In this episode, we discussed salary transparency. After some back and forth, we concluded that a company’s salary transparency policy should be based on its personnel strategy. In other words, how you handle salary transparency, whether it's no transparency, partial transparency or full transparency, entirely depends on the people you have and more importantly the people you want to attract.
Before you decide on a compensation strategy, you should identify the people you need to hire to execute your business plan. This includes what the job functions are and who you want to recruit. If some version of salary transparency will help you recruit and retain those people, go for it! If not, it might be best to shy away.
The philosophical idea of transparency vs application in the real world
Tyler: So today we're going to talk about salary transparency and I mean, who knows where this will go. But, this has been on my mind recently. I recently gave a presentation to our company about how we think about salary and how people get raises and that type of thing. The question I'm posing here is, should companies tell everybody, “here's what every single person at the company makes” (full salary transparency), or should they not be transparent at all so that each person only knows their own salary. Or is there something in between?
Rick: Yeah, so when you mentioned this is going to be the deep dive today, my initial reaction was, “I love it.” But then I started thinking about how this conversation could go and the way I look at this is that, philosophically, I believe in full transparency with most things in life, if not all things. I just don't think people can handle it. Most people are not equipped emotionally, myself included in a lot of cases, to handle the burden of transparency.
Tyler: And so when you say they can't handle it, I assume what you mean is you hear that the person next to you makes 5% more. And then it's just like in the back of your mind, like, "Well, why is that person better than me?" Or something like that?
Rick: The best way to summarize it is “ignorance is bliss”, right? And new information causes change cycles to happen. And when you go through a change cycle, you become an evil person. You become the worst person you are when you have to deal with change because it creates this fear and it brings out all these primal emotions and people do really crazy things when they have that type of change cycle.
Rick: So from a philosophical standpoint, I love it. I want all people in the world to be able to talk about all things and have a really good conversation about it and make the best decision together without emotion being a negative factor.
Tyler: Yeah. But there is emotion.
Rick: That rarely plays out when I see full transparency happening. Most people take it personally.
What does salary transparency accomplish for an organization?
Tyler: Okay. So if I hear what you're saying, you're basically, it's philosophical belief versus what happens in reality and they kind of clash with each other. But there's a reality on the other side, which is even if you don't have transparency, in this day and age, can you actually keep it a secret? And if not, maybe the reality goes in the other direction where it's like, “I agree with all the problems you have, but if it's going to come out anyway, don't you want to control that message?”
Rick: So I guess the question is what do we want to accomplish as an organization and what are we trying to do? So I would say if I had my way in the world, I would go, "Let's do full transparency with everything to cash balance.” I would start there and my main goal with that is let's have full trust, number one, so that everyone knows where they stand and two, let's provide everyone context, or the same information I have as the CEO, so that people are more empowered to make the right decisions across the organization. That's the core goal with transparency for me.
Rick: Now when you start going, "Oh, well, there are all these other problems that salary transparency can solve," I'd rather talk about those problems as the topic and say, "Okay, well let's figure out how we solved that." And maybe salary transparency is a way to go about that. But when I think about salary transparency and a problem, I'm thinking about, "Okay, I'm going to increase trust with employees. I'm going to give them information to help them make better decisions."
Tyler: Maybe these are subsets of what you just said, but there's definitely an element of equity and fairness in it, which statistics say basically some people are more likely to negotiate on their behalf. And so if you don't give this information to people, what you end up with is what looks like things like a gender pay gap or a racial pay gap and things like that, which is very real, but it's really because people don't even know that they should have gone to negotiate or something like that.
Rick: Yeah, so that's a good example of a problem I would say that I would not first go to salary transparency to solve that problem because of the cons of salary transparency. In my opinion, the person who, and I'm interested in your opinion on this because you always have a different view on this type of stuff than me. My opinion is let's train the person how to talk about money confidently before we give them all the information about all the money people are making. If they aren't comfortable negotiating, what are they going to do with information that they don't even feel comfortable talking about their own information about? In other words, if they're uncomfortable talking about their own pay, imagine how their brain is going to discuss internally with themselves other people's pay relative to theirs.
Tyler: Well, it may not be that they aren't comfortable talking about their pay. It may be that they don't even know that they need to. Like they may think they're fairly paid and they're not.
Rick: Then what's the problem we're trying to solve?
Tyler: Well, the company, A, might care about fairness just for personal values, setting aside business, but B, you're sitting on a landmine when they do find out. What effectively happened is you've been underpaying them for a long time and they didn't know it.
Rick: Well, who's saying underpaid? I guess this is the philosophical question related to this problem: what is fairness and when you say someone is being underpaid, what does that mean?
Tyler: So what I'm talking about, I'll put this in very like dollars and cents capitalist terms here. If you have two people who are providing equal value to the business, they should probably be paid the same amount. But if one went and negotiated and the other one didn't even realize that they were not paid what their full market rate was, you're creating this scenario where effectively the company's kind of taking advantage of this person because they're uninformed. Now maybe they can get away with it forever and one might argue that's fine. But to my landmine comment, as soon as it comes out, and especially if it comes out and then you find out, "Oh, there's demographic trends here," that's a real bad look for the company.
Rick: I react to that as, “why does t...