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Can Salary Transparency Pay Off for Your Company?

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By Mark Wilson, Esq. on October 02, 2014 9:38 AM

This discussion rears its head every now and then: Should companies let employees know how much money other employees make?

The question came up most recently in a Slate piece about the website Buffer. Apparently, Buffer posted a Google spreadsheet on its website disclosing the salary of everyone in the company. Is that a wise decision? Well, that depends on who's doing the asking.

Con: Loss of a Tactical Advantage

Keeping salary information confidential gives management a tactical advantage when it comes to negotiating salary for hiring and raises. If a prospective employee has no idea what other people at Company X make, then Company X is free to come up with any number it wants when the employee asks about compensation.

Sure, there are websites like salary.com or Glassdoor that provide salary information, but these are generally based on self-reports in an industry of a certain type within a geographic area, so individual companies' numbers can vary.

Pro: Discrimination Insulation ... Unless You're Discriminating

If everyone's salaries are public information, then employees can't claim that they're being paid less than other employees who do the same job -- unless they are. If your company is actually discriminating based on pay, then you've just opened the discovery door. How will you justify disparate levels of pay?

Con: Less Flexibility

Once everyone's salaries are public, the natural trend is that they're going to have to level out, meaning people will expect to be paid about the same for doing the same job. Joel Spolsky, the CEO of Fog Creek Software, writing in Inc., explained that his company uses a standard formula to compute an employee's salary based on experience, skill, and job difficulty. This formula results in a number from 8 to 16; everyone at the same numerical value is paid the same.

Spolsky acknowledges that this is problematic for potential employees who want higher salaries. He gets around this problem by awarding a larger-than-usual first-year bonus, but that's just putting a different hat on the old system.

Pro: It Boosts Morale

Whenever employees are surveyed, they underestimate what their bosses make and overestimate what their peers make. This constant uncertainty affects morale and undermines the relationship between managers and subordinates, the latter of whom are constantly suspicious that they're being cheated out of a higher salary.

You're Not Outlawing Salary Discussions, Are You?

One final note: It's apparently not uncommon for business to have policies against sharing salary information -- as in, you can be fired for telling other employees what you make. That's actually illegal under the National Labor Relations Act. Though the NLRA doesn't specifically address salary discussions, it has been interpreted to include such discussions as part of employees' protected "concerted activities," NYU law professor Cynthia Estlund told NPR. So even if you don't publish employees' information, there's nothing stopping them from letting each other know what they make.

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