Every employee wonders what their coworker earns. A PayScale Compensation Best Practices Report revealed that employees quit their organization to seek higher pay elsewhere.
Many organizations have a policy that disallows employees from discussing their salaries. The Institute for Women's Policy Research conducted a survey of US workers. The survey revealed that almost 50% were either "contractually forbidden or strongly discouraged" from sharing salary information with coworkers.
However, multiple companies encourage employees to reveal their salaries. This is used as a recruitment tool
to attract new candidates. But there are some cons as well.
Such transparency makes it difficult for employers to offer competitive salaries due to the levels of public scrutiny on their compensation packages
Does this mean organizations have something to hide? Is an open salary policy awful for your organization? Or is it time to employ salary transparency to the fullest?
The Pros and Cons of Transparency
Salary transparency is one of the hottest topics in the workplace. As a result, many organizations have adopted it, while others think that it will never work.
Salary transparency allows employees to demand fair pay and fight against exploitation. Sharing salary information helps them know what they're worth and how much their peers make and avoid getting underpaid. It also helps managers understand their employees' market value.
The downside of this process is that it can lead to envy and unhealthy competition between colleagues. It could also lead to some employees feeling like they need to undersell themselves. Such instances are disadvantageous when compared with their other confident peers.
Especially if they need more experience or education than other employees on the same level as them.
A study found that salary transparencies at a company increases employee satisfaction and productivity. Open salaries enable employees to be more satisfied with their work and be valued for what they do. As a result, they are less likely to feel resentment or like they were shortchanged, leading to lower turnover and improved engagement.
For example, Buffer and SumAll have adopted an open salary policy. They believe that transparency around benefits and compensation packages will lead to a more inclusive and diverse workplace.
Finally, it creates a trust-based workplace. Having transparency in compensation enables employers to initiate conversations around performance and improve communication with employees.
For instance, when SumAll, a New York-based tech startup, implemented an open salary policy, they were pleasantly surprised by its impact on hiring. Many candidates appreciated SumAll’s culture of transparency and ended up refusing job offers from tech giants like Google and Facebook in favor of the startup.
Having an open salary policy means your competitors have a clear picture of your pay structure. It will enable them to poach your employees and offer them better pay and benefits.
The cost of implementing an open salary policy can be high. In addition, training employees on salary negotiation and compensation factors can be expensive. Resultantly, the process may expose sensitive information, such as salary gaps between different groups in the company.
Open salaries also create a pay-centric culture of work. As a result, employers are afraid it may become the only thing that defines a job role for employees.
3 Reasons to Switch to Open Salaries Now
Today, many companies aim to implement an open salary model. Despite the initial fear of causing disengagement and confusion, organizations are acknowledging the long-term benefits of making salaries public knowledge. So, here are three reasons why you should consider doing the same:
It is a win-win for both employers and employees.
Open salaries give freedom to companies and employees to determine the best working arrangements. This eliminates any surprises and reduces misunderstandings or resentment.
Some studies have shown that when people know what their peers are being paid, they get the motivation to work harder in their jobs. So, are you looking to boost engagement in your organization? This may be the answer.
It can reduce gender pay gaps
The gender pay gap is a relenting issue across the world. If you are committed to bringing more equality and diversity as an organization, then an open salary policy could be one way of getting the ball rolling.
How to Implement an Open Salary Policy?
An open salary model offers benefits for both the company and the employees. Employees get a sense of transparency and security in their job, knowing that the job is not just a stepping stone. In addition, companies can improve on their recruitment and retention metrics.
“No two employers have the same talent goals, we philosophically believe the right eco-system for one organization may not be right for the next.”
- Scot Marcotte, Chief Technology Officer at Buck.
The implementation of an open salary policy starts with communication. You need to make sure to communicate the new policy to everyone, not just those who work at your organization directly. You also need to make sure to share the reason behind change. Also, what does it mean for your employees, and how does it help your organization overall.
It is time to make transparency the new norm for workplace salaries. Employers should disclose how much they pay employees based on position, gender, race, and ethnicity.
Employers can make money by hiring the right people at the right price with an open salary policy. In addition, transparency leads to higher wages and happier employees.
The Challenges of Implementing an Open Salary Policy in Startups & SMEs
Startups and SMEs have a lot on their plate, from funding to hiring. One of the problems entrepreneurs face is transparency with employees.
The first challenge is that it can be a slippery slope when setting salaries for various positions. It may not be financially feasible for startups to offer attractive salaries like other companies.
Issue of equity.
How do you determine who gets more equity in the company? Employees are hired on the basis of their skills. It may be challenging to offer the same salary to someone who fills a small skill gap as someone doing major legwork within the same team. The third challenge is fairness. How do you ensure employees are compensated fairly?
Open salary policies can benefit employees when they promote transparency and fairness. However, it may not always be the best fit for startups and SMEs, especially in the early stages of growth.
It needs much more than a “you deserve this” approach to make an open salary policy work well. In the end, it is even more complicated than simply disclosing salaries.
In an open salary policy, salaries are not a secret. It starts with the company’s founders or executives setting a public knowledge salary. Following this, each new hire will have their salary communicated to staff and then published on a public website.
An open salary policy isn’t only about transparency in pay, though. It also means less secrecy and confusion around benefits, tenure of employees, performance reviews
, and promotions. In addition, with all these being out in the open it makes it easier to have honest discussions with staff members on their progress and development within the company. It also lets them know how to work towards their goals and help them grow into more senior positions if they wish to do so.
Frequently Asked Questions
What are the benefits of an open salary policy?
The benefits of an open salary policy are that it can help eliminate income disparity, promote transparency, eliminate income disparity, promote transparency, and encourage individuals to seek out the best positions according to their skills.
What are the drawbacks of an open salary policy?
An open salary model can lead to wage stagnation. It can make it difficult for employers to attract and retain top talent if employers are not consistently increasing their salaries.