Home' HR Monthly : February 2019 Contents February 2019 HRM magazine 19
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Broadcasting pay levels can be a double-edged
sword, according to critics. They argue that
most people have an exaggerated view of their
own performance and hence believe their
current pay is well below what they deserve.
“Everyone’s general impression is always that
other people are doing better than them when it
comes to pay,” says Connell.
Staff who discover they are ‘underpaid’ in a
transparent system can become dissatisfied and
more likely to leave. McKinsey recently reported
on a Canadian engineering firm that introduced
a transparent annual bonus system, only to find
employees’ perceptions of the fairness of the
reward relative to their on-the-job effort was
significantly worse (-8 per cent), while trust in
their employer declined (-7 per cent) compared
with a previously arbitrary approach to bonuses.
Staff interviews found transparency made
people critically evaluate what had previously
been seen as an unexpected gift. It also
highlighted those who received larger bonuses,
inviting envy by those with lower bonuses.
The natural human tendency towards social
comparison often compels staff in a transparent
system to ponder questions of fairness.
Molineux has seen this occur in the public
sector when everyone is paid the same, but some
are working harder than others. “This can lead
to a perception of inequity. Then the question
for those people is what they do about it. Do
they continue working at the same high level?”
When employees find out about their
peers’ higher pay, dissatisfaction can lead to
demands for change, which can be tough to
handle. “ With transparency, you see a lot of
discussions around equity start, which can be
uncomfortable or destructive,” says Molineux.
David Bates, executive counsel at Harmers
Workplace Law yers, believes an opaque system
helps avoid this problem. “Where a number of
people are at the equivalent level, the employer
may not want to pay them all the same amount.
Confidentiality avoids the unpleasantness of
staff knowing not everyone is on the same rate.”
Privacy can also be a problem with open
systems. A US survey by Bankrate found only
24 per cent of employees had shared their salary
information with a co-worker. Millennials were
more likely (33 per cent) to do so, compared
with only 18 per cent of baby boomers.
Molineux is unsurprised by this finding.
“If the organisation
is not telling you
why you are getting
paid what you’re
being paid, then
how can it claim to
MATT CONNELL CPHR, AHRI VICTORIAN
STATE COUNCILLOR AND EXECUTIVE
WORKPLACE CONSULTANT, WORKPLACE
“There will always be some people who just
don’t want others to know their salary.”
Transparency is definitely not for everyone,
Connell admits. “ When it’s introduced, it can be
Pay transparency can also be a recipe for
losing top staff, says Bates. Opaque pay models
allow employers to keep control. “It prevents
sending signals to the market, which may avoid
poaching of key employees.”
Connell agrees this can be a problem.
“ When you have pay transparency, it can be
quite rigid, so you can’t reward you r high
performers – especially if you want the system
to be consistent.”
To avoid this, even supposedly transparent
public sector schemes are sometimes boosted.
During his stint at the ATO, Molineux helped
introduce a bonus scheme for senior staff.
“ Within the ATO the bonus system was secret
and no-one knew who got what. In terms of
general salary, everyone knew what people
earned, except for people who got the bonus.”
Although pay transparency sounds easy, it
can also be a very exacting process.
“As the business grew, we brought in a ‘salary
table’ of competences. It’s similar to salary
banding, but we cover the skills, responsibilities
and business impact for each particular
discipline within the organisation,” says Ferne.
With 30 levels, Cogent’s salary table is
updated annually in a rigorous, but time-
consuming process, says Ferne. “It takes a
lot of work, especially as it is a collaborative
process, not a closed door management process.
Naturally everyone is quite invested in it and
they closely monitor it.”
Although sticking with an opaque pay model
may avoid difficult discussions with employees,
increasingly it is opening up organisations to
questions about their values. Molineux says pay
transparency creates trust in management.
“If you are honest in this area, you are more
likely to be honest in others. If you want to
build a culture of honesty in an organisation,
secrecy is the worst thing you can do.”
Supporters of pay transparency also believe
an opaque system can’t be squared with public
commitments to gender equity and diversity.
“Pay transparency makes you front up to
those values. If you don’t have transparent
salaries, then you need to ask if equality is just
something written up on the wall. Can you
really hold yourself with integrity?” says Ferne.
“ We believe open salaries is the way of the
future, and the push for equity and information
accessibility is helping drive that.”
Connell agrees that organisations risk looking
hypocritical if they don’t have transparent pay
systems. “Talking about pay levels is a big
taboo in the private sector. A nd yet 90 per cent
of organisations have values of collaboration,
communication and trust, but not in this
area. We talk about accountability, but if the
organisation is not telling you why you are
getting paid what you’re being paid, then how
can it claim to be accountable?” •••
25/1/19 2:04 pm
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