A Case for Salary Transparency July 14, 2010ArchivesOff

Case for Salary Transparency

Is an end to confidentiality the key to closing the pay gap?

By Christina Boufis

Early on in her career, when Ann Price worked as a consultant for General Electric, she was the only woman on her team and never knew what her male colleagues earned. Price worked hard. She was promoted, and that’s when things took an interesting turn. When one of Price’s employees approached her for a raise, he revealed his salary information in the process, something she hadn’t known, and it was significantly more than her own. “I outperformed him,” Price says, “got a promotion [and] became his boss, all the while making less than him. Can you imagine?”

Price went to her own supervisor for an explanation and was told that since salary scales were based on education and she didn’t have a college degree, she was being paid less. “I accepted that [explanation],” says Price, until her second increase, which still didn’t come close to matching her male employee’s salary. “Finally, I said, ‘But I thought we lived in a country where equal pay for equal work was the law?'” Price recalls. “So wouldn’t that entitle me to equal pay regardless of my background?”

Maybe, says Martha West, professor of law emeritus at UC-Davis Law School. There are laws that protect women from economic discrimination in the workplace, such as the Equal Pay Act of 1963, which states that men and women must be paid equally for performing the same type of job at the same company. And Title VII of the Civil Rights Act of 1964 prohibits employer discrimination (including pay discrimination) on the basis of race, color, religion, sex or ethnic origin. “But it’s complicated,” West explains, since companies are granted certain exclusions, such as the right to pay higher wages based on prior experience or even prior degrees. “It may be legal,” West says of Price’s being paid less than her male colleagues. “But the employer would have to prove that it’s a legitimate business reason that’s not based on gender.”

Though Price’s girlfriends urged her to sue, she didn’t in part because she was only 22 and didn’t know better at the time, she says. Price also feared she might damage her career. Later, though, Price unexpectedly received a visit from someone in GE headquarters and was given a check for a year’s worth of back pay to shore up the difference with her male co-worker. A year later, she left to form her own software company, Motek.

Today, as Motek’s CEO, Price ensures that what happened to her won’t happen to her own employees by practicing a form of “open-book management” and complete salary transparency in which all financial information – including what each and every employee makes – is disclosed and circulated. “It’s critical to not just share the numbers,” Price says, “but also to explain what they mean.” At her company, all employees are taught to read a balance sheet and a profit and loss statement. “We have quarterly meetings,” Price explains. “We go over every line item. As a result, every single person knows everyone’s salary, including my own.”

And the result of creating this visibility? “In one year,” Price says, “I transformed my company from almost broke to solvency to profitability.” Far from the resentment and mutiny one might expect, Price found that such disclosure actually dispelled employee anxieties about pay. “People became much more respectful of each other knowing each other’s salaries,” Price says. “And far less disillusioned about whether they were being fairly dealt with. It’s the unknown that creates infighting. They imagined I took home millions of dollars. And their imagination was far beyond the reality.”

Price says that in 17 years of practicing salary transparency, none of her employees have ever complained. Several times, in fact, they’ve even deferred bonuses until the company was performing better.

Clearly, though, salary transparency is unlikely to catch on at larger firms. Lisa Chang, executive vice president of human resources for the Weather Channel, explains why her company does not practice it. “We view compensation information as completely confidential,” she says. “And we don’t think it’s our place to be sharing people’s personal information.” But the Weather Channel does ensure gender pay equity in other ways, she says. “The transparency for us comes when we explain how pay is established,” Chang explains. “So people understand there’s not this mysterious black box, but there’s rationale [and] data” in pay structures.

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