of his New York-based company, which employs more than 40 people.

“From the employee point of view, it’s a great reducer of strain in the hiring process,” Atkinson said of the unusual policy. “A lot of employees don’t like the negotiating part.”

Perhaps most significantly, Atkinson says that this system greatly reduces, if not eliminates, pay discrimination.

“If you’re a minority who usually negotiates poorer, you don’t have to be fearful that you’re getting far less than you deserve,” he said.

Additionally, Atkinson argues that this system is extremely useful for employees to envision their career from a financial perspective.

“You can see, without any mist, what the career looks like that you’re headed down,” he said. “And what the one adjacent to you looks like. You can move from being an analyst to an engineer, and you know what it takes to get to the next tier of income.”

Atkinson says that many of his employees have switched career paths because they were clearly able to see that the market rewards certain skills better than others. Employees can model themselves after other people’s careers within the company.

Atkinson says that full-salary transparency is also good for employers. Why?

  • You get a more knowledgeable team. Employees know more about the organization and they can better appreciate the real costs involved in doing things.
  • There’s less disgruntled behavior. People don’t feel that they’ve been betrayed when it comes to salary.
  • The work environment is less “political.” Conversations are clear and they contain the actual facts, not assumptions.
  • Less brown-nosing. Atkinson: “You end up with a closer approximation to a meritocracy, as opposed to the ‘I do the boss’s laundry, so I get more money’ world that everyone else lives in.”
  • Saves time in hiring process. When you’re clear about how much you’re offering for a position, you don’t waste time with candidates who are looking for a higher salary.

This level of transparency isn’t for every company. Even Atkinson believes that moving to this policy from a traditional private salary system is very challenging and could have very negative consequences. For instance, when there are significant salary discrepancies among employees who have performed the same job for years, a sudden salary disclosure could result in serious anger and irreparable resentment.

Therefore, the most feasible way of initiating full-salary transparency is if the company starts out with this policy from day one, which is what Atkinson did with SumAll when he founded it in 2011.

Only a few other companies have similar full-salary transparency systems. One is the grocery store giant, Whole Foods, which implemented the policy in 1986, six years after it was founded. Whole Foods co-founder and co-CEO, John Mackey, has said that its salary transparency makes it clear to all employees what the company values and how to make more money.

The other company that uses full-salary transparency is Buffer, a San Francisco-based tech startup whose co-founder and CEO, Joel Gascoigne, uses a salary formula to calculate each of his employee’s salaries. The formula includes the nature of the role, the location of job, along with one’s experience and seniority.

Full-salary transparency is not a foreign concept. Many nonprofits and government agencies are required to disclose the income of its employees. Still, aside from a small handful of private companies, full-salary transparency has not gained much traction.

However, there are other ways companies can be transparent about salary without having to reveal the exact compensation of individual employees. Many companies share salary ranges for specific roles, an approach called “process transparency.” This way, prospective employees are not in the dark about what to expect.

Stephanie Thomas, Research Associate at the Institute for Compensation Studies at Cornell University, is a proponent of this approach and points out the potential downsides of the full-salary transparency system.

“Let’s say I’m sitting next to someone [doing the same job] and I find out that he makes more money than I do even though I think I’m equally qualified as him,” Thomas said.

“When I find out I’m earning less, I’m going to have some feelings about that. It may be the case that he has more experience or has a particular credential that justifies the fact that he’s earning more than me. But if I don’t know that, I might think that he’s being paid more because he’s man and I’m a woman – when that’s not the case.”

Also, looking at one’s salary alone doesn’t always give an accurate picture of their compensation. For instance, Linda Barrington, Executive Director at Cornell University’s Institute for Compensation Studies, said that when she took a job with Cornell at its New York City campus, a big factor in her decision to accept was discounted college tuition for her daughter. This financial benefit would not be visible if someone were simply looking at her salary.

Despite the fact that few companies have embraced full-salary transparency, Thomas thinks that a general increase in salary transparency is on the rise.

“I think that organizations are recognizing that being open and being transparent about the [payment] decision-making process really gives them a competitive advantage,” Thomas said. “If we’re open about inequality issues, that signals something about the work environment for potential employees.”

Particularly among millennials, who have grown up sharing information readily on social media sites, there is definitely an increased expectation of transparency in the workplace. But most companies are not ready for anything close to Atkinson’s full-salary transparency. Even Google, with it’s cool open offices and myriad perks.

Last year, Erica Baker, a former Google engineer, created a spreadsheet where she typed in her name and salary. She passed it along to fellow colleagues at Google and ended up with the salaries of more than 2,000 Google employees. Apparently, the information led to some salary adjustments. To make an understatement, Google wasn’t pleased.

While full-salary transparency may not be the answer, the trend is towards increased transparency. So it’s likely that next year at this time you’ll have a better idea of how much Jenny in sales is making.

Explore the latest in work culture.

It Starts with “Yes.”

This entry was posted in Career Advice and tagged , , on by .

About Todd Stone

Todd Stone is a graduate of the Columbia School of Journalism and has written for Inc. Magazine, Business Insider and Ad Age. He is a former startup founder and he and his twin brother form the comedy team, Stone and Stone. Together, they have appeared on truTV, CNN, on Friars Club roasts and as semi-finalists on NBC’s “Last Comic Standing.” You can follow Todd and his brother @stoneandstone.