Pay transparency on the rise among employers

Up until last week, none of the 170 employees working at Verve, a marketing company, knew what anyone else made. Now, everyone’s salary is listed on an internal document for everyone to see.

By 2019, all 1,100 employees at CareHere, a Nashville based health-care company, will know the pay ranges for all positions in the company. Fog Creek, a New York-based software company with about three dozen employees, did the same last year. As did Hired, an online job search network in San Francisco that employs 200 people.

Related: The growing complexity of compensation strategies

Employers have long discouraged talking about money at work, in part because obscuring salary information keeps compensation costs down. But that attitude is starting to change. In a survey of almost 2,000 employers by the consulting firm Willis Towers Watson, more than half of the respondents said they plan to increase transparency around pay decisions in the next year.

Pay transparency can mean a lot of things. A minority of companies are taking the most extreme approach, where everyone knows what everyone else makes. A larger share of companies are letting employees in on the voodoo behind their pay practices and explaining what goes into compensation decisions. Others are revealing pay ranges for positions and posting that information alongside job listings.

“Many of us who entered the workforce a longer time ago entered into a culture where you didn’t talk about pay,” said Sandra McLellan, who heads Willis Towers Watson’s North America rewards practice. “Today, people are much more comfortable” discussing what they earn.”

Employees now have more access to compensation data than ever before—just not necessarily from their employer. Sites such as Glassdoor and Fairygodboss aggregate and list pay information for thousands of jobs across industries, giving workers a clearer picture of how their pay stacks up against that of their co-workers. Even LinkedIn has a feature that breaks down pay by job title and location.

The proliferation of information is leading to some issues for employers. More than anything, people want to feel like they’re being paid fairly, surveys have found. Armed with this new information, many of them are going to their managers and complaining that they’re not.

To make their case, employers such as CareHere have decided to give employees more information about their pay. “We were finding that when employees and candidates were coming to us with salary information, they were misinformed,” said Jeremy Tolley, the chief people officer at CareHere. “A lot of the information available for free is inconsistent at best,” he added.

“Less than 10 percent of employers include pay information in job listings, yet 98 percent of job seekers want pay data before applying to jobs, so there is still a disconnect,” said Scott Dorobski, the senior director of corporate communication for Glassdoor. LinkedIn told Bloomberg it strives for accuracy in its pay information and that employers can even submit their own data. Fairygodboss said its salary information reflects crowdsourced data.

The factors that go into what makes up someone’s salary are complex, employers argue. When employees complain about a raw number, they don’t know the full picture, like how location, bonus pay, or benefits fit into the equation.

Instead of asking employees to just trust them, CareHere has undertaken a five-year plan toward more transparency so employees better understand their paycheck. The journey started three years ago with the codification of the company’s compensation philosophy. “We took all the things that were unwritten and put that together in a document,” said Tolley. In addition, managers received training on talking about pay.

Workers also got more information on the numbers: Current employees have access to salary ranges for their positions, along with an explanation of how that fits into the market rate for their job. At the end of next year, the company will post those ranges on job listings. By 2020, CareHere hopes to share all information around employee compensation—short of everyone’s salaries.

Transparency has benefits beyond employee happiness. “It’s going to make it easier to recruit people. It’s going to make the negotiation process during hiring much easier,” said Callum Negus-Fancey, the founder and chief executive officer of Verve, which has offices in London, Los Angeles, and Las Vegas. “It’s not that people don’t want the extra $20,000, they don’t want to be the person who missed out on an extra $20,000.”

Posting information about pay can also signal an employer’s values and culture. That’s partly what moved Hired, the job-hunting platform, to share salary bands with its employees and even post its pay gap online. “Our mission is to get everyone a job that they love, and people love jobs where they’re paid fairly,” said Hired CEO Mehul Patel.

Pay equity is also a big driver in transparency, and companies are under more pressure to prove they pay employees equally. Shareholder activism from Arjuna Capital has pressured multiple banks and tech companies to report their pay gaps. Legislation in various states and cities, including California and New York, has also banned employers from asking about salary history to curb discrimination.

The jury is still out on whether transparency helps close pay gaps, but employers often find and correct inequities on the road to transparency. Before going transparent, companies usually do pay audits to ensure everyone is being fairly compensated. Often there are people who, for one reason or another, are not making as much as they should be. CareHere’s Tolley said the company found problems with “pay compression,” where salaries hadn’t kept pace with market value. When Verve did its pay audit earlier this year, it ended up correcting more than a dozen salaries. Fog Creek had to up the salaries of a few workers, too. And, Hired spent $2 million in 2016 correcting inequities.

Not everyone wants to share their salaries. One study found it can lead to general crankiness among workers who feel like they should be making more money.

That said, companies going transparent are taking many steps to ensure employees feel their salaries are fair. Negus-Fancey, the Verve CEO, personally called each employee who had misgivings about pay transparency. “We dealt with a few people who had a kind of emotional response to the idea,” he said. “We want to make them feel that they’re listened to.”

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