An Uncomfortable Truth
Everyone knows that pay is a contentious issue in most organisations. Setting pay in a fair way can be considered both an art and a science: a task that few relish, as it is fraught with difficulty. People's perception of their value is often not aligned with the organisation's view, or that of their fellow colleagues: some believing that length of service is a reason for higher pay, rather than it being linked to performance.
Our research finds that while pay is very important, once it is deemed to be fair, purpose then starts to take over as the key motivator. So, are you being paid fairly? Do you know what others around you are being paid? Should that information be a simple right or should we continue to keep salary secrets?
In Ireland we tend not to talk about our remuneration. It is considered awkward, rude, or even crass. However, this cultural norm can support major pay inequality in our workplaces. Recently the BBC has taken a step towards rectifying this by, for the first time, publishing the salary brackets of its highest paid stars: and the list makes for some interesting reading. The top earners include:
- Chris Evans (£2,200,000 - £2,249,999)
- Graham Norton (£850,000 - £899,999)
- Jeremy Vine (£700,000 - £749,999)
- Steve Wright (£500,000 - £549,999)
At Great Place to Work, we know that in today's world, the currency of success is trust. The ability to build high-trust relationships will define you as a person and the level of success that you achieve. And key to building this is knowing how to avoid or remedy things that erode trust.
As a society, we all collude in the perpetuation of our cultural norms. One of these norms is remuneration: often we can't, won't, and don't talk about it (with our friends, let alone our colleagues!) The lack of visibility around salary provides a great opportunity for low-trust organisations to pay different rates for the same role, without being forced to justify their position.
In most organisations, an individual's salary is kept a secret between them and the organisation (typically through the HR function). This ensures that businesses don't feel obliged to pay all employees the same for similar roles – and they would argue it gives them flexibility based on talent, performance, experience, and any other relevant (or, frankly, irrelevant) factors that determine an employee's value.
However, not all organisations take this approach. Some don't agree with keeping salary a secret. There are organisations on a mission to build high trust wherever they can, and believe that their openness and transparency puts them on the path to success. So, should all salaries be see-through?
Salary Transparency in Action
Whole Foods is an American natural and organic supermarket chain (ranked #58 on the Fortune 100 Best Companies to Work For 2017 list, produced by the Great Place to Work Institute), with a turnover of almost $15 billion and over 85,000 employees. Tripling its profits since 2007, Whole Foods have proven that salary transparency can be effective in even the largest organisations. In 1986, co-CEO Jim Mackey decided to throw the books open and let everyone see what everyone else was being paid – including his own monthly paycheque. The goal was to inform employees of the connection between performance and salary - he felt that if they could see what type of performance and achievement translated in which salary, more people would be motivated to succeed. As the proposed Amazon-Whole Foods acquisition goes ahead, it will be interesting to see which culture prevails.
Buffer are a small US company providing a social media management tool that has made Default to Transparency a core value. To that end, they have implemented a radical transparency policy across all areas of their organisation (all employees can see each other's emails, and visitors to the site can read their source code, see what books their employees are reading, or their financials in real-time!) And they really prove their commitment to transparency by sharing the formula used to determine everyone's salaries!
To see how this works in practice, you need only visit Buffer's website to see a complete list of all their team's salaries today!
Ricardo Semler, Chairman of Brazil's Semco, has taken this approach to its logical conclusion, democratising the workplace by allowing all employees to determine what their own salary should be! The organisation is non-hierarchical in structure, which Semler believes is key to making this approach possible. Semco provides employees with the information they need to make a decision, including the range that the job typically receives, how other organisations pay similar roles, and what Semco is making and can afford. With this in hand, employees can then set a salary that they can stand over. Semco have built a democratic model where transparency is key. It's interesting to see this policy in practice, as many employees with the power to choose their own salary pick one that is too low: as when you give people the power, they don't want to seem greedy!
Different Levels of Transparency
Charles Fair, Consultant with Great Place to Work UK, says that there's no 'one size fits all' approach to salary transparency, and it depends on the culture and maturity of each organisation. "In most organisations, they will share information about salaries for particular job roles and families, including pay bands. The key is to convince employees that the organisation has a well thought through and fair mechanism to set pay levels." He also feels that organisational structure has a part to play, believing that it is easier for a small and agile start-up to implement salary transparency, particularly as they have the advantage of determining their culture from the start. Older, larger, and more complex organisations will struggle to deliver full radical transparency, as all salaries may not be easily justifiable once they hit the light of day.
