Can Pay Transparency Improve Company Culture?
Many argue pay transparency could close the wage gap and boost employee morale, but others believe it’s not so simple
While spending more on payroll doesn’t guarantee a better company culture, it’s no secret that compensation has a big impact on employee satisfaction and retention. And as pay inequity persists — with experts estimating it will take over 200 years to close the gender gap — some are urging employers to adopt salary transparency policies as one way to fix the problem.
But even as wage disparity continues, only a handful of private companies practice some form of pay transparency. So what are the benefits and drawbacks of pay transparency and how does it affect company culture?
An Open Culture is a Healthy Culture
Transparency in the workplace is crucial to building trust within a organization and encouraging employees to become more actively engaged in the future of their company. An American Psychological Association Survey found 50 percent of workers “felt their employers were not giving them the information they needed to be successful in their jobs.” So why not extend a culture of transparency to the way employees are compensated?
The Institute for Women’s Policy Research found pay secrecy may contribute to the wage gap, and several large companies have implemented pay transparency policies in an attempt to both close the gap and improve their work cultures. Austin-based Whole Foods introduced a pay transparency policy back in 1986, with co-CEO John Mackey explaining that he was “challenged on salaries all the time,” and a “culture of shared information” helps motivate employees by giving them a greater stake in the business.
“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.” — John Mackey, Whole Foods
Similarly, Starbucks announced last year that it achieved “100 percent gender and racial pay equity” for it’s U.S. employees in part by “providing the pay range of any given role” to job candidates during the hiring process and instilling a “culture of transparency” throughout the company. So why are so few companies adopting pay transparency policies?
Comparison is the Thief of Joy
But others dispute the benefits of pay transparency, claiming they are often exaggerated and can actually cause more harm than good to a company’s culture. Todd Zenger argues in the Harvard Business Review that pay transparency “is a double-edged sword” which is just as likely to “demoralize as it is to motivate.”
“Transparency creates an expanded playground for our comparisons, potentially heightening our attention and obsession with it and elevating the negative emotions and behaviors that result.” — Todd Zenger, HBR
Zenger cites the University of California which, after making its employee salaries public, saw a decrease in job satisfaction and higher turnover within the UC system. In this case, pay transparency led to dissatisfied employees who were more likely to leave their jobs.
A number of subjective determinations can go into an individuals’ salary, allowing for pay differences to be misunderstood and taken out of context. This can lead to dissatisfied employees and a worsened company culture. Zenger suggests organizations who adopted pay transparency policies over-communicate why people are paid more or less than others, or link salary to more objective standards like seniority and position.
Transparency is Good for Gender Diversity
While there isn’t comprehensive research on the impact of pay transparency on employee morale — in part because so few companies have adopted such policies — some studies suggest pay transparency can contribute to an overall increase in gender diversity.
A recent study looked at Danish companies before and after a 2006 law was passed requiring businesses to disclose gender wage statistics. It found that there was a narrowing in the wage gap and pay transparency “led to more women being promoted.”
Christine McCarey, diversity, equity, and inclusion (DEI) advocate and Founder of ImpactDEI, also believes that “increasing pay transparency is an important step forward in the equity roadmap,” but existing laws should go further to ensure accountability.
“Transparency, coupled with gap closing, drives accountability, equity, and belonging.”
— Christine McCarey, ImpactDEI
While there is still more work to be done on the pay inequity front, companies that have chosen to adopt pay transparency policies are attempting to take a step in the right direction by giving employees access to information that has traditionally been deemed taboo. And as Millennials become increasingly comfortable discussing their salaries and demand more of their workplaces, companies may be wise to adopt more open policies that encourage a healthy and collaborative culture.
Savannah L. Barker
Savannah L. Barker is a Culturati Fellow and the Director of Strategic Programs at Notley Ventures. Notley is a catalyst for social innovation unlocking opportunities with today’s impact organizations and changing communities.
Culturati is a community of CEOs, entrepreneurs, investors and other C-Suite leaders who practice & study culture building and share our playbooks. We’re leaders — from technology, finance, banking, the arts, other industries, educational institutions and government — who get the power of culture. We organize impactful & actionable keynotes and breakout sessions for the annual Summit. We share information online, in our recently published book (The Culture Book V1: When Culture Clicks) and at our Culturati Connect events hosted around the country. To learn more, visit culturatisummit.com.