Pay Transparency - The CEO Parable...

Quick note today about pay transparency.  For those of you new to the game, the call for pay transparency is hot, and a while back I encouraged everyone who would listen not to drink the entire pitcher of Kool-Aid regarding pay transparency.  My main point in that Workforce article.  While it's trendy and seems progressive to call for full transparency in pay rates and pay practices in organizations, the folks who are calling for it don't have to live with the employee fallout. 

In my experience, employees generally don't want their co-workers to have exact or directional information regarding what they are making.  See more regarding the fact that while most employees would love to know what you are earning, they don't want to reciprocate by allowing you to have access to the same information here. If you practice HR, you know what follows these survey results if you opened the transparency door wide open - tons of ER issues you can't solve.

So, that's pretty much where I'm at.  The new observation I'd like to share from the world of pay transparency involves the parable of CEO pay, and I was reminded of it in a post this week by Paul Hebert (a rewards, incentives and influence guy) over at FOT.  Here's what Paul had to say about the law of unintended consequences regarding pay transparency in the CEO ranks:

"Talk about unintended consequences.  One of the reasons cited for the huge salaries and pay packages available to top executives is in fact greater transparency caused by the disclosure requirements in Sarbanes -Oxely.  Congress enacted the Sarbanes-Oxley Act of 2002 in response to a spate of highly publicized business failures and corporate improprieties.  The issue they said was a lack of oversight and transparency.  I don't want another Enron and can see why more transparency was needed but, some of the requirements of SOX may be what is driving CEO pay issues.  Specifically, once I can see what others get paid - that's what I want.  The highest salary now becomes the minimum salary and I want more than the minimum." 

And that, my friends, is what I mean when I cite the fact that those who call for unlimited pay transparency won't be around to help with the fallout. Conceptually, I get pay transparency, but the fact that most employees would look at the range, where their peers are in the range and automatically want more duckets speaks volumes. 

I can handle the conversations and defend the differentiation employees would see.  Most managers can't, and that's the issue.  For the transparency folks, I absolutely agree with their core argument - we should pay fairly regardless of gender, race, etc.  With that said, there's a lot of contrast regarding what people are paid that makes total sense.  The problem is that most people in your org won't be able to defend it.

No company has strong enough managers to withstand the pressure and stand tall on how they value talent, so guess what happens?  You start valuing talent the same because of the pressure, and then a vocal average employee ends up making as much as your star.

Does that sound like the best way to maximize performance?  

Comments

[karenm]

Forgive me Kris,
but where have many in H.R been, Pay Transpearancy has been around since the SEC mandated it (actual Regulation that was passed) back in July 2006 - not that it did anything to control CEO pay in any bit.. but.. anyways, it is called Compensation Reporting and disclosure..

maybe it didn't do much back in 2006-08 but, I am sure that today, more and more will be paying attention, so maybe the bill will be more effective.

For many that are not aware -quoted smartmoney "The rules require large companies to disclose the total compensation of their top five executives more straightforwardly in their annual reports — including total figures that tally annual salary, bonus, stock-option grants and other perks."

[karenm]

Yikes. I meant to say the Regulation will be more effective.. Not bill..
Karen

[Suzanne Rumsey]

Would be interesting to know how the pay transparency thing is working for Whole Foods - one of their claims to "Top 100 Places to Work" fame is that they are completely transparent about pay - anyone and everyone can look up with anyone else and everyone else makes.

I think, like many novel practices, pay transparency would initially create the issues that you discuss, Kris. After a while, though, I think the noise would die down, especially if the company can do a good job of explaining pay differentiation, etc. So, can pay transparency happen. Yes - but it requires some serious change management, manager and HR education to make sure it has as little negative impact as possible.

[Jim Oberschmidt]

transparency can be easily accomplished by outlining pay schedules and boundaries and leaving individual incomes out of the conversation. For Example; A 'C' level pay schedule will run frum 72,495 to 96,495.

If definitly takes thought and intentional company cultural steps.

[Eva]

I'm don't know much about the implementation issues/fallout that goes with it, but in theory, I think transparency in pay is a great idea. It's a great way to ensure fairness. If you can't defend the salary an employee is making, especially relative to peers, there is a big underlying problem.

I would think that the best employees would just work harder to demonstrate they deserve the pay they think they're worth. Like Suzanne pointed out, there might be some issues at the beginning when dealing with past unfairness, but if this is communicated as a proactive solution - which the employees themselves have control over, it might actually work out.

[matt]

Discounting the idea of pay transparency because it would be difficult to implement and the barrier to change is too high...that's not thinking very strategically. Personally, I'm on the fence whether it would be effective or not. The US certainly has a cultural stigma of not discussing personal finances in general, which is a broader issue than the workplace salary one.