Pay Transparency Takes Center Stage as More Workers Talk Wages

Oct 12, 2020

From video game publishers to coffee shops, pay disclosures are rattling HR. Sources say employers need to be careful when forming a response.

In recent years, workers across entire companies and even entire industries have taken pay transparency to a new level via crowdsourced spreadsheets.

One of the most recent examples comes from video game developer Blizzard Entertainment, where employees reportedly circulated an internal document to share salaries and pay increases, according to Bloomberg. Last year, members of the media industry began a similar document disclosing information including titles, salaries, experience and duties. Baristas in Philadelphia-area coffee shops started their own spreadsheet, The Philadelphia Inquirer reported.

These developments rattled the HR industry even as employers have slowly begun to focus on pay equity, including acknowledging pay disparities. Exact estimates vary, but data released earlier this year by PayScale show women in the U.S. made 98 cents for every dollar earned by men when accounting for compensable factors such as experience, industry and job level. Pay gaps may be even wider for people of color: for example, a 2019 analysis by the Economic Policy Institute found that, after controlling for age, gender, education and region, Black workers were paid 16.2% less than White workers.

Employers shouldn’t be surprised in the event that employees decide to post their pay publicly, said Tauseef Rahman, partner at HR consulting firm Mercer. “Employers have long had the opportunity to get ahead of any message by employees by being more transparent on pay philosophy and pay ranges,” Rahman said.

Even so, businesses must take into account the legal and cultural consequences of their responses, Rahman and other sources told HR Dive.

A measured response

It may not be advisable to take a retaliatory approach in the event that wages, salaries or other pay data are shared publicly, sources said.

“Employers should not immediately default to defensive posturing, seeking to quell or even punish employees for such behaviors,” Craig Wallace, professor of management and department head at Clemson University’s College of Business, said in an email. “That can have significant and negative cultural impacts, leading to decreased involvement, and even apathy.”

Another reason for caution on this front is that federal law, namely the National Labor Relations Act, protects concerted activities in the workplace, or those actions that workers engage in jointly to improve working conditions, Angela T. Hall, associate professor in the School of Human Resources and Labor Relations at Michigan State University, said.

“The [National Labor Relations Board] has rendered decisions in multiple cases finding that employers illegally interfered with their employees’ rights to engage in concerted activity when they punished or prevented employees from discussing their pay,” Hall said. In one case, she noted, the Board found that an employer violated the NLRA when it fired a customer service representative for discussing her wages with another employee.

The NLRB has ruled similarly in other cases. In 2018, an NLRB administrative law judge found that retailer Lowe’s violated the NLRA when it forbade workers from discussing their pay, despite the company’s argument that its policy applied only to individuals entrusted with non-public information about its business. The judge disagreed and found that the policy interfered with employees’ NLRA rights.

Employers may also need to consider the rest of the legal landscape. “In fact, there are several state and local laws that explicitly forbid employers from prohibiting or retaliating against employees for openly discussing or disclosing wages,” Rahman said. “One of the many objectives for these laws is to help employees discover inequities in pay for those performing same or similar work.”

Hall pointed to the example of Colorado, which prohibits employers from firing or otherwise preventing employees from disclosing or comparing their wage rates. Hall said Colorado’s law is “one of the most comprehensive” such pieces of legislation on the subject.

The bigger picture

Instead, employers might react to incidents of pay disclosure by embracing open dialogue about equitable pay, Wallace said, and they may also view such incidents “as a chance to get involved with their employees and build, rather than damage, relationships.”

Rahman said that disclosures will have a greater impact on organizations that have a low level of transparency within their culture. However, building a foundation of transparency in areas outside of pay, including business performance, decision-making and manager interactions, can establish a basis for pay transparency, he noted.

“The cultural impact is a move towards greater transparency, and not just for pay,” Rahman said. “We’ve already seen this move to transparency in pay equity, and extending to pay ranges, pay philosophy and career opportunity.”

Employers who have embraced transparency have done so in different ways. In a previous HR Dive interview, a representative of social media software company Buffer detailed the firm’s “Default to Transparency” approach, in which every employee’s salary is published as part of a publicly available spreadsheet, as is the company’s “salary formula.” Other companies have opted to conduct pay audits to identify internal pay gaps, correcting any uncovered disparities for which factors like education, experience, training or performance can not account.

However, some employees may not react positively to a more transparent approach. “Employees may feel embarrassed or violated when they know their co-workers are looking up or discussing their salaries,” Hall said. “Also, knowing what others are paid may result in dysfunctional outcomes such as jealousy or may result in an employee’s becoming demotivated when that employee realizes that another employee [who] may not be working as hard as she does is being paid the same amount.”

Research suggests there may be evidence that employees prefer to keep pay information secret. A 2018 survey of 755 individuals by researchers at the University of California, Los Angeles, and the Harvard Business School found 80% of respondents said they would prefer to keep co-workers from learning their salaries, and 40% said they wouldn’t accept $125 in exchange for telling a group of peers what they earned.

Even so, discussion of wages can “tank” organizational culture if ignored or punished by employers, Wallace said. “If addressed with an open mindset AND the employer takes positive action to address underlying motives for such behavior, then the organization can begin to build a caring culture where employees begin to reciprocate the positive actions taken by the organization.”

If nothing else, employers might want to address pay disclosures so as to avoid sharing only part of the story about how pay is determined, Rahman said; “Employees will create the story and ‘fill in the blanks’ if they don’t have all of the information.”

By Ryan Golden