Pay transparency is a contentious topic. Many employers feel that keeping compensation information private helps with company morale. After all, each employee’s salary is often based on a unique combination of factors, including education, experience, training, duties, productivity, and seniority. It makes sense that employees performing similar duties often earn different salaries. Still, when employees find out about pay inequity, they may question the difference, feeling jealous and suspicious, leading to a drop in company morale and productivity.
For this reason, over half of full-time employees in the United States have a pay secrecy policy enforced in their workplace, prohibiting them from discussing their salaries with each other.
These policies usually violate federal labor law.
The National Labor Relations Act (NLRA) applies to all public sector employers, whether their workplace is unionized or not. While there are a few exceptions, a blog piece by Scott Williamson points out that the NLRA:
protects employees’ rights to “engage in concerted activities for their mutual aid or protection”. [sic] The National Labor Relations Board (NLRB), which enforces the NLRA, has consistently interpreted this protection to include employees’ rights to talk together about their wages and other terms and conditions of employment.
It’s been found that many employees actually support pay secrecy policies since there is a strong social taboo against discussing salaries. However, whether employees choose to share their salary information with each other, there are important reasons to embrace pay transparency.
It’s the Law
The NLRA prohibits employment policies that forbid the discussion of salaries or other job conditions, such as safety, between employees. It doesn’t matter if the policy is formal or informal, written or verbal. It also doesn’t matter if employees discuss their salaries in person or through social media channels.
Employers who sanction employees for sharing salary information risk being penalized by the NLRA. In a blog piece, Jennifer Orechwa explains that penalties may include:
- Payment of back wages to an affected employee;
- Rehiring an employee who was terminated for violating an illegal pay secrecy policy;
- Rescinding existing pay secrecy policies; and/or
- Posting signs that explain employees’ rights around pay transparency.
It’s important for employers to be aware that the law errs on the side of protecting employee rights.
Addressing Pay Inequity
Pay secrecy contributes to gender and racial pay gaps. It is well known that systemic racism and sexism contribute to pay inequity. Statistics do show that, even when all compensable factors are controlled, women and BIPOC employees earn less than white men. Specifically, PayScale reports that in 2021:
- Women earn only $0.82 for every $1.00 that men earn when comparing the median salary for all men and all women, regardless of job or duties (uncontrolled pay gap).
- Women earn $0.98 for every $1.00 that men earn when performing the exact same job (controlled pay gap).
- As women advance in their careers, the pay gap widens. In executive-level positions, women make $0.94 to every $1.00 that men earn when the data is controlled and only $0.70 to every $1.00 that men earn when the data is uncontrolled.
- Pay gaps for BIOPIC women are wider than those for white women, and the pandemic increased the gap.
- BIPOC men earn less than white men, but more than women in their own racial ethnic group. As an example, “American Indian and Alaska Natives see the largest uncontrolled pay gaps relative to white men; women in this group earn $0.69 and men $0.86 for every dollar earned by a white man.”
Without pay transparency, it’s difficult to address the gaps and move towards resolving systemic racism and sexism. If a company has a pay secrecy policy, employees won’t know if they’re being discriminated against in terms of salary. And, if they do find out about pay disparity, they risk being disciplined or fired for violating company policy.
If an employee discovers that they are being paid less for doing a seemingly identical job, they may file a Charge of Discrimination with the U.S. Equal Employment Opportunity Commission. And, as pointed out in a blog by Dana Wilkie, since employment discrimination based on race, color, religion, sex, or national origin is prohibited, there are actually few situations where an employee couldn’t claim discrimination.
Even if an employee doesn’t file a Charge of Discrimination, the discovery of pay disparity can lead to falling morale, decreased productivity, and increased employee turnover or attrition. Rather than letting employees find out about pay disparity through word of mouth, it’s in an employer’s best interest to always be transparent about their pay scales.
Fostering a Positive Work Environment
Pay secrecy policies are often created as a way to uphold employee morale. But paying employees fair wages and having transparent pay structures has far more benefits.
In a terrific blog piece at Insperity, Rebecca Messina suggests heightening pay transparency by:
- Paying people fairly and making sure that your salaries are competitive.
- Encouraging employees to approach the HR team with any questions they have related to their positions, including salary.
- Clarifying how salary ranges are designed and alerting employees to opportunities for growth and advancement.
- Providing training and resources to managers and HR so that they are currently informed about labor legislation.
- Creating a complaint and/or appeal process to respond to employee concerns.
- Collecting feedback and creating surveys that gauge employee perceptions of their work environment, employee engagement, and compensation practices.
Understanding how their salary is calculated and having avenues in which to ask questions helps employees to feel valued. And feeling valued contributes significantly to morale, productivity, and retention.
Developing a Compensation Strategy
Of course, paying people fairly to start with is absolutely key to pay transparency. And, developing a compensation strategy is the best way to ensure fairness and consistency in determining pay rates for all employees.
A good compensation strategy takes many variables into consideration including the duties of the position itself, shift or work hours, what the employee brings to the position, and job market trends. Once that information is gathered together, next steps, according to Lisa Nagele-Piazza at HR Magazine, include:
- Creating objective metrics for recruitment, performance, advancement, and compensation.
- Communicating with employees openly about the metrics.
- Training decision-makers on the compensation system, to ensure consistency.
- Implementing standard pay ranges for each position or job classification.
- Keeping job descriptions up-to-date to ensure that pay can be adjusted as needed.
Remember also that a compensation strategy shouldn’t only address base pay, but also commissions, merit increases, promotions, one off increases, and financial bonuses or incentives.
On the surface, pay secrecy policies appear to be an adequate way to bypass employee dissatisfaction regarding compensation. But, beyond contradicting federal labor law, pay secrecy policies entrench pay inequity based on gender and race and do not contribute to a positive work environment. A transparent compensation model goes much further in addressing employee satisfaction and in making employees feel valued. The end result – improved employee morale, productivity, and retention – indicates the benefit of pay transparency.