At watercoolers the world over, money—specifically, how much of it you’re making—is the one topic you don’t talk about. For decades, if not centuries, talking about one’s salary has been the biggest taboo in capitalism, which is why the idea of salary transparency—the current “it” strategy among progressive young private companies—makes so many people uncomfortable. To skeptics, revealing who earns what (on an employee-by-employee basis, no less!) seems like a recipe for resentment, apathy and a degree of ruthless scheming that would make The Hunger Games seem downright harmonious. But there’s ample evidence to demonstrate that open-pay schemes—once the purview of union shops and governments—really do make businesses better.
First and foremost, salary transparency appears to make organizations more productive. A 2013 University of California, Berkeley, study involving participants in an online job market suggests that employees who know exactly how their pay compares to their peers’ exert “significantly more” effort than those who are kept in the dark. Without proof to the contrary, most employees assume they’re underpaid relative to their peers, says Travor Brown, who teaches labour relations and HR at Memorial University in St. John’s, Nfld., and that tends to breed disengagement and mediocre work: “By giving clear pay information, that disconnect disappears.”
Dane Atkinson, CEO of New York–based e-commerce and social media analytics firm SumAll—whose open-book management ethos extends to salary information—says better work is an “amazing byproduct” of pay transparency. “When every team member knows what everyone else is making, they become much more meritocracy-oriented,” he explains. “It helps people better understand what the company values and rewards. They then focus on doing great work that delivers on that.” Another perk of the policy? Atkinson says SumAll has a lower employee turnover rate than the industry average, “by an order of magnitude.”
It’s possible that salary transparency also forces you to be a better employer—at least, if you believe people should be compensated fairly for their contributions. Open-pay systems work best when there are no blatant outliers (think: the sales rep who negotiated a comp deal far higher than he’s worth or the underpaid workhorse in IT who’s too timid to ask for the raise she most certainly deserves). Successful adopters of salary transparency audit their payrolls and adjust any inconsistencies first, making for a much more accurate (and less arbitrary) allocation of compensation. Joel Gascoigne, CEO of San Francisco-based Buffer, says this is a key reason his firm publicizes its pay: “It keeps us very honest and helps us reflect on the things we need to change,” such as out-of-whack pay structures, “sooner than we would otherwise,” he said in a recent video post.
Finally, there’s a Machiavellian element at play, too. In the post-Enron information age, transparency is in vogue. Data-hungry millennials, in particular, tend to be suspicious of firms that aren’t forthcoming about things like salary (especially since unfiltered employer reviews are just a Glassdoor.com search away). If you keep mum about what you pay, there’s a good chance bright, young job candidates will gravitate toward a competitor that has a more open approach. “In the past few years, the business community as a whole has started to account for the cost of secrecy,” says Atkinson. “Withholding salary information can damage a company. That kind of entrenched thinking doesn’t lead to greatness.”