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Is Salary Transparency Good or Bad for Morale?

How would you feel if the entire company knew your salary, and vice versa? Recently, many companies have jumped on the “transparency” bandwagon. But is being too open and honest more harmful than it is beneficial to employee confidence?

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(Photo Credit: 401(K) 2013/Flickr)

Scandals like Enron Corp. and Bernie Madoff have led companies to become more transparent in order to gain trust from clients and gain competitive advantage against those companies that are less revealing about their operations. One company that has taken openness 100 percent seriously is Buffer -- a social media scheduling and sharing tool -- that not only shares its business operations publicly, but also its employees’ salaries internally.

Joel Gascoigne, Buffer’s founder, is big on transparency and company culture because he understands that, “In Silicon Valley, there’s a culture of people jumping from one place to the next,” so by establishing a nothing-to-hide type of trust with employees, there is no reason for "jumping" around.

Here are five ways that salary transparency is arguably beneficial for companies.

PROS:

1. Good for exposing potential gender biases. Salary transparency encourages companies to use an objective, not subjective, approach to constructing salaries, and that is beneficial in narrowing the gender wage gap that exists in the business world that “disproportionately favor men,” according to Rachel Sklar, co-founder of Change the Ratio, in her interview with Huffington Post Live.

2. Transparency = Trust. By keeping company matters, including salaries, transparent, employees feel as though they aren’t being kept in the shadows and they feel more trusting of their employers. In his interview with The New York Times, Dane Atkinson, CEO of data analytics company SumAll, which is also completely transparent with employee salaries, states that the method of salary sharing has created trust within his organization because it eliminates any assumptions that one employee is getting paid an unfair or unjustifiable salary.

3. Discourages inflated executive salaries. When executives make their salaries public knowledge, employees tend to feel less threatened or kept in the dark about how the company’s profits are being divvied up. Of course, the CEO’s salary is going to be much more substantial than a Junior Programmer’s salary, but the point is that the CEO’s decision to not hide his earnings shows employees that he has nothing to hide.

4. Opens lines of communication. Salary transparency encourages employees to bring up their concerns about potential partiality with supervisors. Buffer founder, Joe Gascoigne holds frequent meetings with his employees and gives them the opportunity to discuss the good and the bad happening in the company.

5. Encourages employees to produce. Salary transparency makes employees hungry, but in a healthy way. For instance, an entry-level employee may peek at his supervisor’s salary and become motivated to work hard and earn his ranking and salary in the company. Knowing that you will be given “x” salary when you’ve earned (not negotiated) the position fosters an ambitious, hopeful attitude that seems to become heavily diluted in the corporate world.

CONS:

1. One-size-fits-all formula. Chris Charman, director of reward and talent management at professional services company Towers Watson, explains in his interview with The Fiscal Times, “[I]t is difficult for employers to articulate why some employees earn more than others, with metrics like performance and experience hard to quantify.”

2. People feel undervalued due to formulas. One person’s skill set is very different from another person’s, despite working in the same department, so it’s difficult to use one formula to calculate what each person is worth. This concept may work for small, start-up companies, but this generic formula will definitely pose a problem in the corporate world with its many entitled characters hungry to climb the corporate ladder at any cost.

3. Discourages “going above and beyond.” For instance, let's say two employees hold the same title, have similar experience and qualifications, and earn the same amount. Employee A may be discouraged to go above and beyond in her work because she knows that Employee B is not required to perform these “extra” duties. Therefore, if she is being asked to do more work for the same pay, she may be discouraged to carry out such requests, or if she does, then she may be resentful.

While salary transparency seems like a peachy-keen idea, it may pose a problem in the long run when people aren’t getting paid what they should or, worse, when favoritism gets an unqualified co-worker promoted and the entire company knows about it. Good luck bringing that up with the boss.

Tell Us What You Think

Do you think you think salary transparency is a viable solution for companies? Join the conversation on Twitter or in the comments section below.

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