How many co-workers know your salary? Chances are, zero. Nearly half of full-time workers in the United States report their employers discourage or ban discussing compensation (source)— in spite of formal pay secrecy policies being illegal in the private sector for almost a century. This is a big problem— not just for individual employees and teams, but organizations as a whole.
For starters, pay secrecy disproportionately hinders women and minority groups in securing market rates, leading to significant wage gaps (source). It also tanks motivation, enables low performers, and drives top employees out the door.
But, with talks of an incoming recession and dynamics shifting between employer employee relationships, businesses are now being forced to rethink how they operate, including their approach to compensation.
The dangers of pay secrecy
Pay secrecy— preventing employees from sharing salary information— can be driven by formal policies or more covertly through a company culture that reinforces social taboos around money talk.
This is a mistake. Banning or discouraging communication around compensation is equally detrimental to both the employer and the employee. In fact, pay secrecy can actually cost your company a lot more than any expenses you might have saved by low balling employees. Here’s how:
Pay secrecy leads to poor motivation and morale among employees
Pay secrecy wasn’t always a bad thing. Wages used to be kept quiet to promote teamwork and diffuse tensions over minor differences in compensation. Nowadays, however, some businesses use pay secrecy to save money. If new hires aren’t sure how much they can reasonably expect to earn, companies can get away with offering a lower salary. Similarly, underpaid employees are less likely to ask for raises if they don’t realize they’re earning less than their colleagues in the first place.
However, motivation and morale can take a serious hit if pay discrepancies are suspected or discovered. This sends the message to employees that compensation isn’t influenced by job performance.
It’s illegal to ask about salary history in 21 states and localities, but that doesn’t mean every candidate is equally confident advocating for fair pay. In fact, women are 4 times less likely than men to negotiate job offers (source). And, they’re also less likely to be promoted as they progress through their careers (source).
Putting the onus on employees to secure a fair salary— instead of paying market rates, according to the individual role, responsibilities, experience, skill level, and contributions or value they bring— can destabilize trust and undermine goals across your entire organization.
Why would an employee put in the extra effort to achieve a particular goal if they know it won’t impact their pay? Is someone really going to be invested in a company they suspect is underpaying them, or will they keep clocking out at 5:00 until they can find a better opportunity elsewhere?
Pay secrecy leads to disengaged employees and high turnover
Low morale stemming from a confirmed or suspected pay disparity can have a domino effect on motivation, productivity, and employee engagement. This often leads to an increase in errors, missed deadlines, poor customer service, and ultimately lower profits for the organization:
- A single disengaged employee can cost a company about $3,400 in lost productivity for every $10,000 in salary (source).
- U.S. companies lose between $450-$550 billion each year due to lost productivity from disengaged workers (source).
- Companies with a highly engaged workforce are 17% more productive and 21% more profitable than those with a disengaged workforce (source).
Actively disengaged employees are also a flight risk: 74% are either actively looking for new employment or watching for openings (source). If a disengaged employee does resign, they leave you to foot the bill for hefty turnover costs. By conservative estimates, replacing an employee costs 1.5-2X their annual salary (source).
Pay secrecy protects your worst employees
Pay secrecy protects employees who are overpaid for their contributions at work. This creates a fundamental disconnect between outcomes and compensation.
As a result, job performance becomes almost secondary, enabling unproductive employees to skate by, while their co-workers pick up the slack. Why would under-performers hustle when they get paid the same amount regardless of their effort. It’s sort of like paying out sales commission in advance, based on how you think a rep is going to perform, instead of their actual numbers.
Allowing your best employees to shoulder the burden of under performers will only create more animosity and dissatisfaction among your best employees– paid well or not.
Pay secrecy is a financial risk during uncertain times
The days of happy, obliging workers grateful for any opportunity to work for your company are over. The Great Reshuffle (and its predecessor, The Great Resignation) has created a candidate-driven job market, where new hires and long-term employees have firmly established priorities— and are equally ready to jump ship if they find a better fit somewhere else.
As Michael Scott would say, how the turntables.
“Organizations are rethinking everything—their entire workforce and workplace models, cultures and company values—to keep pace with the needs of their workforce,” says Hari Srinivasan, LinkedIn’s VP of Product Management for Talent Solutions (source).
Doubling down on pay secrecy can send your top performers packing— 79% of employees want pay transparency, and 68% would switch employers for greater pay transparency, even if compensation was the same (source). “Trust will be at the core of a company’s success when it comes to attracting and retaining talent,” says Srinivasan.
Not only does pay secrecy lead to expenses associated with employee turnover, it can also harm recruiting efforts. In fact, 50% of job seekers have withdrawn from the application or interview process because the compensation didn’t match their expectations (source). Compounded over multiple candidates, the amount of wasted time and resources may far exceed the original salary gap.
Why pay transparency, well… pays
Pay transparency means openly sharing information with employees about compensation. The depth and degree can vary wildly by organization— for some, pay transparency might look like job descriptions with pay bands included, while others may enable managers to proactively discuss salary processes with their reports. Some companies publish employees salaries internally, or— if they’re really feeling gutsy— even make them public (we’re looking at you Buffer).
