Employees discussing and often speculating about their peers’ and boss’s salaries is standard water cooler talk, in most companies. But strangely, discussing exact figures or asking anyone how much they make is taboo. Some companies are now bucking the trend and publishing employee compensation data publicly. Buffer, a tech startup with a distributed workforce around the world, publishes employee salaries and equity ownership data publicly on its website. While startups may be adopting pay transparency with a lot of pomp and pageantry, Whole Foods, a Fortune 500 company with 80,000 employees, has been making salary and bonus data available internally to all employees for more than two decades.
The usual assumption behind salary secrecy is that the lack of it – i.e. if everyone knew everyone’s salaries – would cause mayhem. Culturally, compensation is closely tied to one’s sense of self-worth, and most employees are naturally uncomfortable broadcasting their pay. So what is the incentive for companies to go ahead? According to Buffer CEO Joel Gascoigne, the company has consistently attracted higher calibre candidates after publishing their salaries, as well the formula for each position, so that new hires know exactly how much to expect. In his experience, this approach takes money off the table at the start and both parties can focus on the candidate’s fit for the position. Also, importantly, Buffer is not a premium paymaster; its pay scales for all positions are at or below industry standards.
As one would expect in such situations, John Mackey, the CEO of Whole Foods, is regularly challenged about why one employee is paid more than another. His reply is usually to point out the ways in which higher-paid employees add more value. According to him, transparency corrects the lack of self-awareness among employees, and crystalizes what behaviour and performance is valued by the company.
[pullquote]Salary transparency relies on such frank feedback and willingness by employers to openly debate such questions. Whether this is possible or would be received positively in less forthright Asian cultures is an entirely different question[/pullquote]
Salary transparency relies on such frank feedback and willingness by employers to openly debate such questions. Whether this is possible or would be received positively in less forthright Asian cultures is an entirely different question. In the local context,more sought-after companies such as large conglomerates and newer IT companies are quite open about starting salaries for fresh undergrads and internship programs. However, salaries of middle and upper management are almost never disclosed. At the same time, it is apparent that there is huge income disparity between different layers in company hierarchies, white collar and blue collar jobs, and urban vs. rural workers. Particularly when hiring for the lowest rungs, companies feel that the information asymmetry caused by the lack of salary information favours them.
On the flip side, while salary data isn’t readily available in aggregated form, it’s not completely missing either. Most companies state the salary when advertising for entry level jobs, while blue collar and some state sector worker salaries are negotiated via unions. Generally, the lower the level of the job, the more commoditized the skill set required and it is unlikely that employers would negotiate pay to get ‘better’ candidates. Hence, all companies openly broadcasting their salaries, via their website etc., for entry level jobs is not an unthinkable leap of imagination. Should this happen, one would expect the job market to become more efficient, as workers move to the highest paying job that they can get within each industry. Every company would end up with the best candidate for the salary they offer. Of course, better negotiators would pass themselves off as more valuable candidates than they actually are and somewhat disrupt this process.
But would the same outcome hold true among white collar mid- and senior-level positions in the private sector? Naturally, the best paymasters would be better off, as salary transparency would increase the chances of attracting the best candidates. At the same time, formulaic salary structures such as what’s used by Buffer would make it harder to retain star employees. It would definitely be easier to make offers to poach away employees, but at the same time, they would be at a higher risk of overpaying them. In a company with pay secrecy, salaries are more likely to reflect the actual value the employee brings to the business. Every employee would know how much they contribute in comparison to their peers and no capable employee would settle for less than their worth. Since the current employer always has a better idea of their employee’s capability than what a prospective employer can gauge from an interview, it would be difficult to poach an employee without overpaying. Thus, while salary transparency goes against our cultural norms and instinctive beliefs, there is a good case for employers to explore this practice.