It ranks as one of the more anxiety-provoking workplace moments: Negotiating your salary/raise/bonus. But what if your company opted to do something a bit more radical when it comes to employee compensation?
Enter the Open Salary approach.
The concept started getting buzz when social media marketing firm Buffer introduced it back in 2013. What is it? Basically, the open salary policy puts transparency first when it comes to salary info. At Buffer, they use a simple (and public) formula to calculate their staff’s pay, then share every single person’s salary—whether you’re an entry-level hire or CEO—with the team. (The pay-off, they say, is that it encourages trust, but also eliminates hiring biases—a win-win.)
Fast forward to 2019 and more and more companies are following suit. Glassdoor recently published a list of 18 businesses around the country with salary info you can see before applying, and major brands—Whole Foods included—are opting to share employee compensation, which was previously top-secret info, internally with the entire team.
But is it a good idea? We did a little research and asked a variety of career experts to sound off on the perks—and sometimes emotional-charged pitfalls—of adopting this approach. Here’s what we found.
Salary Transparency Can Ease Overall Anxiety
When Buffer pulled the curtain back on their formula for calculating salaries, their mission was clear: to eliminate financial bias in the workplace. But the benefits of an open salary policy go far beyond that.
Research published by Tel Aviv University in Israel demonstrates that an open salary policy at work can make employees more productive and help them feel more satisfied, mainly because they’re not wasting time worrying about what their colleagues are making and also have a clear financial trajectory to aspire to.
“That kind of transparency is not just a motivator, it can drive employees to set and achieve their goals,” says Dr. Natalia Peart, a psychologist and the author of FutureProofed: How to Navigate Disruptive Change, Find Calm in Chaos and Succeed in Work & Life. “It also eliminates the need for salary negotiations, which can often put women at a disadvantage if they’re reluctant to negotiate or tend to appear less likeable when they do.”
There’s also the emotional aspect: The salaries we imagine our colleagues are taking home can be highly inaccurate. “When people don’t know each other’s pay, they assume they are underpaid,” Peart says. “But if they are able to compare their salary, they might realize they’re being paid appropriately and spend less time worrying or feeling dissatisfied.”
But There Are Still Some Residual Trade-Offs
“The best advice a mentor gave to me: You should be willing to put all the salary data on your company’s refrigerator door,” says Charlie Javice, founder of Frank, a service that helps students decode the complicated financial aid process. “That said, even if you can, don’t do it.”
In other words, while accountability is key when it comes to bias in the workplace, per Javice, pay is also sensitive. “You don’t want it to be a topic of conversation or something that becomes the only motivation,” she explains.
Another deterrent, says Javice: Often times an employer’s number one goal is to attract and retain employees and incentivize them to be their most productive. An open salary policy—and specifically a formulaic approach to pay—may get in the way of that effort.
“A formula doesn’t work in a lot of cases because hiring goals and the job market change fast,” she counters. “For example, your company may prioritize the time it takes to fill a position because you need an employee now. In that situation, as a hiring manager, you’re more willing to pay up. But if you have time and there is a ton of talent for a specific role, you can wait and offer a lower base salary and higher incentives to ‘test talent’ before committing.”
There’s also the human side to consider when it comes to negotiating an employee’s comp.
An example from Javice: Say, you’re a new parent and you’ve requested a higher base salary and are taking a cut on your bonus to compensate. Those are special circumstances that don’t fit a formula or financial mold.
Maybe the Argument Should Be ‘Why’ a Salary Is Instead of ‘What’ a Salary Is
“Employees generally want more information when it comes to how they are being paid in comparison to others and refer to websites like GlassDoor and PayScale to get it,” Peart says. “If a company chooses not to disclose pay info, they run the risk of that information leaking anyway, which can lead to serious employee demoralization if salaries aren’t considered fair or it’s not handled well.”
This, she adds, is where the distinction comes in. “When it comes to the emotional health of employees, it’s not just about knowing the salaries of others; it’s about knowing that there is a sense of fairness.”
And revealing that info without an explanation of how pay decisions get made or why certain employees are paid more or less could severely backfire and exacerbate—versus help—company morale. “Information without any context can be really harmful,” she says. “That’s why it’s important to give more information about why the pay is different for different jobs.”
Lauren McGoodwin, founder and CEO of Career Contessa, explains this further: “If companies are going to commit to disclosing salaries, they should also be doing their diligence by figuring out why these figures exist. A manager shouldn’t earn X salary ‘just because.’ It’s about being thoughtful on an organizational level—companies should set up standard rates for positions, bonus structures and a navigable promotion strategy. Empowering and incentivizing employees will increase loyalty and longevity.”
In Javice’s opinion, life isn’t fair, so it’s hard to say that a formula for calculating salaries will work 100 percent of the time. Instead, she advocates for pulling back the veil on bonus structures. “Bonus structures should be transparent to all so that everyone understands the company goals and is in it together,” she says. “That leaves awkwardness at the door and gives way to healthy competition.”
Peart offers an alternative solution: A partial open salary policy. “This is a chance for companies to share the broad parameters of compensation, like average pay, or even pay ranges for each position, without needing to disclose everyone’s individual salaries,” she explains. “For employees, knowing how their salary is determined goes a long way in knowing their pay is fair. This way they know exactly how pay is determined and how they can make more. If people know how they can advance in an organization, they can think more clearly about their career and harness the power they need to achieve their goals.”
McGoodwin adds: “In my opinion, there is tremendous value to an open door salary policy. Money has been a taboo and uncomfortable subject for too long. When we shroud things like salary in secret, it allows for a huge imbalance to exist.”