Everything you need to know before embarking on salary transparency
This is the full transcript for Episode 3 of Quartz’s Work Reconsidered podcast, Pay transparency: A double-edged sword.
Listen on: Apple Podcasts | Spotify | Google | Stitcher
Read more
Cassie Werber: Do you know how much money your friends make? How about the colleague who sits next to you at the office? How about your boss? When you start to think about it, salary transparency is a kind of financial Pandora’s Box, a fount of dark secrets, which once released, can’t be put back again. I mean, how would you feel if anyone who wanted could look up your salary on a public website?
Part of feeling valued at work is being paid fairly. Big discrepancies between colleagues can be infuriating. But whether we know about them or not, they most certainly exist. And they’re often systemic: Based on gender, race, or something else that really isn’t fair at all. Salary transparency might be the answer to all that unfairness. But as we’ll discover, it’s no easy fix. Today, we’ll hear from companies that have taken on that great experiment with varying results. One thing they’ve all learned, going transparent isn’t so simple. And once you do, there’s no going back.
This is Work Reconsidered, a podcast from Quartz. I’m your host, Cassie Werber, and today we’ll be talking about salary transparency: Is it possible to know too much?
Today I’m joined by Quartz executive editor, Francesca Donner. Hi, Francesca.
Francesca Donner: Hi, Cassie.
Cassie Werber: So what do we mean when we say pay transparency? Is it essentially just a spreadsheet of salaries that’s open to everyone in a particular company?
What is pay transparency?
Francesca Donner: Well, I think maybe the first thing we should do is define pay transparency. And that’s really the degree to which employers are open about how much their employees are compensated. And there’s sort of a part two of that as well. And that’s the degree to which employees feel comfortable sharing that information with each other. The big idea here is how does my salary compare with others? Is my salary in line with market, when I try for a new job, is the salary they’re offering actually fair, or are they just trying to get a good deal on me? And that could start by entering a job interview with clear expectations about what the salary might be.
I think how a company gets to pay transparency is a different thing. And I look at it along a spectrum. On one end, you might have a real openness about what the staffer might earn in a particular job. But at the other end of the spectrum, you might have a company that puts salaries right out in the open, where every staffer can see what every other staffer is earning.
Cassie Werber: Got it.
Francesca Donner: I think the thing is, it’s important to note, that pay transparency doesn’t have to mean revealing what each employee is making, although it can be that. But the idea is really to take away some of the murk and mystery about how salary is set and bring some equity because women still consistently make less than men in the entire world, every country. And it’s possible that a culture of transparency might make for a better workforce. And that really comes down in large part to pay equity.
Pay transparency and pay equity
Cassie Werber: And of course the gender pay gap isn’t the only pay gap that exists, or that salary transparency could potentially help to solve. There are ethnicity pay gaps, pay gaps associated with other gender identities. Essentially, everyone globally is less well paid than white, heterosexual, cis men. Right?
Francesca Donner: So we aren’t just talking about gender, but pay transparency is an approach to close that gender pay gap once and for all. In my mind, it really comes down to fairness. And I think you mentioned fairness quite a few times in your introduction. If everyone were paid fairly, there wouldn’t be a need for this conversation at all. But the fact is, they’re not.
Cassie Werber: Yeah, because you have accountability. You’ve got people outside of that manager-employee decision.
Francesca Donner: I think that’s right. And it also helps to reduce bias. I had a really interesting conversation with Sahar Khawaja, a senior attorney for economic empowerment from Legal Momentum. She said that pay transparency dramatically reduces unconscious bias or overt bias in salary setting. And here’s some of the ways that it can do that, and this is as it relates to gender. Employers might automatically think, Oh, she isn’t as reliable. Maybe she has children, maybe there’s actually an extension of the childcare penalty. What age is she? How likely is she to become pregnant? How many children does she have?’ Of course, these are questions that can’t explicitly be asked. But the fact is, the judgments are being made. And those judgments do result in women being paid less.
Cassie Werber: Got it. So are there any good examples of transparency being done in an interesting way? Or, what other ways people have approached it?
