Talking about salary is traditionally a touchy — and taboo — topic. Coworkers don't swap stories about their monthly paychecks; friends don't bring up money over happy hour; and even married couples aren't clear on compensation. A recent survey from Fidelity found that four out of 10 people couldn't name their spouse's salary — with 10 percent of them off by more than $25,000.
But recent calls for salary transparency (particularly focused on the gender pay gap) are changing the standard. Employees increasingly want to know what their team members are making and how pay is determined, as highlighted by a recent controversy at Google when an employee made an open spreadsheet to share salaries.
With communication on compensation becoming the new norm, employers need to adapt — both culturally and legally. Just this month, the Department of Labor issued a rule that bans federal contractors from instituting policies that discourage employees from discussing, disclosing or inquiring about their own pay or that of their co-workers.
We reached out to Dan Walter, president and CEO of compensation consulting group Performensation, to talk about the changing landscape of salary in the workplace. Here, he offers actionable advice for HR leaders and executives on how to approach compensation strategy and transparency issues around pay.
[Transparency] can be hard. The goal at most companies is to relate pay to the performance of each individual, and performance — managed properly — is a nuanced topic. It includes private conversations, coaching, quiet achievements and public acknowledgement. Many of these things are unseen by other people in the company.
In addition to the individual dynamic, it can be very hard to explain pay data and how it is used to determine individual pay. The process of determining pay is both a science and an art. Additionally, base pay is only one component of total rewards. It's difficult for many companies to provide total reward data to individuals even once a year. Without everything included in the total reward package, a comparison of base pay may be completely irrelevant.
Pay transparency is great for some companies and terrible for others. It is not a one-size-fits-all (or even most) situation. For this basic reason I am neither for nor against pay transparency — the applicability and execution of transparency is as unique as companies themselves. I don't think this is a "trend to follow." I look at it as an opportunity to explore, and either embrace or reject, as the issue diagnosis warrants.
Pay transparency, when performed well, can reduce a lot of the anxiety over pay. Much of the stress we see about pay is a perception of it not being fair. Transparency can virtually eliminate this unless, of course, the pay is truly not fair.
We have a client who is very transparent about pay and recently made the decision to raise its minimum wage to $14/hour. This requires them to also address the pay of other [full-time, salaried] employees near the bottom of the pay scale, since many of them will also get raises. There will be some pay compression, but everyone understands how pay is budgeted and how they fit into the structure. We expect the result to be very successful.
Many people do not agree with their own pay when it is relative to their coworkers. Most people believe they are far better than average, but at least half of these people are likely near or below the average in most pay structures. This creates the need for strong managers [and] leaders and great HR departments.
First and foremost HR leaders, executives and managers need to understand the 'how' and 'why' of their pay programs. They need to be prepared to communicate in words, numbers and pictures. Each individual receives this information best in various ways.
There has been a trend for companies to rely more heavily on "compensation systems" to communicate pay. If you provide great information on screens and reports, people will "get it." But these systems are simply one tool to create understanding. Without stories, face-to-face discussions, presentations, more stories and frequent "touches," the systems become just another thing to look at.
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