There are very few talent-related issues that generate as much attention as compensation—in particular, how compensation compares among all the various employees at an organization. Historically, companies have preferred not to share information about compensation out of fear that those who are on the bottom half of the compensation chart will become disappointed and disengaged when they learn that they are earning less than their colleagues. This fear has been a major factor in the business community’s objection to the CEO-employee pay ratio reporting rule that came into force in the US this year: When you publish the salary of the median employee, half your employees inevitably discover that their pay is “below average.”
This idea of hiding compensation for fear of disengaging employees is a relic of the past, however. The reality today is that employees can get a sense of how their compensation stacks up compared to their peers through a growing number of websites that share this information publicly, such as Glassdoor, PayScale, or Salary.com. In other words, employees can already find out how their compensation compares to others and are already talking about it; the question for senior leaders is whether they want to participate in or shape these discussions.
As technology has forced greater transparency in compensation, some companies have decided to actively manage the conversation by proactively revealing to their employees what their co-workers, managers, and senior leaders earn. The New York-based tech company Fog Creek Software is one such organization; eight months ago, it gave its three dozen employees a chance to see what their peers were making. On Bloomberg’s “The Pay Check” podcast this week, Rebecca Greenfield checks in with Fog Creek to see how it went:
Fog Creek’s chief executive officer, Anil Dash, believed … that salary transparency would shine a light on unfair pay practices and ensure things stayed that way. Dash, an entrepreneur, prominent tech blogger and prolific tweeter, is a rare, pro-union, tech CEO who also believes in the old-guard internet principle that information wants to be free. “Transparency is not a cure-all and it’s not the end goal, it’s a step on the way to the goal, which is to be fair in how we compensate everyone,” Dash said. …
Organizations today are increasingly compelled to pursue pay equity for a variety of ethical, reputational, and business reasons, and HR is the most essential contributor to that effort, though it is not the only one. In a recent article at Talent Economy, Zenefits Chief People Officer Beth Steinberg outlined some key steps HR leaders and professionals can take to commit their organization to closing pay gaps based on gender or race. Her first piece of advice? “Get the leadership team on board”:
Establishing and promoting pay equity starts with leadership. That doesn’t mean that HR is powerless, but HR is handicapped without support from senior leadership. If leadership isn’t already on board, HR needs to make the case for pay equity and show why it’s important to the bottom line. Fairness, especially fair pay, is a huge factor in employee engagement and motivation. When there is a lack of fairness, people become disengaged.
The takeaway? The CEO and leadership team need to understand the importance of paying employees equally. Cultural tenets and values of a company are no longer intangible benefits that reside in a handbook; people want to work for companies that walk the walk, which necessarily includes, but is not limited to, ensuring fair compensation.
Steinberg’s other key action items for HR are to “do the due diligence” and “create a pay structure that employees understand … rooted in research and solid methodology,” and to be prepared for tougher questions about pay equity from more savvy and better-informed employees: “Around compensation, most people can handle a decision that they don’t agree with as long as they understand that the decision was done in a way that’s fair,” she notes. “And the new generation of employees is going to be more vocal in asking about these things.”
Much of her advice here resonates with the actions our Total Rewards team at CEB, now Gartner, recommends that organizations take based on the findings of our major 2017 study of pay equity.
PayScale’s 2017 Compensation Best Practices Report suggests that managers’ skills at communicating with employees about pay are a blind spot for many organizations, Mykkah Herner, PayScale’s modern compensation evangelist, writes at TLNT:
The research revealed a number of interesting insights when it comes to managers, including:
- Only 11% of respondents strongly agree that employees have a great relationship with their direct managers.
- A mere 17% strongly agree that there is frequent, two-way communication between managers and employees.
- Just 19% were very confident in managers’ abilities to have tough conversations about pay.
- And yet, 38% of managers are communicating compensation information to employees; that number jumps to 53% among enterprise organizations.
Even with low confidence in manager’s abilities to talk effectively about pay, only 30% of respondents said their company offered managers training about conducting compensation conversations. And, of those 30% who do offer training, most organizations still lack confidence in their managers’ ability to talk about pay successfully.
“Talking about pay is important,” Herner adds, “because it establishes the groundwork for a trusting relationship,” but there is a bit of a chicken-and-egg problem with that statement: The best managers are those who maintain frequent performance conversations with their direct reports, which both builds trust between manager and employees and better situates each party for the pay conversation. However, for most employees and managers, the first formal meeting of the year is the performance and pay conversation, which is the best opportunity to establish that foundation of trust. So while it makes sense intuitively that effective pay conversations lead to more trusting relationships or merely coincide with them is harder to prove.
However there is a far more important reason for managers to be good at pay conversations, which is that effective pay conversations improve employee pay perceptions and strengthen the link between performance and pay.