Grassroots pay transparency
Francesca Donner: One really interesting example is the famous Google spreadsheet. And what that did is it really put power into the hands of employees themselves who suddenly found that they could start gathering this information. They could even do it anonymously, and use that as a negotiation starting point.
Cassie Werber: These are these spreadsheets that kind of periodically get sent around anonymously, where people get to put in some data about the company where they work, is that right?
Francesca Donner: That’s right. Another thing is a company like Glassdoor, which publishes salaries, and also a little bit of what it’s like to work at certain companies. And doing that empowers the person who’s looking for the job or negotiating a salary by giving them that information so that they can go into the job interview, or they can go to the negotiating table, and say, ‘Well, that’s fine. I know you’re offering me $65,000, for example, but I’ve seen on Glassdoor that most people in this job role are earning $10,000 more than that, and can you match that?’ And I think that really changes the nature of the conversation because it takes away that shroud of secrecy, and because it empowers employees or job-seekers to go in armed with that information.
Cassie Werber: Yeah. And just to go back to the Google spreadsheet for a moment, essentially, it was like a grassroots version of what Glassdoor then came along and did a little bit more formally. Right?
Francesca Donner: Yes, exactly.
Cassie Werber: Yeah. So Glassdoor is an interesting one, and we’re going to come back and talk about that a little bit more later, I think. But are any other companies doing this in an interesting way?
Buffer’s totally transparent salaries
Francesca Donner: Yes. One company is Buffer, which does social media for small business. I spoke with a lady named Hailley Griffis at Buffer. And she said that, starting in 2010, the company began moving towards pay transparency as part of a broader push to be transparent overall. And that was with revenue and user metrics, and pay transparency was lumped in with its overall goals of transparency. And they’ve created a salary formula. What Hailley told me is they created the formula first internally, and then they made it transparent. So you could see based on your job title and experience and your location, whether you lived in a sort of high cost of living place or a lower cost of living place, what you might earn. They ended up sharing a spreadsheet of all their salaries. And after they did that—this is what I think is quite remarkable—after they did that, their job applications went up dramatically. So they more than doubled. So she said, after they put all their salaries out there in the universe for all to see, their applications in one month went from 1,300 to 3,000 the following month.
Cassie Werber: Wow.
Francesca Donner: The other interesting thing is that when you go to the Buffer website, you can still find every employee salary listed there, as I said, down to the last dime. So you can guess what I did before I got in an interview with Hailley: I checked out her salary. And it was really fascinating to go into the interview knowing exactly what she makes. And I opened our conversation saying, ‘Hello, I know you make x amount,’ which I won’t repeat here, even though she probably wouldn’t mind. And she laughed. And she said, you know, she has a friend who literally can’t bring himself to look up her salary online, even though it’s available.
Asking colleagues what they earn
The reason I mention this is because it raises so many issues around the culture of asking about salary or looking up someone’s salary. We still have a really, really high discomfort with feeling like we can talk about it or ask about it. It makes us uncomfortable. Not everyone, but some of us.
Cassie Werber: Yeah, and actually, I think I’ve run up against that a little bit while making this podcast. Because when we’ve been talking about how do we describe the difficulty of asking someone their salary, I do think that we’ve had some differences of opinion. I think maybe in the US it is a bit more normal to say, you know, ‘what do you make’ to a good friend or to a colleague, whereas before the job that I have now, I don’t think I’d ever asked anybody their salary at a place where I worked, ever, which is pretty incredible.
Francesca Donner: I think that there are many, many, many, many, many people in the US who would have a great degree of discomfort asking a peer or a friend or a colleague what they earn. And I really do think it comes down to culture. And I did a little bit of research into how different countries feel about asking about salaries. And I found some interesting findings. So there are parts of China where it’s quite common to talk about pay with peers. Now, you can contrast that with a country like Germany, where it’s entirely permitted to talk about salary, but it’s culturally a faux pas. Nobody talks about salary at all. And Zoe Cullen, who is an economics professor at Harvard Business School, confirmed this for me.
