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Wednesday, January 21, 2015

Why keep employee salaries confidential ?

Somewhere along the growing up years, we all learnt to equate success with how much we earn. Media played it up by discussing salaries of C-Level executives, fresh hires who landed a whopping first salary. HR professionals made it further difficult by treating salaries like trade secrets and warning you to keep the magic figure confidential. Payscale made a business out of this by creating an online Compensation & Benefits information portal. Water cooler conversations after annual increments are around the rumours of “who got what”. Your salary can either be a source of joy or sorrow till you know someone else’s. Sometimes in a weak moment, you share that number with your best friend or colleague. You get the drift - this is serious stuff with so many emotions running high. Why then is salary a closely guarded secret? Can we do otherwise?

To answer the first question, it is necessary to understand the process of salary fitments for a job. This process is not an exact science and it is based on the process of evaluating jobs. Job evaluations aim to make a systematic comparison between jobs and assess their relative worth. Job evaluations set a basis for deciding the monetary value that is accorded to the job. The prices of similar jobs in the market are then compared and a decision to price a job is made. This is where it begins to get fuzzy. For one, organizations decide where it wishes to price jobs with respect to the market. Further, the salary for a job is not a single number but a range of salaries from minimum to maximum. This helps take care of subsequent salary increases made to the job holder. It also means starting salaries can be fitted at any point in the range. So employees joining a particular job can have different starting salaries based on what they earned in the previous job and how they negotiated when they joined the company.

The biggest reason for maintaining salaries confidential is to mask the pay differences between those performing the same job. Answering queries and grievances on pay disparity is an HR Manager’s nightmare. While relative value of differing jobs can be explained, pay differences in the same job cannot be explained rationally. Further, for differing jobs too, market price for niche skilled jobs or emerging jobs (where no historical salary data is available) is based on perceived value or business need for the skill. Here jobs are priced as per buying capacity of the organization, demand / supply of skill set. Explaining the salaries of such jobs to other job holders can also be tricky and here again keeping it confidential helps. Pay increases in most organizations are based on performance and though there are rules followed to accord increases, it may far from being objective in the eyes of the employee. Firstly, the issue of correctly determining performance levels has to be addressed. Then the decision to provide increases to ensure that pay differences for the same job are ironed out are to be made. Pay differences also arise between employees who are hired from the market compared to those who have grown to a position from within the organization. Unfortunately, it is costlier to buy than to build or it is perceived that those who grow within don’t mind lower salaries in exchange of developmental opportunities. Explaining all this to an employee can become very tough and the easier route seems to be keeping the information confidential. Radical transparency may just open a can of worms!!

That however, may be far from being true. The Great Places to Work Institute has through its research and data from millions of employees ascertained that trust is the foundation of a great place to work. Transparency is one of the key drivers of trust. It kills the rumour mill, and thus removes the distractions, fears, and negativity that saps concentration. Trust brings with it more agility, helps bring forth feedback; it makes talking about difficult things and challenges easier. It opens the doors to better functioning, improved productivity. The biggest case for being transparent in employee salaries is that it opens the doors for a higher level of trust in the organization. It also brings in more accountability in those who administer salaries right from the business leader who approves the salary to the recruiter who makes the offer. It calls for a systematic process to make salary decisions and an ability to explain differences.

Among companies who have adopted this policy to their benefit, is Buffer, a social media management company. Buffer is the creator of an application (by the same name) that is designed to schedule posts to Twitter, LinkedIn and Facebook. One of the core values at Buffer is “Default to transparency” and in line with this value, salary information at Buffer is open to all. You can read more about Buffer’s salary formula here.

In today’s world, we have become more open to sharing more of ourselves through social media. We live in an unprecedented age when we consume more information than our ancestors. Our children, born into such a culture and who will be the employees of tomorrow wish to be more informed about matters affecting them . Organizations of tomorrow have the choice of being early adopters of new and disruptive policies to make the workplace more relevant for the new workforce.

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