Salary: secrecy or transparency?

Posted 27 Jul 2017 by Catherine Ellwood, Principal Consultant at OPP

Do you know what your friends and neighbours earn? How would you feel if they knew your salary?

Many people would feel uncomfortable or even violated if other people had information about their earnings, but residents of Norway and some at the BBC have no choice.

Since 1814 Norway, ranked third out of 144 countries by The World Economic Forum in terms of wage equality for similar work, has openly published online information on net income, net assets and tax paid.

In contrast to this open approach, the BBC has been forced to reveal details of all of their employees earning over £150,000, and the resulting list has been met with media outrage. Questions have been raised over gender and racial equality, as well as the gap between the celebrity top earners and technical and production staff – as many as 2,500 of whom are reported to be paid less than £20,000.

Chris Evans (the highest paid with a salary of over £2.2 million) has stated that he hopes the release of this list will be “the beginning of it being redressed”. Knowing that equality is an issue already hotly debated, it’s the discussion around pay transparency that I’ll focus on in this blog post.

Salary secrecy

Organisations have historically kept pay a secret, maybe with the exception of executive salaries that companies may be obliged to publish. In most countries and within most organisations, we have come to expect that our salary details remain private. As Andrew Hill, writing in the Financial Times, says – pay transparency is the last taboo in business. However, it is one which is beginning to be broken.

Contrary to what many may expect, several studies (for example Belogolovsky and Bamberger, 2014) have found that pay secrecy may actually reduce employee performance, motivation and effort. It appears that given a lack of accurate pay information, employees tend to speculate and overestimate what others earn, ending up more dissatisfied than if they’d just had accurate pay information in the first place.

Bucking the trend

Organisations such as Buffer (a tech start-up company) publish all employee salaries and have a highly transparent pay structure based on industry norms for the role plus experience level (categorised into four bands from beginner to master), number of dependents and length of tenure. They report working in this way has ’taken pay off the table all together’ and allows them to focus on their organisation mission and goals.

Success stories such as this seem a far cry from what is currently being experienced at the BBC – so what is the difference? Key to this may be the issue of transparency. What is not clear from the BBC list is why employees are paid the way they are. Is one newsreader really worth more than all the rest?

The BBC could have increased transparency by explaining that differences in experience and skills, ability to attract audiences globally and perceived level of celebrity probably all play a role in salary negotiations. This information isn’t shared with the public – or, in all likelihood, the rest of the BBC workforce. Individuals perception of fairness of pay can be increased by making clearer links between what people are paid and what they are doing that justifies a higher salary.

So will we see an increase in pay transparency?

Research and increasing numbers of success stories, tell us that pay transparency can be a motivating and performance-enhancing approach. However, to capture these benefits requires the business to have a clear and articulated strategy and intentional and deliberate people policies driven by a culture of openness, honesty and transparency. In this kind of organisation, where expectations are managed up front when people join, the pay structures can be open and clearly linked to on-the-job performance. Many organisations are a way off full pay and remuneration transparency but evolving an open culture has broad benefits but requires patience as it doesn’t work well as a ‘quick fix’.

 

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