The “salary taboo”
Zoe Cullen: So in the process of studying the salary taboo, the implicit preferences of people to disclose or not disclose, irrespective of whatever rules are in place, I think that there’s quite a quite a range. And in the context of several Asian countries, it will be common to ask people what they’re paid, and be asked what you’re paid without blinking an eye. And so that’s very much the case in some parts of China. And we studied Southeast Asian countries, specifically parts of Vietnam, where there are very different cultural regions. And again, we saw some evidence of a very western culture inside of the workplace, and then some evidence of very unusual culture with where these conversations are taking place all the time about who’s being paid what. And my sense, especially in the context of these European laws [mandating salary transparency] is that some of them, despite being in place and enforced, are still not followed in part because of these strong taboos. And one explanation is that culturally it’s atypical to have conversations about money.
Francesca Donner: And in fact, in Germany, if you’re at a company with more than 200 people, you’re allowed to just go ask your boss, ‘What do I make? How does that compare with everybody else?’ But nobody does it. So to go back to the UK, I would imagine that culturally, people are very uncomfortable with it. But I do think that in the US, at least speaking anecdotally, people are quite uncomfortable with it here, too. But of course, that can vary by industry and region. And I do think that what you see happen when people get uncomfortable about things, but they still want to achieve this end is you see something like the Google Spreadsheet happen, which can be done anonymously.
Legislating pay transparency
Cassie Werber: So is there a reason why people are talking about pay transparency more now, in particular?
Francesca Donner: We’ve been talking about pay transparency for a very long time, but the pandemic did make us think about the workers who are most vulnerable. And in that case, it was women, people of color on the front lines, and individuals who didn’t necessarily have the luxury of working from home. And it’s been a wake up call about the inequities of our workplaces, which we already knew about. And I do think that pay transparency is one approach to protect workers who aren’t able to game the system or are in a worse negotiating position, or are simply being underpaid because of their race or gender.
Cassie Werber: Has there been any, for example, legislation that has pushed this forward?
Francesca Donner: Iceland has been a huge leader in pay transparency. In 2018, Iceland introduced the first policy in the world requiring companies with more than 25 employees—25!—to prove that they pay women and men equally for the job of equal value. So what happened? They had to show that they were paying equally for the same positions and then they would receive a certification. But starting in 2020, certification became a requirement. And if you didn’t have that certification, you would incur a daily fine. So once again, what we have here, which I think is really interesting, is you are shifting that burden of proof to the employer. And obviously, the strong enforcement mechanism is going to improve compliance. But suddenly, it’s not the burden on the job seeker, or the person asking for the salary to do all that hard work.
Does transparency make salaries higher or lower?
Cassie Werber: If salaries are out in the open, what does that do to an individual’s ability to negotiate their own salary? And what does it do to a company’s ability to compete for talent?
Francesca Donner: I think this is a really interesting question, because it doesn’t really have a straightforward answer. If you speak to Zoe Cullen at Harvard, she might argue, surprisingly, that any company that posts a single wage for a job is essentially setting the price for the job, which in some ways gives companies the upper hand because there’s no room for negotiation.
Zoe Cullen: I’m talking now about a world where basically everyone can see what everyone else is being paid for similar work. So we get to equality pretty quickly, both theoretically and also empirically. But in fact, this single wage has the effect of really strengthening the negotiating position of the employer. And the reason for this intuitively is that, when there’s one price, and an employee wants to ask for a raise, the employer can now very credibly say, Well, if I give you a raise, that means I have to probably give everybody else a raise, too. In a sense, we are a fair equal workplace, all the wages are transparent. And if someone else sees that you’re being paid more for the same job, that means that we have to also raise everyone’s wages. That means that the employer has every incentive to negotiate aggressively.
Cassie Werber: Okay. Yeah.
Francesca Donner: Essentially what you’ve got is a net effect of lower wages at a given company.
Cassie Werber: Yeah.
Francesca Donner: Now, I also spoke to Christian Sutherland-Wong, who is the CEO of Glassdoor. He argues that in most market conditions, greater transparency and flow of information makes markets more efficient. So what he says Glassdoor is doing is making labor markets more efficient by providing information to both sides of the equation, when it comes to the decision about where to work.
