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Weighing the Benefits of Pay Transparency

Opinions vary on whether practicing pay transparency is a good idea.

Those who frown upon disclosing pay contend that it makes employees uneasy, breeding envy and discontent. And those who learn they’re making less than the person doing the same job in the next cubicle might just leave altogether, in search of a sweeter salary.  

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For that matter, the argument goes, the comparisons employees will inevitably make might not even be accurate, as they don’t necessarily have all the information that goes into determining a given salary.

On the other hand, proponents of pay transparency say some employees might see they’re actually paid a fair market rate and be a bit happier in their jobs. It also serves as an incentive for workers to climb to greater heights, to reach for more in their careers.

That obviously helps the organization, which can also identify and correct pay imbalances when they come to light, transparency advocates say.

Whole Foods co-CEO John Mackey is sort of a charter member of the pro-pay transparency club.   

Mackey first started making compensation data available to all Whole Foods employees in 1986, just six years after co-founding the supermarket chain in Austin.  

Whole Foods now shares the average pay for professional titles throughout the organization on its website.

In a recent interview with Freakonomics Radio, Mackey sung the praises of wage transparency, and explained some of the benefits of being open and honest about salaries at Whole Foods.  

“It gives people something to strive for,” he told host Stephen Dubner.

The thinking, Mackey said, is that employees see the salary they could be earning in a more senior position, and have greater motivation to work toward earning a promotion.

Mackey also discussed pay transparency as a way to help achieve pay equity.

“When you reveal a pay structure very transparently … sometimes things aren’t just. And people will complain about it. And that gives you an opportunity to correct it.

“At other times,” he continued, “[the pay] is correct, and you can defend it. And then you’re pointing out to people what the organization most values and rewards.”

All that said, most organizations still don’t see pay transparency quite the same way that Mackey does.

Earlier this year, for instance, a WorldatWork survey found that, while 67% of companies view pay transparency as increasingly important, just 14% of them described their organization’s level of pay transparency with employees as “significant” or “extreme.”

There are good reasons for companies to put more emphasis on being transparent about pay, said

Dave Ulrich, a professor of business at the University of Michigan’s Ross School of Business and co-founder of the RBL Group.

Wage transparency “signals what matters most to the leadership team, because everyone can see who got paid more. [It also] encourages a commitment to perform, because people know their salary will be public,” he said. “Transparency is generally better because it avoids back room politics and increases accountability.”

Of course, it also “requires leadership courage to engage in numerous conversations to justify pay differences, and requires clear standards that justify one person’s pay more than another, which is often very difficult.”

In general, if a company starts transparency when it has not been [transparent in the past], it creates a stir for a year or two or three,” concluded Ulrich. “But over time, it becomes a little moot and people see a salary and move on.”

Brad Hill, a principal at Clearwater Human Capital, sees total transparency as potentially useful in some instances, but is more likely to be a distraction that causes “more bad than good.”

“I believe that employees are entitled to see any and all pay information that has a bearing on their job, and their short-term career decisions, but nothing else.”

Ultimately, employees should be able to access pay information if it’s immediately beneficial to him or her, said Hill.

“If it’s not, then it is titillating, like gossip, but sharing this information will be of no benefit to the employee or the organization.”

About the Author

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Mark McGraw is managing editor of Workspan.


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