Pay Transparency: It’s Coming, And Pretty Soon, We’ll All Start To Know What Each Other Is Earning

Have you ever wondered what the people in your street, apartment block or cul-de-sac earn? Have you ever seen a neighbour on their drive as a fancy new car arrives, and said to your partner or housemate something along the lines of “They must be doing well”. Are you the kind of person that looks at the houses sold section on property websites to see what people paid for the same house as yours, out of curiosity or to know vaguely how much your home might be worth these days?

A whopping 59% of Brits admit to checking out how much someone they know has paid for their home. People are most likely to find out what their neighbours, friends and family have forked out for their home. But 3% have also looked up the price of their boss’ pad, and I wonder if this is only so low because you’d need the postcode or address? How many would be checking if they had access to that information? Would you look?

Now imagine there were the same search facilities and results for pay. The colleague you sit next to, your Team Leader or Manager, and the Director overseeing the whole department. If you could legitimately look at their earnings, how much the same company paid them to compare to your own salary, what would you do then.

 

How would you feel if anyone could look up how much you earn?

This has been common practice in Norway, albeit it’s been finessed over time. Everyone’s pay details are accessible on a public ledger. If you lived in an apartment block with the same address, you could check everyone out. And you can still do it now, although since about 2014 you’ll leave an electronic trail so that people will know. You can look up anyone’s salary that you’d like to know, but they’ll get an email telling them who’s looked at it, and when. It dates back to the 19th century, in those days you’d need to pull out and manually turn the pages of a large book (remember those days?) and you could check everyone’s earnings. Fast forward to today, it’s online, and for 10 years or so you could even do it without any detection or notification to the other party.

So, this is quite alarming, anyone being able to see what you earn. The balance of whether it’s useful or intrusive can swing both ways, you can check on your boss but what if you are the boss? But in Norway conversations about pay and equity within pay structures is now very different as a result, because this system has been in place in various forms for so long, and businesses have adapted appropriately. There just isn’t the need to check up on people, most Norwegians are also part of collective bargaining agreements which together render the need to check up sort of irrelevant.

And Norway has a lower gender pay gap than a lot of other countries. It’s not perfect, but on average in 2022, women’s hourly wage was 89 kroner for every 100 kroner men earned. So, pay transparency isn’t a panacea for wage inequities, there’s still a gap to work on reducing, but it’s helping move the country forward.

 

Experts are saying more and more countries are edging towards greater pay transparency…..that means here in the UK too

Why are they? Because it’s a brilliant and fast tool to address unfairness and inequity, such as gender and age-related pay gaps. But is there a right and wrong way to implement a pay transparent culture? Certainly, you could argue that Norway is at the radical end of the spectrum, and make no mistake, there is a spectrum here.

 

From a HR, people, recruitment and business perspective, what happens in America usually trickles over here and vice versa pretty quickly.

Last year in New York, new legislation was passed to require employers to include a pay range in all job adverts. The goal was to give job seekers more information when it came to what to ask for, in terms of compensation. There was a concern that individuals without the right network professionally and personally, had no way of knowing if they were being taken advantage of when it came to pay. The law was designed to give the individual some powers when it came to salary negotiations. Some months on now, and it’s been a mixed bag when it comes to feedback, because of some loopholes they probably should have foreseen. For example, NYC is a financial hub, where large proportions of compensation are in bonuses, except bonuses aren’t covered by the law so they don’t need to be highlighted in the same way. Workers are saying there isn’t enough information, and that the law needs to go further, while employers are saying it’s too rigid and that a certain amount of flexibility needs to be used when you’re hiring, especially in uncertain times with the global cost of living crisis. But it’s there to help people get a leg up, so outside of financial services let’s consider this must be helping all parties sing from the same hymn sheet from day one.

 

Underground salary spreadsheet sharing

Yes, that’s right, it was happening and still goes on, and this was part of the reason the law came into effect. Adverts were starting to pop up with ranges from $40,000 to $400,000, and workers were expected to try and guess where their experience would land them within this ridiculously unhelpful range. So, the NYC underground spreadsheets still exist, apparently, like people driven review sites, with details of people’s own salaries along with how long they’ve done the work, their experience level and qualifications in order to try and help other people be more informed before making decisions.

Salary laws and transparency are really popular with workers in the US, and unsurprisingly not with executives. We’re likely to see and hear of more in the coming months and years, they will spread, what’s not so clear however is whether they will actually achieve what they set out to do.