Christian Sutherland-Wong: Pay transparency doesn’t mean that you pay everybody the same level. I believe you can be competitive while being more transparent. I think companies also, particularly in roles where you can have real variance between an average worker and a really fantastic worker is, that companies evolve to have different forms of pay. So there might be a base salary, but there’s also some performance incentives or some stock options, or, you know, other things of that nature. And they’re the things where, you know, if you’re performing really well, you should get a bigger bonus. And I think that’s, again, if there is a tendency to think, oh, you know, I gotta keep that quiet, I can’t talk about it, and some people get bigger bonuses than others. But I think you can lean into that and say, you know, our top performers get paid more, and, and unashamedly so, and we’ll be transparent about that. And so then it means you can be competitive even when you are being more transparent with your workers.
When employees decide each other’s salaries
Cassie Werber: Okay, so Glassdoor saw a problem—a lack of transparency—and its company is both the solution, and maybe an example of pay transparency in practice. But are there other companies who have taken the call for greater transparency even further than that?
Francesca Donner: Yes, I have a really good example. The example is Expensify, which is an expense management app. I spoke with their COO, Anu Muralidharan. And she explained their system. So essentially, what you have is a company, which is around 140 employees, each ranking each other.
Cassie Werber: What?!
Francesca Donner: I know, bear with me. Every six months, the company does a ranking system where two employees will be set against one another, and one of those employees will get a thumbs up.
Cassie Werber: This is like The Hunger Games.
Francesca Donner: Well, I don’t think the one who gets thumbs down ends in death. At the end of the ranking process, you get a weighted average and a percentage, and that is put into a parameter to calculate your pay. And so essentially what you end up with is every employee ranking every other employee, and employees that get the most thumbs up end up getting a raise. So if you get more thumbs up, you’re getting paid more. And it’s sort of a ranking. But it’s not a ranking in quite the strict sense of 1, 2, 3, 4, 5, and so on.
Cassie Werber: So do they publish the ranking? Or do you just find out how much you are getting paid this year?
Francesca Donner: They don’t publish the ranking, as far as I know, and your salary isn’t actually published. But I think what is interesting about it is that your peers are determining your salary. And I did ask her, even at a small company, surely you haven’t interacted with every single last person. And maybe, sometimes you’re just picking one based on, I don’t know, this guy seems nice, or she seems nice. And she said, to some extent, that could happen. But most people, you’re probably interacting with. And if you keep consistently getting thumbs down, it might mean that you’re not putting yourself out there enough, getting involved in critical projects. And it’s an incentive to do more.
Cassie Werber: Yeah, that’s fascinating.
Francesca Donner: It is quite fascinating. Where I think this became quite interesting is she said, what this does, what this system does, is it also takes that onus off of each individual of having to impress their manager or their team, because when you just have to impress your manager, or your manager’s manager, or just your team, teams become less collaborative, because you’re only worrying about yourself. So when you have to start impressing everybody in the organization, because that’s actually going to impact your salary, then you become possibly more collaborative. And I think that’s where it gets quite interesting.
Cassie Werber: Yeah, I’m split on this policy. Part of me thinks it’s amazing. And how great to diversify the sources of your reasoning for paying people differently. And part of me thinks it’s kind of rife with problems.
Francesca Donner: Yeah. And I also think, here was another question I had for them, which was: If your peers set your salary, how do you set your starting salary? How do you set a person’s starting salary when they come in, because the peers aren’t doing it? And she actually said that, they have interview panels, with a minimum of 20 people on them.
Cassie Werber: Whoa.
Francesca Donner: And so when they interview people, they basically do an equivalent of that peer-setting salary. And they will be given a job offer and say, ‘This is the salary that we feel you should be at.’ And if the person says, ‘Well, that doesn’t feel very fair,’ or, ‘I wish I were making more,’ they say, ‘Well guess what good news is you’re going to be evaluated in six months. And if you consistently perform well, you can get a 50% salary raise within a year,’ which is sort of extraordinary when you look at it.
