We have woken up to a world where transparency and authenticity are some of the most cherished values companies promote. It seems like diversity and equality are heralded on every job description as defining cultural components. Yet we also live in a world where, to this day, women get paid 17.3% less than men on average (UK figures 2019). And this number has only dropped slightly since the beginning of the last decade.
Pay transparency, a process where salaries in a company are disclosed to all employees, has been put forward as a solution to bridge the gender pay gap faster. But is this the magic solution we have been waiting for? Or is it just a way for savvy startups to present themselves as very progressive and retain their highly sought after employees for longer?
The What and Why
Pay transparency is a way for companies to make all salaries available for their employees to reference and bring clarity to how compensation is determined. Full implementation of pay transparency means you can check the salary, options, and commission structure of any colleague, including the CEO. The idea is that if employees are made aware of why people are compensated differently depending on the scope of their work and the experience they bring in to the company, it will be perceived as more fair.
This all ties in with a change in culture and employee expectations. Strong competition to hire and retain the best talent has forced companies, and tech startups in particular, to go above and beyond to prove their company culture is more progressive. A culture that is all about transparency, participation and ownership.
Officials, especially in Europe and the US, have been looking closely at the issue of equal pay as well, and governments are encouraging companies to take measures. In 2017, the UK introduced mandatory gender pay gap reporting for companies with over 250 employees. This had a measurable impact on perception, with 33% of UK employees claiming that the pay gap has decreased, compared to only 13% of their US counterparts. However it’s not all good news, as a recent Financial Times article reported that the pay gap had actually widened at 4 UK government departments.
Impact on Employees
It has long been taboo to discuss things like salary openly, and even more so with your colleagues. This has favoured employers as they could negotiate different wages with new joiners without much scrutiny. Employers also feared a spike in pay-rise requests and resentment boiling over if they made salaries public so concealing that information was considered beneficial.
But those old taboos are being challenged and people are finding out they have been underpaid and undervalued. This is a bad look for any company and some are taking the lead in rolling out pay transparency to combat this. Intel, the US tech giant, published its data on salaries for the year 2017 and 2018, and committed itself to fight the gender pay gap after paying 5 million USD in a settlement in October 2019 over pay discrimination allegations by its female, black and Hispanic employees.
In September, Forbes highlighted the story of Pollen (then Verve), a UK based word-to-mouth marketing startup that courageously rolled out pay transparency, framing it as an overwhelming success. When implementing the new policy, a framework was provided on how wages were determined, taking into account market rates, options, cost of living and past experience, ensuring the reaction from employees became more positive and understanding. The difference between entry level and C-suite salaries was significant and rolling out the policy without setting objective criteria for wages can cause people to question the fairness of the whole system.
Closing the Gap
How does this all relate to the gender pay gap? The little research that was done on this topic seems to show that it has little effect on closing the pay gap for women. Pay transparency reveals a lot about the salaries at a specific company, and if workers use this information when bargaining for a pay-rise it can definitely help. But if it’s mostly men who use this to their advantage it might even widen the gap. Studies also show that when a company discloses salary information, wages are recalibrated to make them more equal, however in the long-term wages tend to grow slower for everyone.
Long Way Ahead
The truth is in 2020 we are still getting confronted with news articles that clearly show we are a long way from our destination. Pay transparency is relatively rare in the private sector while the gender pay gap is as relevant today as it was a decade ago. It will take more than tools like pay transparency to close it. Business leaders, governments, unions, workers, we all have a role to play if we want to get rid of an issue that’s been plaguing us for generations.