The five levels of pay transparency
Gender and racial pay gaps are still a common problem in the workplace. According to PayScale, in 2020, women earn 81 cents for every dollar earned by men*. In other words, the median salary a man earns is roughly 19 percent higher than the median salary for women. This gap is even higher for people of colour, where data from 2019 found women of colour earn 75 cents for every dollar a white man earns. In Australia, according to the WGEA, the national gender pay gap is 13.4 percent, meaning full time average weekly earning for women are 13.4 percent less than than for men. Furthermore, this has financial implications for women's contributions to their superannuation funds and their future financial stability and security with median superannuation balances for women at retirement 21.6 percent lower than those for men.
Pay transparency is seen as a cure for pay discrimination and there are abundant arguments for and against implementing pay transparency. However, full disclosure of the salaries people get at your workplace is not the only option. There are five different levels you can consider:
Level 1: no transparency, and no salary guidelines
This is the default position many companies start with. In this level, anyone can bargain their salary to match their negotiation skills. You might end up with a situation that you pay a report more than their team lead earns. This is a recipe for dissatisfaction and if this is your situation, you should consider implementing some structure around your pay scales.
Level 2: no transparency, but with salary guidelines
In this case, HR (or someone in the company) has compiled guidelines for the different roles and levels at each role, and assigned an appropriate salary range to each level. Ideally these pay bands will match market rates, but all in all, this is a good start to having negotiations with new hires that are guided by some standards.
Level 3: salary ranges that are shared internally within the company
In this case, we still do not know what the other person on the team earns but if you know their level of experience, knowledge and their place on the company's career ladder, you can have a close enough idea of how much they earn. You can also check if what you make matches your expectation of your experience and level. Since pay bands are used here, we can still expect that some gender pay gap will still exist if two team members are performing the same role with the same outputs, but the female team member is at the lower end of the band, while her counterpart male member is at the higher end of the same salary band.
Level 4: salary ranges that are advertised publicly
This has all the benefits of the previous level, but this time, it makes negotiations with new hires simpler. It is no longer a game of how well can the new hire or their recruiter negotiate a higher pay for them. You define what you will pay and the new hire can decide if that works for them or not. This can also help ensure the company is doing the right thing by its current people.
Level 5: everything is transparent to everyone
Or at least internally, because not everyone is Buffer. But before we get here, you must ensure that your house is in order, that there isn't a gender pay gap in place, that everyone is being paid according to their level, that there is trust within the team, and that everyone is ok with transparent salaries.
Due to COVID-19 in 2020, large portions of the workforce had to shift to working remotely, or face lay-offs in many companies. More women than men were forced to take time off, got laid off or pressured to resign due to the pandemic and having to care for close family. Studies has shown that women often incur a pay penalty upon returning to work after being absent. Often that penalty is around 7 percent reduced pay average for the same position. All these different factors compound to higher lost earnings over a 40-year career period, and COVID-19 is yet one more factor that disadvantages women's financial security.
Secrecy around salaries can lead to compensation discrimination. According to 2017 report from the Institute for Women's Policy Research, around 17 percent of private companies practice pay transparency, while 41 percent discourage it, and 25 percent explicitly prohibit discussing pay details. Avoiding any discussion of compensation benefits companies and is harmful to employees because companies are not held accountable to their decisions around compensation, can exploit their position, and pay their employees less than they should.
Pay transparency would likely lead to a culture of greater honesty, openness, and equality within an organisation, which in turn attracts a diverse range of like-minded people.
The one place you don't want to be is when nothing is transparent to anyone. If you started your company and implemented transparency from the start, you have successfully avoided having to work at it later on. However, if you have not and would like to implement standardisation around salary guidelines, the first step is to identify internal inconsistencies and then consider market rates. You will need to define clear career paths for each role and each level, so that the team can clearly understand where they stand, what is expected of them, how they can be promoted, and what to expect in the next salary pay level. Moreover, you will need to implement an objective measure of performance, so that people can easily link pay to performance and reason about it. Having any structure around salaries is a positive thing, even if it is not all full disclosure.
If your company is lacking a pay level structure, and want to implement one, or want to improve its current role definitions and career paths structure, we can help. Contact us and let's have a chat.
* According to AAUW 2020 research data, the pay gap stands at 82 percent.