salary transparency in the workplace

Salary Transparency in the Workplace: Overdue or Overkill?

If you could find out your co-workers’ salaries… would you want to know? What if, in order to discover their salaries, you had to make yours known as well?

Salary transparency in the workplace has been taboo since people started bringing lunch to work. However, there are companies in America (e.g. Whole Foods, Buffer, and SumAll) who are changing that narrative.

salary transparency in the workplaceThe question is: does salary transparency in the workplace… work?

The downsides are obvious:

  • Underpaid employees become upset and demand higher salaries or leave
  • The formula for compensation/rewards is called into question, causing confusion and/or resentment

Personally, I’m a big fan. From my first day at a “real-world” job, I felt uneasy about the secrecy of salaries. And if I did come to find out a co-worker’s salary, I was told I couldn’t use that as a benchmark for my salary!

Let’s just say that didn’t give me a ‘warm and fuzzy’ feeling. I’m confident we’ll see this dynamic change in my lifetime.

Why I love salary transparency in the workplace

No one likes having secrets kept from them. Here’s why salary transparency is far overdue.

Transparency build trust

When a company keeps you in the dark about compensation, you can’t help but feel shorted. What do they know that they don’t want you to know?

I don’t think it’s conspiracy-level thinking to say that companies want to keep their costs down. One way they do that is by keeping their workforce’s compensation in check. If no one knows who’s paid what, companies can more easily control salaries because their employees lack the information necessary to negotiate most effectively.

Now imagine a company that openly shares and discusses compensation. Suddenly there’s more open dialogue about where each employee stands. No longer is it a mystery why John makes $X and Sally makes $Y. Instead of hiding behind outdated norms, everyone’s working with the same information and more productive conversations can take place.

That’s why salary transparency in the workplace builds trust.

As an employee, it’s just as important to know you’re being rewarded for exceptional work as it is to know you need to pick up the production to get a raise. Companies hold lots of power. It’s goes a long way to share some of it with employees.

Greater incentives to excel

When performance is only measured against corporate goals, it can be difficult to tell what the appropriate reward is. There’s an added level of complexity and competition when employees can judge their performance and salaries against those of their co-workers.

In fact, a UC Berkeley study shows that salary transparency increases productivity for under-performers. That same study showed it has an even greater effect on top-performers!

benefits of salary transparency in the workplaceI believe hiding salaries hurts performance. Not every employee agrees with their performance goals and when people can only base their performance against an arbitrary benchmark, they get complacent. And that’s not good for anybody.

Want a workplace that strives for continual improvement? Let it be known who the top performers are and how much they’re paid. It’s up to everyone else to rise to the challenge.

Clarity about company values

An employee’s compensation is directly related to how a company values them. Without salary transparency in the workplace, employees only know what the employer wants them to know.

In an effort to control costs, companies could be hindering the development of their employees’ skill sets by not inviting open conversations about how they can increase their pay significantly. Today, many people face the scenario of getting something like a 5% raise for beating their goals or 0-2% for not meeting expectations. Then, the manager often vaguely alludes to some skills development that the company has barely any interest in facilitating.

The employee feels trapped. They wonder what the new hires are being paid and why management thinks they’re so special. Wouldn’t it make sense for that to be a topic of conversation so the employee can use that benchmark to improve their skills?

Salary transparency makes it easy to determine what companies value. Upset that Debbie makes 20% more than you? Here’s why and here’s what you can do to change that.

Fewer unexpected departures

People are creatures of habit. We like to sit in ‘our seat’ and eat at certain times. We like consistency.

That’s why when someone leaves their job, it’s usually due to another company providing what’s perceived as a much greater opportunity, or the employee feeling underappreciated, trapped, or overworked and under-compensated in their current spot.

In my estimation, people would rather see things improve with their current employer than take their talents elsewhere. I’m also fairly certain that companies hate when employees leave unexpectedly.

