Compensation

The Case Against Pay Transparency

Julie Bingham
April 12, 2016

The Case Against Pay Transparency

There have been many recent articles and policy discussions about transparency in pay and the positive impact it may have on performance and perceptions at work. In January of 2016, President Obama announced an executive order requiring companies with over 100 employees to report to the Equal Employment Opportunity Commission how their pay breaks down by race, gender, and ethnicity. The intent is that greater transparency will encourage fair pay and discourage pay discrimination.

While I love the concept of pay transparency, I don’t believe that most organizations are in a position to experience the positive effects of opening the compensation books. Three of the top reasons pay transparency can be difficult to implement include:

Ineffective performance management systems

If you decide to share compensation openly, don’t be surprised by the burden it places on your performance management system and its ability to effectively distinguish performers in a meaningful way—including low performers that have significant opportunities for improvement. If your organization’s culture supports an “everyone meets expectations” feedback system, then it’s going to be challenging to explain why some employees make more than others based on performance.

Poorly trained supervisors and managers

Compensation is a personal and emotional element of the employment relationship. When employees have questions or concerns about their compensation, it makes sense they go to the supervisor or manager who knows them best and understands their role and its contributions to the success of the organization. If supervisors are not prepared to effectively explain the organization’s compensation philosophy, how compensation decisions are made, and how individual experience and performance is factored into setting pay, then employees get frustrated by what appears to be a random and unfair process and assume they are not paid appropriately since the person who knows them best appears to have little influence or understanding of how actual compensation decisions are made. 

Lack of investment and attention to your compensation program to date

You may not have a formal compensation program in place or used market data to make decisions. Over time, issues will inevitably find their way into your compensation program; without proper attention they can take on a life of their own, including: compression between new hires and legacy employees, lack of meaningful distinctions in pay between employees and supervisors, and other internal equity challenges. Unless you are in a position to fix these issues before you openly share compensation details, it will be difficult to defend your current system and you will quickly erode trust.

No compensation program is perfect; they require care and maintenance over time to ensure relevancy and competitiveness. If your goal is to one day share compensation openly at your organization, reflect upon these three things—and your organization’s ability to afford fixing current issues—before you allow an opportunity to empower employees quickly become a destructive and demoralizing event for everyone.