In any case, pay transparency isn’t just about mitigating the damage of pay secrecy. It also offers overwhelming advantages to organizations that are crucial— especially during periods of economic uncertainty. These include:
Pay transparency boosts performance
Pay transparency strips away subjectivity and aligns compensation with quantifiable value— from the skills, qualifications, and expertise new hires bring into your organization, to teams or individuals hitting specific targets to help drive revenue and growth.
Think about sales reps who earn commission. They may have a base salary, but they also have the ability to substantially increase their income if they close more deals. Sure, opportunities are not 100% in their control— they can put in their best effort and still fail. But that doesn’t change the fact that most reps can immediately put a real number on successful outcomes— instead of waiting for their manager to consider whether or not they deserve a hypothetical raise at some undisclosed future date.
To be clear, this doesn’t mean you need to roll out commission-based pay across your entire organization. Sales teams are known for their hustle, but this is equally fueled by a sense of ownership as it is the actual commission structure. Your organization can communicate to anyone how, when, and why goal attainment or performance will impact their salary.
One reason pay transparency is so powerful is because it enables employees to play a bigger, more active role in influencing their own compensation— which substantially increases motivation, productivity, and ultimately performance.
At organizations that practice pay transparency, an individual’s salary isn’t left to the mercy of their boss or department head, but is something they can directly influence with the quality, efficiency, and impact of their work.
Pay transparency allows for more efficient and productive recruiting
Pay transparency signals a company culture which not only promotes fairness, but also deeply values and respects their employees. This doesn’t mean paying everyone the same salary, but using the same set of criteria to determine compensation on each team. Pay transparency forces organizations to look critically at salaries and ensure they reflect current market rates, as well as value added to the business.
This not only improves retention, but translates into a serious competitive advantage during the recruiting process. You also don’t have to worry about difficult negotiations or wasted time and resources interviewing candidates who expect a higher salary than your company is prepared to offer.
Pay transparency leads to more inclusion and innovation
Pay transparency forces greater scrutiny around compensation, making it easier for organizations to spot and correct pay gaps. Eliminating these disparities is crucial for fostering an inclusive workplace, where each employee is set up for success from the start. When diversity isn’t just promoted, but actively supported, organizations see tremendous benefits, especially in the form of innovation:
- Innovation is 6X higher at companies where men and women are treated most equally (source)
- Gender diverse companies are 25% more likely to experience above-average profitability (source)
- Diverse companies are 70% more likely to capture new markets (source)
- Companies employing an equal number of men and women manage to produce up to 41% higher revenue (source)
None of this is possible, however, without fair pay. As Wired puts it: “Despite workers demanding better working conditions, flexibility, and benefits, pay transparency is the final bastion of equitable working.” (source)
Pay transparency practices to borrow from sales teams, today!
In sales, compensation is often out in the open, rather than a guarded secret. But beyond just general attitude, are there any specific practices successful sales teams follow, which you can similarly use to improve pay transparency at your organization? Yes. Here are the three most important:
1. Clear, accessible documentation
Modern day compensation plans and commission structures are complex, and dependent on things like seniority, territory, contract, or product hierarchy. Subsequently, sales teams require extensive documentation that clearly defines when, why, and how much different sales roles are paid.
This not only ensures employees have equal access to detailed information about their pay, but establishes concrete, common variables to determine compensation across the entire team— leaving less room for subjectivity.
Using this tactic outside of sales: Don’t determine individual salaries based on what someone has been paid in previous roles, or their confidence in negotiations.
Instead, flesh out standardized compensation benchmarks based on market value for specific skills, roles/responsibilities, and levels of experience. It’s also important to do this with your current employees, not just new hires. Take an audit so you can locate and resolve any gaps to retain top talent.
2. Concrete performance metrics
Clear documentation around compensation and commission makes it easier for individual sales reps to determine the specific actions required to increase their pay. These concrete metrics help keep subjectivity in check and ensure pay is aligned with quantifiable job performance.
Using this tactic outside of sales: Instead of issuing bonuses, raises, or promotions through subjective performance evaluations, chart a path to increased salary and responsibilities for every team and role, based on detailed KPIs and goal attainment.
3. C-Level support
Sales performance depends on leadership’s ability to communicate pay structure. Even if there are challenges implementing a sales team’s pay structure, the C-Level usually has a vested interest in ensuring sales teams have clarity around their compensation— since reps won’t feel motivated if they don’t understand what they’re earning.
Using this tactic outside sales: Instead of offloading compensation to your HR department, make the case to your leaders to champion pay transparency from the top. That way, you can secure the resources to build a culture of real salary transparency and fairness (not just meaningless statements on your website’s careers page).
Back to you
That tenacity, hustle and drive you see on successful sales teams isn’t because they have more bravado than everyone else— it’s because they know exactly what, when, and how they’re getting paid, and can put an actual number on successful outcomes. Adapting a similar approach to pay transparency will help stabilize your organization, as well as increase motivation, recruit and retain diverse talent, and drive growth— all of which will be equally crucial to surviving the recession.
Spiff is a new class of software that creates trust across organizations by delivering real-time automation of commission calculations and motivates teams to drive top-line growth. With a combination of an intuitive UI, real-time visibility, and seamless integrations into current systems, Spiff is the first choice among high-growth businesses. Spiff’s sales commission software enables finance and sales operations teams to self-manage complex incentive compensation plans and provides transparency for sales teams.