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Radical pay transparency

02.11.18
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Despite the injustice of pay differentials, progress towards making pay completely transparent has been modest

How much do you earn?” It’s the at-work question that’s near guaranteed to get any line manager overhearing it hot under the collar – and with justifiable reason. With data from Eurostat showing that women in the EU earned on average 16 per cent less than men, it’s no surprise that many firms internationally want to keep as tight a lid as possible on potential dissent. Most employers don’t publish salaries on their job ads; and even when new staff are hired, it’s not uncommon to find contract clauses (totally unenforceable, in most places, it should be noted) that forbid them from even discussing pay. Secrecy, it seems, is still sacrosanct.

Typically, the response is that doing so opens a massive can of worms, one which is often couched in gender discrimination terms, or that raises more questions than it answers. In France recently, Prime Minister Edouard Philippe announced that French companies will have 3 years to erase gender pay gaps, evidenced by special software linked to their payroll systems. This plan has been met with concern around the additional burden of work and potentially discouraging impact on entrepreneurs. Similarly, in the UK, when the BBC was required to publish its gender pay difference data last year, revelations caused outrage. The BBC’s China editor Carrie Gracie said she was “so angry” about apparent pay discrepancy she resigned when she saw other (male) international editors earning 50 per cent more than her.

“Any reporting obligation makes you think about why you pay what you do, which has to be a good thing”

Emanuela Nespoli, partner at Ius Laboris’ Italian firm, Toffoletto de Luca Tamajo

In light of the trouble publishing pay data causes, it’s perhaps unsurprising that Ius Laboris’s forces for change research found 45 per cent of businesses had made no new changes to address pay equality, even though 63 per cent outwardly said removing gender differences was a ‘number one priority’.

“The problem many companies have with being transparent about their pay data is that there may be no evidence of overt gender discrimination, but being pay transparent might infer it,” argues James Lloyd-Townshend CEO at Nigel Frank International. He adds: “Incremental salary increases are often dependent on when a person first joined the business – and what they were previously earning – and small things like job title changes.”

“We’re definitely at a bit of a tipping point when it comes to transparency,” argues Ruth Thomas, senior consultant at technology provider Curo Compensation. “What we’re seeing is a desire for people to know what they are paid – pay equity is key for millennials, and we’ve been in very pay-constrained times – but if firms provide it, they’re afraid of the impression it may falsely give.”

The only way to solve this, argue experts, is to do what some might feel sounds illogical: de-link the notion that transparency automatically means pay equality.

“If firms want to be transparent about pay, they have to first bang the drum hard that being open doesn’t mean equal,” says tech entrepreneur Glenn Elliot, CEO of Reward Gateway – who now lets everyone see exactly what people earn in his 400-strong business. “Reward is inherently unfair because it’s based on the laws of supply and demand,” he says. “Research by the Resolution Foundation reveals pay growth for those who stay with their employer is 2.5 per cent, but wage rises for those that join new firms can be as high as 11 per cent. Any firms who have to hire externally will automatically be paying wages that seem out of kilter with what’s being paid to existing staff.”

He adds: “What I’ve learned is that most people ‘do’ accept that pay does differ. When you actually ask staff what matters, all they really want to know is ‘why’ any differences may exist, and whether there is an accompanying transparent pay and reward strategy to explain it. Transparency is what’s needed because it creates these clear policies.”

“If firms want to be transparent about pay, they have to first bang the drum hard that being open doesn’t mean equal”

Glenn Elliot, CEO of Reward Gateway

According to Emanuela Nespoli, partner at Ius Laboris firm Toffoletto De Luca Tamajo in Italy, the concept of differing pay is commonly accepted in Italy. The problem, she adds, is that public opinion is not consistent across Europe: “In Italy, there is no legal concept of ‘equal pay for equal work’.” She says: “Firms can still decide to pay someone more because they perform better, or because they’ve had to poach them from other firms and have to pay for this. However, this is not so in countries like France, where the unions are far stronger and the idea that people who do the same work should be paid the same is more entrenched.”

But this does not, she argues, debase the idea of transparency itself: “Pay might not be the same, but the one thing firms can’t do is pay more because of race, gender or age – which would be discriminatory.” The result, she argues is that pay transparency (companies with over 100 staff have to report twice a year in Italy), works: “Any reporting obligation makes you think about why you pay what you do, which has to be a good thing.”

Not only do Elliot and Nespoli believe transparency is good, academics are beginning to think so too. A joint study by Cornell and Tel Aviv Universities found keeping salaries secret actually decreased staff performance, while an experiment by Emiliano Huet-Vaughn, assistant professor of economics at Middlebury College at Berkeley’s University of California, found that revealing pay information could actually boost performance – especially among top performers. Curo’s Thomas says this makes perfect sense. “With a clear and transparent pay policy, people can see how they can influence their own pay progression and start having meaningful conversations with their line managers.”

Just one of the potential benefits of pay transparency is that any accompanying pay policy must be entirely clear about how any subsequent pay increases are calculated – something which many claim removes the awkwardness some staff feel about negotiating a bigger pay rise. And, more than that, some say it’s precisely this aspect of pay transparency (rather than anything that comes from gender pay reporting) – that the greatest benefit of all reveals itself: the real potential to tackle gender inequality.

Sharn Kleiss, employee engagement consultant at Radley Yeldar – international marketing and communications agency, explains: “Transparent pay exposes how pay is derived. Because it’s well-known women tend to under-play their skills or successes in pay negotiations, having a policy that removes this is better for women to see how their careers could progress.” Radley Yeldar has confirmed that from later this year, it will move to an open pay policy. “It still doesn’t mean equal pay, but we feel doing it makes a statement about who we are, and who we want to attract,” she says.

Of course, this is not to say suddenly being transparent about pay will be pain-free, or indeed, the perfect solution. “The onus will still be on firms to explain how they’ve come by certain figures,” she says. Meanwhile, it’s highly likely years of pay differences could be revealed, causing huge staff ire.

It’s clear that having pay transparency will always cause some soreness at first, but the potential upside, commentators add, is that once done, it at least gives managers the ability to see gender gaps more clearly and then move on. “My experience with transparent pay is that you don’t create pay-obsessed employees – actually it’s the reverse,” says Elliott. “Some companies may still pay more based on experience, others may vary people’s pay depending on whether they qualify for a city weighting, but when it’s in the open, it soon ceases to be a big talking point.” He adds: “Even if people do have reason to question why a colleague is paid more, I say great, because line managers can explain how person X took more training and is showing that he/she is developing their career. It creates opportunities to talk about where people – both sexes – want to be.”

The unfortunate reality is that those firms who are transparent are still the exception. In Sweden, Finland and Norway, it’s the opposite. Every year their governments publish everyone’s tax returns, and all employers with 25 staff or more have to publish an equality action plan – the World Economic Forum ranks Norway third out of 144 countries for wage equality for similar work. It’s harder to know if complete pay transparency has improved gender diversity directly, as gender quotas (40% women for all listed firms) have existed in Norway for the last ten years, but experts argue common sense says greater pay transparency should change policy. “We exist in a world where places like Glassdoor.com exists partly to demystify pay,” says Elliott. “Desire to understand pay, and how it’s calculated, will only intensify as certain skills become more valuable than others and create new differences.”

For this reason, pay openness is likely to be a subject that won’t go away – no matter what the sector is. The message is clear – pay transparency is tough to confront and often it’s embarrassing. However, big differences in pay do impact brand reputation, and as more employees demand greater transparency, organisations will likely soon have to decide how they want to respond.

To find out more about how globalisation is changing the workplace, visit  theword.iuslaboris.legal/globalisation