What are the risks and benefits of pay transparency?


It’s been hailed as a cure to the gender pay gap and a driver of productivity yet many believe pay transparency – an open policy with regards to employees’ salary information – leads to more harm than good.  

The BBC is about to take a giant leap in pay transparency. Today in the UK the public broadcaster is revealing the salary details of its 96 star employees who earn more than £150,000 (A$247,000).

In advance of the disclosure, Tony Hall, the corporation’s director general, forewarned on-air talent, such as Graham Norton and the Antiques Roadshow host, Fiona Bruce, that they should prepare for criticism. Not only are the fat wage packets likely to raise eyebrows, but also the fact that only a third of these well-rewarded staff are women.

Reluctantly, the corporation has been forced to open up details of its £194 million wage bill after demands by the government for disclosure under the terms of the royal charter negotiated with the Conservative government.

You may recall back in 2013, the ABC faced a similar backlash when details of staff salaries were leaked to The Australian newspaper. Payroll information dating back five years revealed eight broadcasters who were on more than $250,000 a year. It prompted widespread dismay among lower-paid on-air talent and concerns that ABC journalists were now more likely to be ‘poached’ by commercial channels.

Most employers fear disclosure. They believe that if employees know what each other is earning or what the bosses are taking home that it could trigger widespread discontent and a pay war among staff. A 2009 study by US and Australian academics found that half of all businesses surveyed discouraged employees from sharing information on pay.

But look at the knots that organisations get into when rumours about inflated salaries of senior executives gets stirred up. The more an organisation defends its right to withhold information, the more suspicion festers and the more damage is done to reputation. One only has to take a look at the ongoing and very public criticisms of CPA Australia about the lack of transparency around board and executive remuneration. Or the furore that ensued once it became known that Ahmed Fahour, the CEO of Australia Post, was earning 119 times more than an average postie.

There are some companies however who are taking a different stand. They are often entrepreneurial and technologically-focussed, run by young people for whom hierarchy is a relic of the old ways of doing business.

When 35-year-old Dean Hall, launched his gaming studio Rocketwerkz, in New Zealand a few years ago, he instituted unlimited leave and a transparent pay policy and unlimited leave, pegging his own salary to 10 per cent above the highest paid employee. Social media management company, Buffer, goes even further. In 2013, the CEO Joel Gascoigne posted staff salaries on the company website for all the world to see, including his own six-figure income – and the formula that Buffer uses to calculate those salaries. Buffer says this “default to transparency” is the second most important value that the company holds dear.

Currently, Australian employers are able to include “gag clauses” in employment contracts that can see workers punished or sacked for talking about their pay.

But advocates for breaking this taboo around salary secrecy argue that it can hide unjustified pay discrepancies and is a major cause of the gender pay gap.

Melbourne University human resources professor Michelle Brown told the Sydney Morning Herald that pay transparency would encourage employers to make decisions based on merit rather than conscious or unconscious bias.

“Under pay secrecy, bias and stereotyping can affect pay decisions. Managers are free to apply criteria that disadvantages women, such as using ‘face-time’ (time in the workplace) or ‘perceived similarity’ as measures of employee value to the organisation,” said Brown.

US expert on pay transparency, Dr David Burkus, associate professor of management at Oral Roberts University, points to a variety of research demonstrating that when employees are given access to salary information it increases productivity and, obversely, pay secrecy decreases productivity.

But human nature being human nature, how comfortable would we all be knowing the person next to you is earning considerably more or less?

Todd Zenger, a professor at University of Utah’s Eccles School of Business, wrote in the Harvard Business Review last year that pay transparency is “far from a panacea …[and] a double-edged sword, capable of doing as much — or more — damage as good.”

Zenger argues that open salaries create an obsession with pay and cultivate “inflated self-perception” among employees, in addition to becoming a costly agent for change for employers.

Burkus, however, told Business Insider that he thinks the reason companies shy away from pay transparency is fear.

“It’s fear that when people find out that different people get paid differently, they’re not going to be able to have the maturity and make the mental leap to see that there are reasons why a certain person is paid more than the other,” Burkus said.

What are your thoughts on pay transparency? HRM would be interested to hear your views.

Photo credit: Pulpolux !!! / CC BY-NC

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Colin Dorber
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Colin Dorber

Ultimately and in the public sector at least disclosure of the methodology for determining salaries is reasonable. In the private sector however it is a competition and there can be valid reasons for non disclosure- My experience is there are no secrets and everybody knows!

Max Underhill
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Max Underhill

Amanda some great research and their is also the SA TAFE case and the new Wesfarmers CEO package “restructure” recently. An issue with most of these is the structure of the remuneration package which in the 1980/90’s was critical but seems to have become blurred. The remuneration packages have 3 broad components each with its purpose and subsets. 1. Cash component 1.1 Base Salary (the most important as it is the contribution value calculated and quantitative for position and incumbent). 1.2 Base salary adjustment needs to be transparent and justified i.e if for a reason you need to pay above… Read more »

Dhara Muliya
Guest
Dhara Muliya

There are always positive and negative side of every situation. All the changes were resisted at early stages. Also had created chaos. But later it became part of normal routine. We have to take initiative to change workplace norm of hiding pay scales. It will bring some fresh challenges and benefits. We don’t need to hesitate for change because of fear. We can have little control if we adapt it initially. Otherwise it will be forced eventually on the businesses.

trackback
The Wage Gap: Enough talk, let’s do something about it – Danielle's EMPR Blog

[…] topic states that removing pay secrecy and giving employees access to salaried information goes to increase productivity in the workplace (Woodard, […]

More on HRM

What are the risks and benefits of pay transparency?


