Buffer

• Yet, it’s easy to see how pay transparency can make pay systems fairer and more effective.
• When pay is weakly aligned with employee contributions, pay transparency can be embarrassing for firms.

The salary taboo

• Buffer lists the salary of every company employee, in descending order, on its website.
• Does Buffer’s pay system make you cheer – “yay, no uncomfortable salary negotiations!”, or squirm – “what, my salary is on the website?” Most probably, both.
• There is a persistent social norm researchers call the salary taboo.

The problem with not knowing

• Historically, companies have given employees only minimal information about their pay systems, and some have even prohibited them from sharing their own pay information.
• The more managers become convinced that pay decisions accurately reflect employee contributions, the less diligent they become about monitoring their own personal biases.

• Second, in the absence of comparative information, employees often suspect they are being underpaid – even if they aren’t.
• In a survey of over 380,000 employees by data firm Payscale, 57% of employees paid at the market rate and 42% of people paid above the market rate all believed they were being underpaid.

Pay transparency is trending

• Broadly speaking, pay transparency policies see companies report their pay levels or ranges, explain their pay-setting processes, or encourage their employees to share pay information.
• Read more:
  Pay secrecy clauses are now banned in Australia; here's how that could benefit you

  The European Union’s Pay Transparency Directive already publishes gender pay gaps and requires employers to provide comparative pay data to employees upon request.

Pay transparency usually has positive effects

• People also generally underestimate their bosses’ salaries, so pay transparency can inspire employees to aspire to higher-paid senior positions.
• And pay transparency identifies staff with unique expertise, so employees seek help from the right coworkers.

Pay transparency has also been shown to help narrow gender pay gaps. As pay transparency rules spread across public academic institutions in the US, the pay gap between male and female academics dramatically narrowed (in some states, it was even eliminated). In Denmark, where firms are now required to provide pay statistics that compare men and women, the national gender pay gap has declined by 13% relative to the pre-legislation average.

But it can still be risky

• Pay transparency exposes these exceptions, so they can be immediately explained or corrected.
• Over the long run, pay transparency leads to flatter and narrower pay distributions, but distributions can also be too flat and too narrow.

Proceed with caution

• As stakeholders on this issue demand more transparency, employers would be wise to stay ahead of legislative moves.
• Independently making the first move is a show of good faith and can unfold in stages.

Carol T Kulik does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.