How Much Salary Transparency Is Right for Your Business?

Everyone talks about increasing transparency in business, but when it comes to deciding whether or not to divulge salary information at your own company, there’s no clear right or wrong answer.

The transparency trend is being driven by a number of factors, according to the Society for Human Resource Management: increasing availability of such information from sites such as Glassdoor.com, Salary.com and companies like compensation benchmarking software provider PayScale.com; an increasingly tight labor market and awareness of pay equity; and the influence of the millennial generation, who’re already accustomed to openness and transparency through social media.

Salary transparency is much more common in high-tech firms, especially small startups competing aggressively for talent in markets like Silicon Valley, Seattle and New York City, says PayScale.com vice president of marketing Tim Low. While transparency can go a long way toward increasing employee engagement and fostering trust between businesses and their employees, Low says most organizations would do best to apply transparency in moderation.

“It should be a decision that’s made on a continuum, and honestly takes into account a number of factors. For our clients, we don’t push for either end of the spectrum — complete transparency or complete secrecy,” Low says.

The Middle Ground

The middle ground allows businesses plenty of flexibility and gives ample capability to foster trust and fairness while still being able to adjust compensation to accommodate special cases, says Low.

“You can be extremely open with your employees about how salary decisions are made, how you benchmark the ‘going rate’ for certain positions, etc., without necessarily posting everyone’s salary on the wall,” Low says.

Divulging salaries at an organization that didn’t previously do so can create a chaotic situation and incite jealousy and conflict, according to Tracy Cashman, partner and senior vice president, information technology search at executive search and recruitment firm WinterWyman.

“Salary transparency can be tricky; it’s a huge sea change for organizations, especially if transparency reveals pay inequality. While this could be a great opportunity to address below-market pay rates or to address pay discrepancies, it can even cause conflict at organizations that do pay equitably,” Cashman says, so it’s best to make sure organizations are fully prepared for every contingency.

Low advises considering five factors before deciding whether to make salaries transparent.

1. Can You Communicate Your Strategy and Rationale?

Effective communication is key, otherwise you risk alienating employees rather than having them feel more closely aligned with the organization. Develop a communication plan and arm managers with the relevant information so they can better handle difficult conversations with employees about how each salary was decided. Employees will feel reassured if they can see market data about compensation to show how their boss arrived at each salary decision.

“Your managers must have confidence and feel that they are in control when having compensation conversations. They need to understand the strategy and the rationale behind why employees are paid their salaries, and the data has to back up the assertions that workers are being paid fairly and being dealt with honestly. The worst thing that could happen would be to have your employees feel you’re capricious and arbitrary about pay,” says Low.

2. Can You Identify Your Outliers?

Unless you’re a small startup (like Buffer, the most buzzworthy example of a company that embraced salary transparency from the start and whose CEO shares the company’s formula for salary calculation on its blog), the reality is there are going to be salaries at some positions in a company that will raise eyebrows.

As an example, Low cites a hypothetical administrative employee who has been with the company for 25 years and is indispensable. This person may be making more than a highly trained professional who just joined, but whose intrinsic value to the company is worth every penny, he says. Know who these outliers are and be prepared to explain their intrinsic value to avoid enraged employees.

“The key is you must be able to back up these salary decisions with hard data and demonstrate higher-paid employees’ value. Management teams want to foster an open, trustworthy culture, sure, but they also need to have compensation flexibility to attract and maintain elite talent through competitive salary,” says Low.

“When clients ask me about salary transparency, I often say salary is one of the best secret weapons they have when they’re trying to attract and retain talent in a really competitive market,” says WinterWyman’s Cashman. “I’m not saying it’s always a bad idea, just that in some cases, taking away the ability to pay more than a rival could be a competitive disadvantage, although that depends on the individual client,” she says.

3. Do You Know your Culture?

Salary transparency is definitely not a one-size-fits-all approach, and smart organizations will take a thoughtful approach before jumping on the bandwagon, notes Low. Different attitudes can persist across certain demographics or geographies; for example, millennials may not think twice about their salary being made public since they are more accustomed to sharing personal information through social networks, but baby boomers may react more negatively because they feel it’s an invasion of their privacy.

“For some companies, like Buffer, salary transparency seems to work very well, but in a highly competitive talent market, like hiring software engineers in Silicon Valley, the idea that every engineer will be paid the same doesn’t work all the time. Most companies and the talent they are looking to hire want their pay to be merit-based and reflect their unique skills, experience and ‘rockstar’ status. If you’re paying everyone the same, you could be removing a motivating factor for talent to come work for you,” says Low.

4. Have You Considered Your Purple Squirrels?

Salary transparency in a company where most employees have similar positions and similar salaries may not be a contentious practice. A company with many sales reps or customer service personnel holding largely the same skill sets typically will compensate those workers at a similar rate. However, a company that requires specific skills for software architects, for example, may have a huge salary range for these seemingly identical positions since they may need vastly different skills and experience, according to Low.

“These are what’s known as ‘Purple squirrels’; these very unique positions that are hard to fill — and they are often highly compensated and more challenging to disclose from a salary transparency perspective,” says Low.

“You definitely must consider your ‘purple squirrels.’ Even positions that may have the same job description might have vastly different responsibilities depending on what department they work for, what the employee brings to the job, and what their future career path will be. Salary transparency can eliminate the possibility of any gray area and won’t recognize the value and the contributions of your ‘purple squirrels,'” says Cashman.

5. Find Your Place on the Spectrum

Salary transparency doesn’t have to be an all-or-nothing proposition, since there are gradations along the continuum to complete disclosure. Companies that don’t want to go completely transparent can disclose the compensation ranges or pay grades for various positions and at differing seniority levels, or share previously undisclosed details of their bonus program for employees without providing the specific salaries for each employee, says Low. Disclosing most of this information can go a long way toward better engaging employees and fostering trust and openness without giving up competitive advantage or negotiating power.

“It can seem vague, but there’s no one right or wrong answer when it comes to salary transparency. It can work like a charm for one organization and be a complete disaster for another. The key is to know what your organization as a whole and your individual employees are able to tolerate as far as disclosure, and do the best you can to accommodate their needs as well as keeping the greater business strategy and mission in mind,” Low says.