It’s been hailed as a cure to the gender pay gap and a driver of productivity yet many believe pay transparency – an open policy with regards to employees’ salary information – leads to more harm than good.  

The BBC is about to take a giant leap in pay transparency. Today in the UK the public broadcaster is revealing the salary details of its 96 star employees who earn more than £150,000 (A$247,000).

In advance of the disclosure, Tony Hall, the corporation’s director general, forewarned on-air talent, such as Graham Norton and the Antiques Roadshow host, Fiona Bruce, that they should prepare for criticism. Not only are the fat wage packets likely to raise eyebrows, but also the fact that only a third of these well-rewarded staff are women.

Reluctantly, the corporation has been forced to open up details of its £194 million wage bill after demands by the government for disclosure under the terms of the royal charter negotiated with the Conservative government.

You may recall back in 2013, the ABC faced a similar backlash when details of staff salaries were leaked to The Australian newspaper. Payroll information dating back five years revealed eight broadcasters who were on more than $250,000 a year. It prompted widespread dismay among lower-paid on-air talent and concerns that ABC journalists were now more likely to be ‘poached’ by commercial channels.

Most employers fear disclosure. They believe that if employees know what each other is earning or what the bosses are taking home that it could trigger widespread discontent and a pay war among staff. A 2009 study by US and Australian academics found that half of all businesses surveyed discouraged employees from sharing information on pay.

But look at the knots that organisations get into when rumours about inflated salaries of senior executives gets stirred up. The more an organisation defends its right to withhold information, the more suspicion festers and the more damage is done to reputation. One only has to take a look at the ongoing and very public criticisms of CPA Australia about the lack of transparency around board and executive remuneration. Or the furore that ensued once it became known that Ahmed Fahour, the CEO of Australia Post, was earning 119 times more than an average postie.

There are some companies however who are taking a different stand. They are often entrepreneurial and technologically-focussed, run by young people for whom hierarchy is a relic of the old ways of doing business.

When 35-year-old Dean Hall, launched his gaming studio Rocketwerkz, in New Zealand a few years ago, he instituted unlimited leave and a transparent pay policy and unlimited leave, pegging his own salary to 10 per cent above the highest paid employee. Social media management company, Buffer, goes even further. In 2013, the CEO Joel Gascoigne posted staff salaries on the company website for all the world to see, including his own six-figure income – and the formula that Buffer uses to calculate those salaries. Buffer says this “default to transparency” is the second most important value that the company holds dear.

Currently, Australian employers are able to include “gag clauses” in employment contracts that can see workers punished or sacked for talking about their pay.

But advocates for breaking this taboo around salary secrecy argue that it can hide unjustified pay discrepancies and is a major cause of the gender pay gap.

Melbourne University human resources professor Michelle Brown told the Sydney Morning Herald that pay transparency would encourage employers to make decisions based on merit rather than conscious or unconscious bias.

“Under pay secrecy, bias and stereotyping can affect pay decisions. Managers are free to apply criteria that disadvantages women, such as using ‘face-time’ (time in the workplace) or ‘perceived similarity’ as measures of employee value to the organisation,” said Brown.

US expert on pay transparency, Dr David Burkus, associate professor of management at Oral Roberts University, points to a variety of research demonstrating that when employees are given access to salary information it increases productivity and, obversely, pay secrecy decreases productivity.

But human nature being human nature, how comfortable would we all be knowing the person next to you is earning considerably more or less?

Todd Zenger, a professor at University of Utah’s Eccles School of Business, wrote in the Harvard Business Review last year that pay transparency is “far from a panacea …[and] a double-edged sword, capable of doing as much — or more — damage as good.”

Zenger argues that open salaries create an obsession with pay and cultivate “inflated self-perception” among employees, in addition to becoming a costly agent for change for employers.

Burkus, however, told Business Insider that he thinks the reason companies shy away from pay transparency is fear.

“It’s fear that when people find out that different people get paid differently, they’re not going to be able to have the maturity and make the mental leap to see that there are reasons why a certain person is paid more than the other,” Burkus said.

What are your thoughts on pay transparency? HRM would be interested to hear your views.

Photo credit: Pulpolux !!! / CC BY-NC

4
Leave a reply

avatar
100000
  Subscribe to receive comments  
Notify me of
Colin Dorber
Guest
Colin Dorber

Ultimately and in the public sector at least disclosure of the methodology for determining salaries is reasonable. In the private sector however it is a competition and there can be valid reasons for non disclosure- My experience is there are no secrets and everybody knows!

Max Underhill
Guest
Max Underhill

Amanda some great research and their is also the SA TAFE case and the new Wesfarmers CEO package “restructure” recently. An issue with most of these is the structure of the remuneration package which in the 1980/90’s was critical but seems to have become blurred. The remuneration packages have 3 broad components each with its purpose and subsets. 1. Cash component 1.1 Base Salary (the most important as it is the contribution value calculated and quantitative for position and incumbent). 1.2 Base salary adjustment needs to be transparent and justified i.e if for a reason you need to pay above… Read more »

Dhara Muliya
Guest
Dhara Muliya

There are always positive and negative side of every situation. All the changes were resisted at early stages. Also had created chaos. But later it became part of normal routine. We have to take initiative to change workplace norm of hiding pay scales. It will bring some fresh challenges and benefits. We don’t need to hesitate for change because of fear. We can have little control if we adapt it initially. Otherwise it will be forced eventually on the businesses.

trackback
The Wage Gap: Enough talk, let’s do something about it – Danielle's EMPR Blog

[…] topic states that removing pay secrecy and giving employees access to salaried information goes to increase productivity in the workplace (Woodard, […]

More on HRM