CFOs: Prepare your organizations for pay transparency



... Salaries can flatten (and sometimes fall)

This is both a benefit and a challenge. In theory, it’s good that people’s salaries converge, especially when staff are at the same level.

But this flattening has unintended consequences. As researchers Leon Lam, Bonnie Hayden Cheng, Peter Bamberger and Man-Nok Wong write at Harvard Business Review, when a company institutes a policy of pay transparency, the work of actually executing that policy falls on employees’ immediate supervisors.

"They’re the ones responsible for providing disgruntled employees with the justification for visible pay differentials and responding to their requests for raises in order to address them," Lam et al. write.

To save themselves from tough conversations — that perhaps they feel unsupported in — those managers often nudge everyone toward the same salary number, one that’s often on the lower end of an acceptable range.

Reward negotiation takes on new dimensions

A ripple effect from salary convergence: If everyone’s salary is more or less the same, then how do high performers get rewarded?

Lam et al. write how this question can lead employees to negotiate personalized rewards with their immediate supervisors. This has the ironic effect of moving salary discussions into obscuring negotiations around total reward.

Other factors start to influence reward negotiation, too. For example: When two people do the same job but from locations with different costs of living, should publicly available salaries reflect that difference?

Writing in The Financial Times, Sophia Smith highlights two companies, Buffer and ChartHop, that say no. "[Buffer and ChartHop] have taken the position that pay is given for the value of the work rather than a reflection of physical location, and so have committed to universal pay bands," Smith writes.

Not every company will feel this way, however, and ultimately it’s up to those companies to communicate the nuances of their transparent-pay policies.

Period30 Mar 2023

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