The downsides to pay transparency
Cassie Werber: So I said at the beginning, this is a Pandora’s Box. As soon as we open it, we just start finding more and more and more thorny examples, but I’m going to try and crack on with the problems because there are times when pay transparency isn’t helpful, right? Aren’t there downsides?
Francesca Donner: Yes, surprisingly there are, and I talked with Zoe Cullen about this. The ramifications of learning salaries can actually have real life implications. And that’s because there can be a real psychological blow of learning you make less than your peers. I think we often think that learning a salary is going to make us happy and give us all the information that we’ll want. But in reality, it can make people feel very dissatisfied.
Zoe Cullen: It comes out in a study by Emily Braisa and coauthors, that they see explicit decisions for employees who discover they’re earning less to stop cooperating with the people that they’re with, and leaving money on the table, so not showing up to work, doing a worse job, and then in work by David Card and coauthors, decisions to search for new jobs.
Francesca Donner: Now, here’s the other interesting side of the coin. When people learn about their managers and how much they make, which often is more than they think, the result is more dedication to the job. So when people learned what their managers made, they tended to send more emails, work longer hours, and maybe sell more products.
Cassie Werber: Hmm, so why would that be the case?
Francesca Donner: Because I think that people see a way forward for themselves. They see a path in the company, and they know if I just do more, I can reach my manager’s level, and then I too will make this salary, and why wouldn’t I want to work for that? I think knowing that salary makes it very clear. Here’s what you’re working towards.
Cassie Werber: So it kind of comes down to fairness again, doesn’t it? So people get inspired by thinking, ‘That manager earns more than me. But maybe that’s fair, because they’ve worked their way up the organization, I can get there, too.’ And they get demotivated by discovering that somebody who they think of as being on a similar level, is making more.
Francesca Donner: I think that’s right.
Cassie Werber: It sounds like pay transparency isn’t a silver bullet for us for solving things like pay inequities around gender and race. So how good is pay transparency at solving the unfairness problem, generally?
Francesca Donner: Well, I suppose it depends how you approach it. And I think that the legislation can be really useful. And I think it can be really useful if it’s done in an all-encompassing way, so that all companies have to follow that legislation. And then you start reaching a very different place. I think, when pay transparency is happening in an ad hoc way, you end up with sort of ad hoc results. Whereas I think that big blanket legislation, for example, that we saw in Iceland, really meaningfully changed things. And we know that opening up salaries for all to see can be okay if it’s part of the company’s culture and DNA and has been there from the start. But we know it can be extremely distressing for people to suddenly find what they’re making. So you need to be very careful about how you do this and how you approach it and have a plan and possibly start small and then figure out how to grow from there.
Cassie Werber: This has been a really fascinating conversation. Thank you so much, Francesca.
Francesca Donner: Thanks, Cassie.
Cassie Werber: If you’re interested in pay transparency but can’t make the change all on your own, here’s an experiment to try, no matter what your level at the company. If you’re an employee, try asking one of your colleagues what they make.
I tried this. And it was both surprisingly hard—I’m close to that colleague, but I still found it difficult—and it was also really instructive. Having more data will definitely help me talk about my own salary more clearly in the future. If you find out you make more than a co-worker you admire, do you think the difference is fair? And if a co-worker knew that you made more than them? Would you feel good about that? Would it feel justified?
If you lead a team or a company, we invite you to take an informal audit. Take a look at a group of your employees and what they earn. Notice any pay discrepancies, and if you do, do you know why, if the salaries became public, could you explain them?
Work Reconsidered is a podcast from Quartz. I’m your host Cassie Werber and I was joined today by Quartz executive editor Francesca Donner. This episode was produced by Francesca Donner and Nicole Kelly. Our sound engineer is George Drake and our executive producer is Alex Ossola, who also edited this episode. Our theme music is by Taka Yasuzawa and Alex Suguira. Special thanks to Zoe Cullen and Christian Sutherland-Wong.
If you liked what you heard, please tell your friends to listen too. You can also leave a review on Apple podcasts or wherever you’re listening.
Do you think pay transparency does more harm than good? Send us an email at work@qz.com. And to read more about our lives at work, head to qz.com/work.