I was curious to see if our reticence to discuss salaries was simply a cultural hang-up, so I discussed the topic with some of my colleagues in our affiliate offices. In Scandinavian countries, openness is a pervasive trait, according to both Jannik Krohn Falck (Managing Partner, GPTW Norway) and Maria Grudén (CEO, GPTW Sweden). They told me that everybody's salary information is publicly available from Government records: simply by going online and viewing the information provided in individuals' tax returns.
According to Ana María Gubbins (General Manager, GPTW Peru), companies in her part of the world do not have a policy of salary transparency. "However, what we are seeing is that more and more companies are implementing salary bands. These salary bands determine the possible range for a position or job category. Sharing these bands with employees means that companies can correct wage inequities."
One definite benefit of salary transparency is that it can highlight discrimination within organisations that has little to do with performance or experience, and perhaps more to do with gender or racial bias: as we saw when presenter Dan Walker made the list of BBC high earners, but his female colleagues did not, and Theresa May wasn't too pleased to hear about it either! Closer to home we have seen similar inequalities in our own national broadcaster with Sharon Ní Bheoláin paid significantly less than her co-presenter Bryan Dobson. Maybe it's possible to justify these differences; the beauty about salary transparency is that you can see the facts and begin the conversation.
As younger generations are becoming an increasing segment of the workforce is many organisations, they're expecting to be provided more transparency around all kinds of information, including salaries. Across the Great Place to Work network, we're seeing organisations sharing more sensitive information with their employees, including financial performance or even board minutes (with the most confidential sections redacted). Forming their values in the information age, workforce millennials are putting pressure on organisations to adapt to transparency. Research shows that millennials are more likely to discuss compensation with friends, family, and co-workers than their older colleagues are.
When Transparency Backfires
A study by researchers from UC Berkeley and Princeton found that employees earning less than their peers can be negatively affected by salary transparency. This translates into less motivated workers, less productivity, and ultimately negatively impacts attempts to build trust. Workers whose salaries are below the median for their occupational grade (unsurprisingly) report lower satisfaction, but those with higher-than-median salaries don't correlate with higher satisfaction. Similarly, below-median earners are more likely to look for a new job, while their above-median colleagues aren't any more likely to stay. According to the study's authors, "those negative ... effects are concentrated among employees in the first quartile of each pay unit. Differences in pay rank matter more than differences in pay levels. Our findings suggest that job satisfaction depends on relative pay comparisons, a relationship that is non-linear."
The Great Place to Work HR Panel
The vast majority of listed organisations, according to the Great Place to Work HR Panel, do not implement total salary transparency. However, all are now making efforts to communicate their salary process in much greater detail and with more regularity. Most are using their intranet and various online tools to share information, market data, and benchmarks to ensure employees are confident that the salary setting is robust. Organisations are increasingly delivering total benefit statements to employees detailing the full package they receive: not just base salaries and bonuses, but also pension contributions, health plan payments, training and development, canteen subsidies, on-site gym access, etc. Take a look at this example shared by Kellogg's at a Great Place to Work Leadership Forum:
Reward and Recognition practices are improving constantly, and organisations that understand how recognition is a key driver of engagement are investing more effort into practices that support this. 'Thank You' cards, intraweb call-outs, on-the-spot awards, recognitional toolkits, and phone calls from the CEO are popular all across the network.
While it's essential that all employees feel that they're fairly paid, money alone isn't the key to performance. Global Great Place to Work data shows that higher levels of satisfaction are enjoyed by employees who have challenging work they enjoy, and that plays to their talents. If this is combined with a positive high-trust environment, caring and appreciative leaders, and an inspirational sense of organisational purpose, then increased engagement and discretionary effort will ultimately maximise performance.
From our research, it's clear that every start up and new business should be embedding salary transparency from Day Zero if they want to build high trust, agility, and adaptability. But even larger legacy organisations will benefit from making things as transparent as possible.
I'm glad to see the BBC have challenged norms and opened this conversation around salary transparency, and we're excited to be welcoming HR Director of the BBC, Valerie Hughes-D'Aeth, to the Mansion House on Thursday September 21st for the 2017 Great Place to Work Conference. It's time to challenge our cultural norms to make sure they're serving us well. Join us: www.greatplacetoworkconference.ie.
John Ryan is CEO of Great Place to Work® Ireland.