Equality, Trust, and Higher Quality Employees: A Case for Open Salary Policies

In December 2013, social media management company Buffer rocked the HR world when it adopted an innovative idea: an open salary policy. In an attempt to be totally transparent with both employees and the public, Buffer released the formula it uses to calculate employee compensation as well as the salary and title of each employee. According to Buffer founder and CEO Joel Gascoigne, “transparency breeds trust, and trust is the foundation of great teamwork.”

Since Buffer’s historic announcement, large and small companies alike from supermarket chain Whole Foods to marketing analytics startup SumAll have enacted open salary policies and made employee compensation data available internally to all employees. Travel insurance company Squaremouth takes it a step further and turns transparency into accountability by giving its employees the power to vote to approve or deny their coworkers’ requests for a raise.

Why is this open salary trend sweeping the nation? The Millennial takeover of the workforce has transformed many aspects of the workplace, including which topics are and are not taboo for workplace discussion. Since the Millennial generation is accustomed to sharing personal information via the internet and social media, it’s not entirely surprising that they feel comfortable discussing salary with coworkers. For this reason, it’s likely that word about employee compensation will get out, whether you want it to or not.

More importantly, many industry experts suggest that being transparent about compensation can have many positive outcomes for your company. Let’s explore how an open salary policy could generate equality, an atmosphere of trust, and higher quality employees within your organization.

Equality

According to the 2014 U.S. Census, women are still paid an average of 79 cents for every dollar that men make. April 12 marked Equal Pay Day 2016, the symbolic day when white women’s earnings matched their male counterparts’ earnings from the previous year. But did you know that the pay gap is even wider for women of color? Equal Pay Day won’t come until August 23 for black women, September 13 for Native American women, and not until November 1 for Latina women. How can you eliminate such inequities in your company? With open pay policies. “Salary transparency is the single best protection against gender bias, racial bias or orientation bias,” said Dane Atkinson, CEO of SumAll.

A 2012 study published in the Penn State Law Review indicated that open salary policies do in fact narrow the wage gap. For instance, the study cited that the gender pay gap for all U.S. full-time workers, based on median annual earnings, is 23 percent. However, in the federal government, where salaries are transparent and available to the public, the gender wage gap is only 11 percent.

“I’ve unfortunately acted evilly in the past where I’d meet with a woman and a man and they’d both offer themselves up at different salary ratios and I’d happily pick whatever they were looking for,” said Atkinson. These blunders, Atkinson said, will “come back and haunt you.” According to Atkinson, open salary policies lead to “more conversation about salary” and demonstrate a “desire to correct salaries along the way.”

Many big tech companies are beginning to agree that transparency is the way to go. At the insistence of Arjuna, a subsidiary of investment firm Baldwin Brothers, organizations such as Intel, Apple and Amazon have released details regarding what their female and male employees make. Intel reports 100 percent gender pay equity, whereas Amazon and Apple report 99.9 percent and 99.6 percent equity, respectively. By releasing this information to employees and the public, the companies are publicly recognizing the inequalities that exist within their organization as well as pledging to close the gap.

Follow these companies’ example and take a step toward equality in your workplace by implementing an open salary policy.
 

Trust

Open salary policies can do more than close the gender wage gap. Being transparent about pay also creates an atmosphere of trust.

Why is earning employees’ trust important? Research indicates that trust fosters creativity, conflict management, empowerment, teamwork, leadership and higher performance in employees. However, only 49 percent of U.S. employees trust their senior management. Want to make progress on gaining your employees trust? Then it’s time for an open salary policy.

“Open salary policies mandate truthfulness and ethical behavior in organizations that would otherwise abuse the secrecy,” said Atkinson. Whole Foods co-founder and co-CEO agrees with Atkinson: “if you’re trying to create a high-trust organization, an organization where people are all-for-one and one-for-all, you can’t have secrets,” said John Mackey, in reference to the need for pay transparency.

Employees of pay-transparent companies appreciate the dynamic that these innovative policies have created. For example, adapting to an open pay policy was “both uncomfortable and comfortable at the same time,” according to SumAll employee Scott Pollack. “It removes a layer of something that can be frustrating in other companies. Knowing your colleagues, either they know something about you or you about them. But here it removes that layer and you can focus on doing the best work you can do.”

In a workforce full of Millennials who are accustomed to sharing personal information, it’s likely that salary information will get out whether you want it to or not. “I’ve never been in a company where salaries haven’t leaked out at some point and caused a huge amount of damage,” said Atkinson. You might as well beat the mistrust and confusion brewing in your workplace by implementing full pay transparency.
 

Higher Quality Employees

Some companies are staunchly against salary transparency because releasing the information “is too disruptive, and not worth it,” says Kevin Hallock, dean of the School of Industrial and Labor Relations at Cornell University. Conversely, HR expert Sharlyn Lauby argues that “misunderstood pay can be a huge distraction—for both the employee and the company.”

According to a 2015 study coauthored by Peter Bamberger, pay secrecy is linked to lower employee performance and a higher likelihood of quitting when employees suspect unfair criteria for setting pay. The study also suggests that people would rather look for a new job than ask for a raise. Atkinson found this hypothesis to be true at SumAll—since enacting the open salary policy, SumAll’s employee turnover rate has been less than 10 percent.

Pay-transparent companies have also experienced an increased number of job applicants. For instance, in the 30 days after Buffer announced its open salary policy, the company received 2,886 applications for job openings in comparison to the 1,263 it received in the month before the announcement. In addition to a higher volume of applicants, some companies believe that open salary policies have led to better quality hires. “Because people who think they’ve earned their salary and have no issue with that tend to be better teammates,” Atkinson said.

Implementing an open salary policy is a commitment to transparency, equality and trust. Be prepared for people who value these principles to flock to your company.

In a candidate-driven job market, companies are always looking for ways to appeal to candidates and retain the best employees—pay transparency might be exactly what your company needs.

What are your thoughts on open salary policies? Sound off in the comments!