How salary transparency helps small businesses compete for talent

Published

It’s easy to see how giving employees more information about compensation, including market rates and how their pay compares to their peers, is good for workers. Armed with detailed information about what they’re worth, employees are better able to find the right job and negotiate a fair pay package when they do.

But not all employers are initially thrilled by the idea of more transparency around pay. Some companies, especially smaller firms, fret that clear information about compensation will reveal their inability to compete with bigger players (and deeper pockets). And some bosses worry that opening up a conversation about pay is not only just awkward, but also likely to stir up resentment and office politicking.

Experts in the field insist these fears are overblown: Transparency is actually a win-win, benefiting both employers and employees.

Your employees are already resentful and suspicious

The best refutation of the worry that open discussions about salary will create resentment is a recent survey from Payscale, a compensation information firm. The research revealed a startling fact: Many of your employees are probably already dissatisfied with their pay. Secrecy just makes the problem worse.

“People are often wrong about how much they’re paid compared to the going market rate,” Dave Smith, Chief of Product at Payscale wrote in Harvard Business Review, summing up the findings. “In fact, a whopping two-thirds of people who are being paid the market rate believe they’re actually underpaid.”

The survey also found that employees who believed they were underpaid were more likely to intend to leave their current employer and less likely to be engaged in their work. In other words, avoiding tough discussions around pay doesn’t quiet people’s anxieties. In fact, it’s likely to worsen them, leading even your best paid performers to wrongly suspect they could get a better deal elsewhere.

You have to measure the foot to fit the shoe

But that’s not the only reason to get over the initial awkwardness of frank discussions of compensation, according to Chris Bolte, the co-founder and CEO of salary information startup Paysa. “I fundamentally believe that a transition to a much more transparent marketplace is ultimately a great thing, not only for employees, but for employers,” he says.

Why? To have productive conversations about pay with their team, bosses must first take a rigorous look at what qualities they value in employees and how much that combination of assets is worth to the company. They then must compare what they need and can afford to pay with who they currently have in a given role and how much that individual could commend in a given market.

The process will result in some employees seeing a happy bump in their pay. It will also lead to some tough conversations when there is a lack of fit. No one likes those talks, but in the long run, being open is good for employees stuck in the wrong job, and for their employers.

“That kind of clarity will ultimately have a positive impact on the business because you’re going to be getting the people with the skills, traits, and experience that you really need. Productivity will go up and undesirable attrition—employees leaving that the company wants to keep—will go down,” Bolte predicts.

Compensation is more than just money

Bolte reassures small businesses that a review of this sort won’t just reveal that you can’t compete with industry behemoths. Instead, it can help highlight your unique selling points. You might not be able to pay as much as bigger competitors, but cash isn’t everything. Alignment between what a company needs and what a employee wants is most important, and goes well beyond just the numbers on a paycheck.

“If I was trying to compete with Google, I can’t do it, but I don’t want to,” Bolte says, using his own company as an example. “And the person that really wants the huge compensation that comes from Google, that’s not the right person for me. The person that wants the small business excitement, latitude in what you can do and the potential upside on equity, that’s the person I want.”

The bottom line for Bolte is simple: “The more transparent you are, the better people can make good decisions.”

Leave a response