Betteridge’s law states that “Any headline that ends in a question mark can be answered by the word no.” Not in this case. Pay transparency is coming. The big question is how we get there.
In case you’re reading this article a hundred years from now, back in the twenty-first century almost everyone who got paid a salary was expected to keep that amount a secret. The rationale behind this might be divided into tactics and strategy, for both personal and competitive reasons.
For the employer: keeping pay a secret helps reduce the chance of unrest among employees, and gives less information to your competitors.
For the employee: not telling your coworkers your salary means they are less likely to resent you. Plus, if no one knows what you make, you can more easily demand a higher wage when you interview elsewhere.
All of this is pretty foolish thinking. People are going to find out. They are going to compare paystubs. They are going to bring it up in interviews. And certainly, it’s not a secret from everyone. Management and the payroll department and your banker all know what you make. It’s extremely hard to keep a secret, and most secrets at work are toxic anyway.
The Rise of Pay Transparency
This isn’t just some wacky idea. Business Insider reports that many companies have opened up salaries, including Whole Foods. A New York Magazine piece explains the promising scientific research on the topic. Ditto for The Wall Street Journal.
Even the arguments against pay transparency seem to be of the form “it’s a good idea in theory, but we’re not ready for it yet.” Writing for Harvard Business Review, Todd Zengler summarizes his perspective as:
The real problem with pay transparency is that it focuses individuals on comparing pay rather than on elevating performance.
That sounds like a problem with the individuals you hired, which again, is a short term problem.
Even Salary Experts Are Paying Attention
Take a look at the the HR Compensation Best Practices Report from PayScale. On Page 43 they write:
Nearly a third (31 percent) of organizations agree that they have a transparent pay process. Where it gets interesting is how differently each company defines transparency. Transparency isn’t all or nothing. In fact, there’s a whole range of choices that organizations make about how much information to share with employees…Level one is the least transparent; companies tell employees what and when they’re paid. Level five is the most transparent – some call this radical transparency – where either everyone’s pay, or the formula for all pay decisions, is shared openly with all employees, up to the executive level.
Nearly half of organizations described their level of transparency as a level one. At the other end, 6 percent of organizations believe they’re at level five transparency. The rest fell somewhere in the middle.
It’s hard to imagine any private company at a level five if you wind the clock back a generation or two. Clearly, pay transparency is coming.
The Great Shuffling
The modern history of employment might best be characterized as a group of paradigm shifts. We’ve seen a steady decline in job tenure: people don’t stay at the same company for as long as they used to. Also, the scope and diversity of the labor force is changing. New employees receive less on-the-job training, which is correlated with trends in educational attainment.
What will happen to companies that adopt salary transparency? Consider Gravity Payments, who famously reset their minimum wage to $70,000 a year. The result was chaos. They received thousands of applications, watched employees cry tears of joy at their desks, and fielded a media firestorm. But years later, they have even more customers.
Or, check out what happened at the University of California system. When they announced that all employee salaries would be public, a study conducted by researchers showed that only low-wage workers weren’t pleased with the transparency. But that dissatisfaction may lead to a good outcome: those individuals decide to move on.
Knowing vs. Not Knowing
Here’s the bottom line: if you don’t know you’re being underpaid, it’s harder to take action. If you do know you’re being underpaid, you have more leverage and more incentive to find something else. In the long run, that’s good for everyone.
We’re not going to be keeping this a secret in the future. We’re already on the way.