That’s why I think increased communication about salaries would lead to less untimely departures. If the only way to discover your market value is to seek employment elsewhere, that’s exactly what a smart person is going to do!

Would you like salary transparency in your workplace?

To make more money, we have to talk about it more often. Salary is a sensitive topic, but should it be? How would you feel if your co-workers knew your salary? Would it affect your company and your performance positively or negatively? Let me know in the comments.

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All opinions expressed on this blog are solely those of Home at 30 and are in no way affiliated with any other organization or institution. The purpose of this blog is to give general education and information about investing, wealth, careers, and college; It is not intended to be professional advice.

Author: Josh Ramos

Josh attended Wake Forest University and paid a fortune for it. Since then, he’s realized the obstacles that Americans face in moving up on the ladder of wealth. By founding Home at 30, he wants to help students learn the skills necessary for taking the next step on their journey to building wealth.

Salary Transparency in the Workplace: Overdue or Overkill? was last modified: July 29th, 2018 by Josh Ramos

Comments 4

  1. I find this topic interesting. I work for a local government, so all of our salaries and values of our benefits packages are available to everyone in the world. I’m pretty sure everyone is looking at their coworkers’ salaries, but it’s still taboo to talk openly about doing so (unless you’re going to gripe about an employee or job making too much money in comparison with everyone else). I don’t think it helps much with morale or gives the employee that much of an advantage. That might be because there’s no open dialogue about compensation from management and there’s not a lot of disgression given to management on compensation. This is due to the board allocating x amount in the budget for employee raises (after a public meeting where some finer members of the public scream at them for paying employees too much) and positions being set with a specific grade or pay range with not much room to deviate from that.

    I also worked for a private employer in a small office where a disgruntled accountant shared everyone’s salary to the non-exempt employees. It did not do much other than make unhappy employees more unhappy. Not the same thing but a fun data point nonetheless.

    I guess what I’m trying to get at is that salary transparency requires a lot more than just sharing salaries. I think it requires a company culture change with how they view compensation and the dialogue around compensation. The picture you paint in your article is great and ideal, but I am not sure that it is possible for many companies and individuals. Or at least very quickly. Culture is so hard to change.

    1. Post

      Great insight – thanks for the comment. It certainly works better with small companies which start off with that culture and grow from there, as every new employee already knows what they’re getting into. The bigger the company, the greater the possibility for miscommunication or fumbling the implementation.

      The point about government is interesting, but to me they’re disclosing that information because they have to. With salaries being so regimented, their incentive isn’t to create a culture focused on growth and improvement. Like you said, the budget is the budget. With small and mid-size private companies, they can create policies that take simply disclosing salaries much further.

      Without the right culture and going all the way with something like this, you’ll just have employees that not only feel underappreciated, but now exposed.

  2. I think it is a terrible idea. Your job is an agreement between you and your employer that sets a price they will pay in return for results you will perform. It is a private contract and it is absolutely nobody else’s concern. Nobody makes anyone accept a job, if you do not think the terms are fair then do not accept the job or leave for another one. Also the 80/20 rule applies to people, 20% of the employees create 80% of the company’s value. Therefore the pay should never be equal just because the job description is equal, the pay should be based on the value the employee creates. The 20% of employees that really produce results and value should get much higher pay than the rest, they deserve it because they are making the company most of the money. Pay should never be based on effort or how hard someone works or even how long they work, it should be based purely on the value they add. Why sharing that information would improve things for either the top value producers or the run of the mill average employees escapes me.

    1. Steveark – I think you make a phenomenal point about the 80/20 rule. However, I think the glaring oversight in your analysis is that the 20% that produce most of the value are almost certainly being paid very close to the same as the 80%! They have no idea what the 80% makes so they don’t have leverage to negotiate for higher salary even though they are producing most of the value. Sharing the information would make those that are top performers be able to negotiate for higher salary since they have data to prove they are better.

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