Open Salaries: No More Whispering the Job Offer
By: John Rossheim
Picture this: your client company has an open pay policy -- wherein salary bands and the compensation of individuals are made visible throughout the organization.
Such a proposition may be a heart-stopping notion to some. But recruiters and other staffing professionals would be wise to ponder the challenges and opportunities posed by pay transparency.
Why? Among other things, it provides a means to overcome the job candidate’s potential doubts, fears and objections around compensation during the job offer process.
A brief history of open pay. Elements of open pay, a widespread practice among government entities, have recently gained momentum as a legal requirement for many private-sector firms. About a dozen states, including California and New York, adopted laws in 2015 that strengthen workers’ rights to:
- Ask their employers about compensation
- Discuss pay with their coworkers
- Disclose their salary to others
The primary goal of these laws intends to advance pay equality. These state measures typically expand on longstanding Federal protections for pay rights.
A (potentially) growing trend. Companies that choose a fully open pay policy -- giving every employee access to everyone else’s salary -- remain rare. Still, this phenomenon may become a trend, especially if more upstarts follow the lead of tech firms like SumAll and Buffer.
What does all this mean for recruiters selling opportunities to candidates who may see salary transparency as an ill-considered scheme?
Here are some top considerations, from the mouths of open-pay experts and practitioners:
Putting chips on the table can avoid wasting everyone’s time. With open pay, compensation is typically addressed toward the beginning of the recruitment process. This means candidates can quickly learn whether a job is worth going after, says compensation consultant Jim Brennan.
“Candidates no longer have to wonder what’s real and what isn’t,” says Brennan. And hiring managers, HR people and compensation specialists may no longer have to suffer through a series of candidacies that may well result in a stalemate or counteroffer ping-pong match.
Known salary bands can make negotiation more straightforward. “Open pay lowers the stress level in the hiring process,” says Dane Atkinson, CEO of SumAll, a 28-employee data analytics firm founded in 2011. At SumAll, a team comes up with the salary offer by comparing their appraisal of the candidate’s potential with the performance of current employees and then looks for an approximate match.
An open-pay search may increase the recruiter’s workload. Open pay is certainly not all good for recruiters. With transparency, no manager can expect a company to make an exception to its internally published pay bands for an exceptional candidate; recruiters also cannot eliminate applicants who have often been underpaid in the past -- disproportionately women and members of minority groups.
“Pay transparency is bad for recruiters and good for candidates,” says Brennan. “It’s much easier for recruiters to use prior pay as a proxy; with open pay, recruiters may have to work harder and do more research.”
Transparent pay can reduce inequities among demographic groups. With salary out in the open, unfair pay practices tend to quickly diminish -- an objective that sometimes eludes even those employers that make serious efforts to treat equally all workers’ requests for raises.
A system weighted toward equity is doubly important for aforementioned women and minorities, who often tend to be weaker salary negotiators, according to studies cited by this Penn State Law Review article. Thus open pay can be a great selling point to candidates who are members of protected classes.
Open comp companies can speak fluently about pay for performance. When each of your employees knows what everyone is paid, it requires some transparency about compensation differences among people doing similar work.
“You can think of open pay as a call to action to organizations to communicate about how comp is derived and how it links to performance,” says Kent Plunkett, CEO of Salary.com. “The biggest problem I see with open pay is how you feel if you’re in the bottom third” of the pay band.
Open pay can exemplify a transparent company culture. “Pay transparency is an opportunity for a company to communicate culture and employer brand,” says Plunkett. Open-pay companies are likely to be skilled in communicating their culture to recruiters and the candidates they source. That’s a big plus.
Transparent pay can reassure candidates about working for a small employer. Candidates may have heard horror stories from friends who went to work for an exciting small company but become mired in a low to middling pay range. Visibility into your client’s open-pay structure may help overcome such objections.
“At companies with fewer than 50 workers, it’s more likely that employees will feel that pay is not systematic and open pay can mute this concern,” says Plunkett.
Openness makes compensation systems more self-correcting. Open-pay systems tend to keep themselves honest. “Once you publish a pay rate, it becomes consistent, because there’s pressure to keep it so,” says Brennan. And pay transparency makes it much harder for executives to create exceptions.
Transparency tends to help employees keep up with market pay rates. “Open pay brings vitality to the whole talent acquisition process,” says Brennan.
With company-wide visibility into pay data, changes in compensation can quickly sweep through a given employment classification, helping to boost employee morale as inequity is addressed, Brennan believes.
Another possible benefit of open pay: while labor costs may tend to be higher in the short term, they will be lowered in the long term due to reduced employee attrition.