Before making salary bands public, ask yourself these 5 questions
Tl;dr: salary transparency is coming. Prevent unintended consequences by rolling it out in phases, planning to adjust current employees’ comp, setting expectations with managers, and using the intangibles of your organization as a competitive advantage.
Salary transparency is coming.
Colorado has led the way, and New York is right behind it — every job posting needs to include the salary range. Even big tech has committed to making salary ranges public by January 2023.
In my view, transparency will boost efficiency. When hiring, I’ve spent at least 100+ hours on every hire. Making the bands public will lead folks to weigh the benefits/drawbacks outright, saving everyone time in an already friction-filled process.
With every big change, there are the anticipated effects, and then the unintended consequences. It’s easy to see salaries “equalizing” in the long term, from a bird’s eye view. Yet there are so many ways for this to go sideways. Prevent this pain by having answers to the following questions:
1.) How will you roll out pay transparency?
When we talk about “transparency” Leon Lam and team have identified 3 distinct but related pieces to think about:
The process of the pay system — how the bands are calculated, how individuals are leveled in band
Outcome transparency — the actual numbers themselves
Communications transparency — how should employees share their knowledge internally and externally
Knowing that transparency is coming, which pieces will you roll out in phases? Sharing internally first? Focus on one piece of transparency and expand from there?
2.) How will you address the comp of current employees?
Current employees will see the salary bands for in job descriptions for new hires. If they find there isn’t parity between comparable roles, that’s bad. Bad bad bad.
You might start with making the process of the pay system transparent, as a way to kickstart any comp adjustments internally.
3.) What’s your take on location-based pay, today and tomorrow?
The devil is in the details here.
* Who decides what the location zones are?
* Are those people on the ground in-region?
* Are the zones based on cost-of-labor or cost-of-living?
Hybrid roles are likely going to want to stick with location-based pay in the medium-term.
Remote roles, not so much. Mas and Pallais’ findings point to a monetary value employees put on working remotely — they’ll take as much as an 8% pay cut for a remote arrangement.
Location-blind pay may come to pass, aligning with the dollar amount folks are willing to forfeit in order to work remotely (the “amenity value” in economics-ease).
4.) How will you work with managers to distribute comp accurately?
Early evidence suggests that pay compression might be an unintended consequence of pay transparency.
When a manager is in this scenario, they may feel pressure — out of fairness, or perhaps efficiency — to keep salaries for folks on their teams pretty close to each other.
Consider this transition to pay disclosure in a municipal government in California:
Among top managers, disclosure led to approximately 7 percent average compensation declines, and a 75 percent increase in their quit rate, relative to managers in cities that had already disclosed salaries.
Working with managers in general as you roll this out is going to be key, because it’s likely to be pretty bumpy.
5.) How will you stay ahead of the competition?
More transparency is likely to lead to a dynamic hiring environment. If salaries are open, industry-wide, what will set you apart?
Goodwill is more than a line-item your balance sheet — my prediction is that more employees will be swayed by the intangibles, like flexibility, culture, mission and values (in addition to tool choice and stack, if applicable).
However, when pay is standardized, negotiating “fringe benefits” has the potential to introduce more inequity.
Keeping the fringe benefits uniform, organization-wide, might prevent that concern.
While strong feelings about this issue abound on the internet, especially about tech workers, it’s easy to forget that pay transparency has been the norm in other industries for *decades.*
We can look to municipal workers, teachers, and even actors for best practices here.
“Those are regulated industries” you may say. And you’d be right. Pay transparency is a signal that tech as an industry is reaching a maturation point. Perhaps standardized positions will be next…
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