Salary transparency: should you know what other people earn?

Is it better to be open or keep a lid on what you earn? SkillsTalk discusses the implications of salary transparency in the workplace.

According to LinkedIn’s 2019 global talent trends report, 51% of HR professionals in Australia identify salary transparency as one of the top considerations shaping the future of the workplace, but some fear pay transparency could spark jealousy among employees and make retaining staff more difficult.

Why is pay such a taboo subject?

Does talking about money make you squirm? You’re not alone.

In Australia, many employees are contractually forbidden to discuss pay with their colleagues. Businesses want to discourage workers from revealing their salary because it creates tension and “unrest”. But as we shift towards more transparent models of operation, people are starting to question whether it’s in their best interest to hide this information.

Transparency is the way of the future

Access to information creates a balance which prevents the monopoly of power. Private organisations have a vested interest in keeping a lid on employee salaries. If a company is able to keep staff pay a secret, this could lead to some employees being underpaid with no way of knowing it.

Transparency would require companies to address these pay differences and potentially lose staff who will seek work elsewhere. Information about pay can also empower marginalised groups to demand better working conditions and collectively negotiate a pay rise.

Transparency is also affecting our expectations of future leaders. One study into the pay disclosure of politicians found that the accessibility of this information was associated with lower perceived corruption and better government.

Dr John Molineux, senior lecturer at Deakin Business School echoes this idea in an interview with HRM. “If you are honest in [your employees’ salaries], you are more likely to be honest in others. If you want to build a culture of honesty in an organisation, secrecy is the worst thing you can do.”

Transparency is essential for building trust, not just for politicians but for organisations and industries as well.

Individual privacy issues

When discussing the topic of salary transparency, what most of us are really asking is how much responsibility are organisations willing to take on to ensure fair pay? On an individual level however, privacy becomes a concern.

In Norway, tax and income transparency has been the norm for years, but in 2001 this information became available online. Users could login and visually compare incomes with friends and neighbours on a map. Concerns were raised about children looking up earnings of parents and bullying someone at school, which resulted in a ban for anonymous searching in 2014.

Although millennials are more likely to disclose their salaries to their colleagues than baby boomers and gen Xers, many workers are just not comfortable sharing their salary with others. We may be moving toward a future with a greater emphasis on transparency, but not everyone is onboard.

In Denmark, regulations about pay transparency are a little more flexible. Organisations can follow complete transparency, where everyone is aware of what their co-workers earn, or they can refer to an audit system where individual salaries remain confidential but organisational pay equity is regularly evaluated.

Is pay transparency necessary?

Professor at the University of Utah’s Eccles School of Business, Todd Zenger, wrote in the Harvard Business Review that pay transparency is “a double-edged sword, capable of doing as much—or more—damage as good.”

Zenger argues that in most work settings, individual performance is difficult to observe, due to the fact that our performance is a joint product reflecting the effort of others as well. In his view, open salaries tend to create an obsession with pay and cultivate “inflated self-perception” among employees.

According to Stephanie Penner, a senior partner at consulting firm Mercer; “there’s a lot more that goes into how someone is paid than what meets the eye”.

“It’s important to give more information about why the pay is different for different jobs. If you don’t, it’s up for interpretation by each employee,” she says.

Websites like GlassDoor and PayScale work well because they allow employees to anonymously share salaries and help determine the market rate for their role. Yet for many workers it’s not just about salary, but the financial transparency of the business and its decision-making processes.

When we start talking honestly about money, salary negotiations will become far less uncomfortable and workers can feel confident in the knowledge that they are being paid fairly for the work they do.