It sounds archaic, but not too long ago, openly discussing pay among employees was a fireable offense at some organizations. The times, however, have certainly changed.
Though still not common—and definitely frowned upon at many firms—more employees appear to be discussing pay with their colleagues. Indeed, more than 26,000 people willingly disclosed their salaries and job titles (but not their names) to a management advice website, according to a New York Times story this week. Experts say many younger workers think nothing now of sharing salary details, along with many other aspects of their work and personal lives.
Those demographics are part of what’s driving a lot of the changes; millennials now make up the largest workforce group. But key issues like equal gender pay efforts and laws, along with increased social media attention to some pay practices, are starting to create a new level of salary openness, too.
The shift may very well become the new normal—which makes at least some leaders shudder. Many managers worry that such sharing for obvious reasons can corrode morale and stifle engagement, especially if it isn’t handled properly. Benjamin Frost, a reward product expert with Korn Ferry, says leaders should operate under the assumption that every employee knows what their colleagues are making, and should be prepared to answer basic questions surrounding differences. “There are plenty of reasons why two people might be paid differently, but organizations need to be clear on the reasons in each case,” he says.
Frost says leaders need to be able to explain the process for deciding and reviewing pay differences between people in the same job or job level. “It could be time in the role, performance, qualifications versus the job specs,” says Frost. “Companies need to be prepared to explain what the factors are that might drive a difference in pay between two people.” If there is a difference, leaders must be clear on how compensation is reviewed and adjusted going forward. For example, will pay increase in tandem with experience gained? And who makes that decision, a line manager or human resources?
According to Tom McMullen, a senior client partner at Korn Ferry who specializes in compensation, employees and companies often have a different view of transparency. Privately held companies, for instance, aren’t rushing to disclose their pay practices. “Organizations that have a solid underpinning to pay are more willing to be transparent, while those with less of a solid foundation are more opaque,” says McMullen. Put another way, if an organization has a good pay equality story to tell, it will tell it. And if it doesn’t, more likely than not someone else is going to tell that story. “Many employees know their salary ranges, incentive opportunities, and other rules of the road as it relates to their own pay and often pay for jobs they aspire to,” says McMullen.
To some degree, many firms are already dealing with other new demands for transparency from customers and investors that were once taboo too, such as a firm’s environmental policies. Many leaders will become more accustomed to this manner of openness. As McMullen notes, “If leaders find themselves struggling to answer these questions, then there are likely opportunities to improve the way their compensation and rewards programs work.”