Why is pay transparency such a taboo topic?
Pay secrecy is ingrained in Australian workplaces. Most of us wouldn’t dare discuss our salaries, bonuses or pay rises with colleagues, and there’s a reason why this is so taboo.
It’s not uncommon for employees to be discouraged by managers or legally bound by pay secrecy clauses in employment contracts (yes, this is legal in Australia). These restrictions are more common in the private sector, where pay transparency isn’t mandatory.
While there is an argument for pay secrecy helping to protect employee privacy and prevent conflict within teams, there are several reasons why it can be problematic.
- Pay secrecy can fuel pay discrimination
When company and industry pay information is kept secret, employees are not equipped with the information they need to negotiate their salary or a pay rise. This places women and BIPOC at a further disadvantage, who then often value themselves below market rate. According to the WGEA, Australia’s national gender pay gap is 13.4%. But this statistic differs significantly between the public and private sector – at 10.6% and 16.7% respectively. Pretty compelling proof for why pay transparency can help to reduce the gender pay gap, don’t you think?
- Pay secrecy can widen the wage ratio
The wage ratio refers to the difference between top and bottom salaries within an organisation. Currently in the US, the average ratio is 300:1. CEO compensation has also grown 1007.5% since 1978, while typical worker compensation only increased by 12%. Unfortunately, the COVID-19 pandemic has only widened the wage ratio – while we’re seeing widespread job losses, CEOs are getting richer. In the US, CEOs of iconic corporations were rewarded with million-dollar bonuses after filing for bankruptcy protection. Here in Australia, we saw a similar situation unfold with major companies paying combined executive bonuses of $24.3 million after claiming JobKeeper payments. As these cases show, a culture of pay secrecy can lead to executives attempting to get away with dodgy behaviour behind closed doors.
- Pay secrecy can negatively impact employee morale
It’s not unreasonable for employees to expect that they will be paid equal to their peers who do the same work as them. But if employers prohibit their staff to discuss pay, they’re likely to get suspicious about how fair and equitable their workplace really is (cue gossip). How many of you have received a bonus or pay rise at your annual review, only to be told that you can’t discuss the details with your co-workers? You would be right to question whether you are on the same playing field, not to mention the fact that you can’t openly celebrate this achievement with your workmates. A mental high five will have to do…
So, how can pay transparency help to improve pay equality and overall employee trust? Banning pay secrecy clauses in employment contracts, like the UK and US have, is not enough to stop businesses from discouraging open discussion about pay. But being 100% transparent may not be the best solution either. Even when everyone is paid fairly, it can be uncomfortable to share what you earn with coworkers. It could also lead to comparisonitis (aka the tendency to compare your accomplishments to another’s to determine where you fit in the social order) which isn’t conducive to effective teamwork.
Organisations can still respect individual privacy and maintain the peace while dismantling pay gaps. Some obvious steps include making pay grades (or ranges) accessible through the recruitment process and company intranet, not asking for previous salary information, reporting on your organisation’s wage gap, and being transparent about how company profit is divided up.
At the same time, we need more organisations to step up and champion change within their own industries. Certified B-Corporations are leading the way in many areas, pay transparency being one – the average pay ratio for B-Corps for highest vs. lowest paid employees is 7:1.
California-based B Corp Dr Bronner’s, a producer of organic soap and personal care products, caps the pay of its highest paid executives at five times that of its lowest paid employees (who earn approximately $28/hour). The money saved on executive salaries is then reinvested back into their people and suppliers as well as funding social and environmental causes. In a story for B-Corp, Dr Bronner’s Director of Public Affairs & Media Relations, Ryan Fletcher, said: “The salary cap and general pay equity policy creates a workplace culture where living well is the norm for all, rather than those at the top.”
Now that’s something that all companies should be working towards. What are your thoughts on pay transparency? Join our conversation on LinkedIn.