 

One benefit executives have found

A smaller talent funnel. It’s not necessarily a bad thing, if the quality is there it’s actually much better in many ways, in NYC businesses are seeing fewer applications to look through and screen, and more candidates willing to work for the salary on offer. This has reduced the time spent in conversation at the offer stage where the pay discussion has become awkward.

In the UK the Fawcett Society is calling for employers to stop asking for current salary as part of their #EndSalaryHistory campaign. Basically, in order to help to close the gender pay gap, companies should stop asking the question at all, and also encourage their supply chain to do the same.

 

Academic studies say it’s a good thing

Results are consistently strong and replicated in different contexts stating that pay transparency when it comes to access to information does lead to reductions in discriminatory pay gaps, in particular the gender pay gap. The academics are strongly advocating pay transparency, as far as they’re concerned there’s no question that it works. What’s less clear, is the pay banding on adverts, the results are mixed and it’s open to unscrupulous hiring teams using false data. Workers from a minority background are also less likely to bump up their previous salary according to research, so a range isn’t that helpful, but cold hard factual numbers are.

 

The inevitable discord in the office as someone finds out the new person is earning more than them

This is a legitimate concern, and where there have been pay transparency initiatives, a spike in leavers usually occurs and retention is an exacerbated problem for businesses brave enough to venture this way. People are probably going to jump, again research shows the majority of workers, irrespective of their role or industry, consider themselves ‘above average’.

But usually, this is a short-term spike, and over the medium to longer term, it flattens out to previous levels if not an improved baseline. The research suggests that this spike is a cost of pay transparency, but that it’s usually overwhelmingly balanced out by the positives attached to going through the process.

 

The gender pay gap and other inequality pay concerns

Pay transparency doesn’t fix the problem, but it definitely closes the gap. The practices that caused the issues in the first place are so deeply ingrained in many businesses that it will probably take some time to irradicate them entirely. But pay transparency is a very effective tool, that said it’s not the only  tool, to help us on that journey. North American academics are saying it’s closed the gender pay gap by almost 50%, but that’s still leaving work to be done.

 

Unintended consequences

Here’s one for you that you could probably predict, a job title change to justify someone’s increase. Pay transparency is basically saying the pay should be the same or similar for the same jobs, so some companies will strategically manipulate the job title and the types of tasks included in the JD to get around it. And in NYC the new legislation is only for new job postings, so if you’re already in the company and applying internally, there’s still no way of accessing the data (unless it’s one of those underground spreadsheets I guess). In NYC a theme seems to be around the current tight labour market, needing to pay more for new people now, but without the ability to uplift those already there around these new workers. A recipe for retention issues for sure, but anyone balancing the books of running a business will no doubt have at least some sympathies. The reality is that people are thinking of ways to get around it, if they can, ‘legitimately’.

 

Global rollout

It’s expected to roll out across the US, in different states, and other countries and territories will no doubt test different versions of the theme. From the extreme openness of the Norwegians through to the baby steps of other countries revealing the pay of the top 5 most senior execs, pay transparency seems to be on its way.

 

The research tracks metrics in three key areas:

1) Gender pay gap

2) Mobility

3) Productivity

The question is what’s the optimal mix that serves the purpose we’re actually after, I don’t think they are there yet. It’s essentially a global experiment you’ll find yourselves a part of, at some point soon. And despite not necessarily being something welcomed by all parties, the results are likely to converge, very quickly. So, I’d urge you to start considering your approach, and by that, I don’t necessarily mean implement something right away, but start to consider what it might look like for your business.

 

Will we end up like Norway? Probably not no, Scandinavian culture when it comes to the working environment is based around equality, trust and a consensus society approach which underpins their ability to be so transparent around pay. There is tremendous faith in business, in government and in authorities, and that’s very hard to emulate if it’s not already there, so it’s not as simple as a cookie- cutter approach to lift and adopt their policies. And there’s ‘Pay Compression’ in the Nordics, those that are paid the most, broadly, earn a lot less than their equivalents in the UK. Equally, those paid the least are paid more than their equivalents in the UK too. There are equal steps, and transparent pay ladders in roles such as Teacher through to Headteacher in a way we haven’t adopted.

 

And if you’re wondering why they started to alert people in Norway someone was looking at their income?

To remove the purely voyeuristic opportunism. It meant people didn’t do it unless they had good reason and would be prepared to be challenged or questioned. Over 90% of the searches ceased overnight, so I guess it worked.

Baroness Stedman-Scott has launched new initiatives to level employment opportunities, and participating employers are already a part of a pilot program. Pay transparency is coming to a business near you, sooner than you think. If you’d like to hear how we helped one of the largest collectors of data in the UK address their gender pay gap, please email david@yourtalentsolutions.co.uk