Is pay transparency in the workplace helpful or harmful?

By: Lisa Coxon on February 20, 2020
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Who among us hasn’t wondered, at least once, what our co-workers earn?

After all, it’s human nature to be curious about others, and pay is no exception. 

“It’s like having grades at school,” says Nikki Thomas, a career coach based in the U.K. “You work for it and you want to know what everybody else gets.”

Some believe that sharing information about salary — whether that’s coworker to coworker or through a more formalized company-wide transparency process — is crucial to securing a raise and achieving gender pay equality in the workplace. And there are others who believe that it can be a recipe for disaster.

One thing’s for sure: pay transparency in the workplace is a hot topic. It’s been both lauded as “the solution to the pay gap” and accused of contributing to low morale and employee dissatisfaction. 

So we turned to Thomas, along with Avery Francis, CEO and founder of human resources firm Bloom, to weigh in on the pros and cons of knowing what your coworkers earn.

The confidence to ask for more

One of the perks of pay transparency is that it can bolster your confidence in negotiating for a raise.

“I’ve gotten a lot of value out of having open conversations with people at work about money,” says Francis. 

“It's given me a lot of power to negotiate and ask for what I feel like that I'm worth. When you have context in terms of understanding what other people earn, it makes you feel more confident with asking for that.”

If everyone knows everyone else’s pay level, patterns around discrimination and consistencies will become more clear

But pay transparency is more than just murmurs among coworkers. It can also be a company initiative, which Francis says can be really useful.

“Not only is it beneficial for employees,” she says “because then they can advocate for themselves to earn more, get paid fairly for the work that they're doing, and know their worth, but they’ll understand career progression a little bit better, too.” 

Say, for example, that you’re working in an entry level engineering position. If your company posts salary bands, giving you access to what a senior engineer at your company can make, it could motivate you to stick around longer because you can see your earning potential.

Division in the workplace

That said, knowing what others earn, even if they happen to be more senior/experienced than you, can have the opposite effect.

It was American writer, feminist organizer, and political activist Gloria Steinem who once said: “The truth will set you free, but first it will piss you off.”

Those are apt words in the context of pay transparency. Sure, you might benefit from learning what a coworker makes, but what if they’re earning the same as or even more than you, yet you consistently see them not pulling their weight? This has the potential to create a lot of disgruntlement among employees.

Some even go so far as to equate salary with importance. “Somebody might think ‘well I get paid more than that manager so my job is better than their job,’” says Thomas.  “And that’s where division begins.”

Closing the gender pay gap

One of the things pay transparency is heralded for, however, is narrowing the gender pay gap. Women are still paid only 87 cents for every dollar that men are, and while there are many explanations for this, like women being less likely to negotiate for more money (or even if they do negotiate, less likely to get a raise), the argument for pay transparency goes something like this: if women could actually see what the men in their companies were earning, then employers would be forced to pay them equally.

There’s data to back this up, too. According to a recent report from Payscale, women who feel that pay is transparent at their workplace earn the same amount of money as men, if not more. 

“If everyone knows everyone else’s pay level, patterns around discrimination and consistencies will become more clear,” explains Francis. 

But the trouble is: many companies are reluctant to release salary information because then they’d have to provide a reason for the discrepancies, especially among men and women. And that’s where things get hairy.

Somebody might think ‘well I get paid more than that manager so my job is better than their job.' And that’s where division begins

“The moment it’s completely transparent up on a website, they’re going to have to justify why they’re paying some people more,” says Thomas. “And there's no real response to that.”

Why not? Well, as Thomas sees it, “People get paid what they get paid mainly because that’s what they accept. I think the gender pay gap is awful, but I think that showcasing everyone’s salary is not necessarily the way to fix it. There are so many more things that need to be put in place.”

In other words, pay transparency can be a great thing — when done properly. Both Francis and Thomas agree that companies need properly trained hiring managers, a robust HR and compensation team, defined salary bands for various departments, and education around how you can raise your salary and how to negotiate for what you’re worth.

“That’s the stuff that’s going to make a difference,” says Thomas.

Stifling ambition and motivation

If those systems aren’t in place, Francis says, then pay transparency has the potential to demoralize people. Because when you know what those around you are earning without really understanding the justification behind it, it can make you feel like you’re not good enough or worthy of their salary.

But it can also make you feel like there’s a ceiling to your earnings.

“What tends to happen,” says Thomas, “is people get to the top of their band and they can’t get the promotion they want and so they disengage because the company says you can’t be paid any more.”

So in one way, pay transparency — even when done right — can have the opposite effect.

Francis, on the other hand, sees it the other way around. “Pay transparency can be used as a tool to motivate people,” she says. “Right now, people are leaving within two to three years of working within a company and… a lot of that has to do with not knowing what's next, not only from a career growth perspective but from a compensation perspective. When people know what the next step looks like... maybe they'll stay longer.”

What’s ‘fair’ anyway?

No matter what side of the aisle you’re on when it comes to pay transparency, the entire argument really boils down to what we consider to be “fair.”

Of course, we want to make sure we’re being paid fairly for our work, and part of that involves wanting to make sure that others aren’t being overpaid for theirs.

But fairness can be incredibly subjective, especially when applied to the idea of salary. It might irk one person to find out that a coworker is earning more than them. And it might not bother another at all. Should everyone be paid the same if we can’t all do the exact same job with the exact same level of skill?

Pay can’t necessarily be fair. For example, two people could have the same roles but one might have significantly more experience or training, or even a more robust skill set based on previous roles. In other words, there could be many reasons why two people doing the same role might be paid differently. 

The aim of pay transparency is to ensure that two candidates with the same skillset, education, training, and relevant experience are being paid the same, especially if one’s a man and one’s a woman. 

“What fairness looks like is a very personal thing,” says Francis. “Whenever I talk about pay transparency, I like to be really clear about what pay transparency looks like and how that relates to fairness in the workplace. I don't think they’re the same thing.”