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Small Business Pay and Transparency: In Praise of Openness

As an article in the Financial Times claimed last summer, ‘pay transparency is the last taboo in business’. Perhaps that’s why, in the past few years, increasing numbers of corporate world onlookers and analysts have begun to treat pay transparency as a sort of universal standard of progressiveness.

Indeed, it’s often viewed as a kind of shorthand for a company that wants to be viewed as a hip young gunslinger, galloping onto the scene with a posse of beanbag-strewn breakout zones and fresh-ground espresso stations to shake up the fusty old methodologies of running a successful enterprise. Increased focus on the importance of ‘brand storytelling’ through social media and other external communications has undoubtedly been another major driving force behind the growing pressure to embrace a culture of openness and transparency. (Even when it’s not a deliberate policy, the same FT feature rightly points out that ‘thanks to social media and the sharing habits of younger workers, chief executives now write internal communications knowing they will be distributed beyond the company almost instantly.’)

Despite this though, the idea of taking conscious steps towards full transparency in business – and particularly around salaries – is still treated with a huge amount of suspicion by many CEOs and directors. Surely the concept of exposing the workings to that extent is little more than a trendy but ill-conceived banana skin, liable to send an otherwise stable office on a long slide into an HR horrorshow?

Well, not necessarily. For the right small business, it really could be a bold step forward into a hipper, friendlier and more trustworthy reputation.

Let’s start with the most obvious pro: transparency around corporate operations can certainly help give a company that elusive (and otherwise hard-to-earn) veneer of trustworthiness in the eyes of shareholders, employees and the public alike. For smaller businesses in particular, it can also be a fairly straightforward policy to implement, and one that gains added traction by clearly being a choice. After all, smaller operations are generally subject to far less enforced scrutiny, and there are always many more brownie points earned by doing something voluntarily than under duress.

Besides which, as this pertinent Entrepreneur.com blog puts it, ‘withholding or cleverly reshaping information is no longer a viable option for this new era of consumers who are savvier than any generation before them and for whom skepticism seems to be a default setting’. As a small business, where the distance to the centre is so much smaller, attempting to work behind any sort of cloak is a hugely risky strategy: chances are you’re already too transparent to make it seriously viable.

Switching to a more internal focus, numerous surveys have concluded that openness can be an effective workplace strategy in reducing employees’ risk of motivational slump (and even of losing talented staff to an unspoken culture of paranoia lurking somewhere beneath the surface of all salaried positions). In short, it’s been suggested by certain research findings that any air of secrecy around pay scales will tend to foster the presumption that somebody somewhere is being taken advantage of – and, unless they know better, most individuals are reasonably likely to assume it’s them. Put another way, as per a US study by compensation data and software company PayScale: ‘even when people’s compensation is in line with their value in the job market, two-thirds believe they are underpaid’ within structures where secrecy is the norm.

Furthermore, without transparency, there’s always going to be that great big HR elephant in the room: if bosses (or indeed lower-level employees) are unhappy with the idea of wages being published openly throughout the company, why would anyone be happy to accept the idea that HR teams are privy to this sensitive information, especially when so many line managers and other relatively senior staff are not? It all leads, ultimately, to an unhealthy office culture of gossip and guesswork, and studies show that very few people are guessing right – most managers, for example, tend to overestimate what their subordinates and peers earn, while underestimating salaries above them.

There are, of course, any number of perceived cons when it comes to weighing up transparency. The difference is that so few of them are particularly convincing.

Take, for example, the often-cited worry that an open book pay structure that allows employees to compare their own salaries with peers (or top-level execs, for that matter) is somehow ‘disruptive’. Well yes, of course it could be, in certain cases – but only when disparities are impossible to justify, which they shouldn’t be. In fact, opening salaries up to comparison can make it much easier for employees to ask how they can perform better in order move up a bracket; a far harder subject to broach when they’re not supposed to know they earn less than a colleague.

Worried that transparency would make it easier for competitors to poach your talent? Again, unconvincing. Thanks to today’s bustling social media culture and the dozens of online industry watchdog publishers in every nation on earth, your competitors can almost certainly make a decent guess at what you pay already. At the very least, trust that your employees know – to the dollar, give or take – what they could expect elsewhere.

Of course, in smaller businesses (and particularly in new start-ups), pay can be an acutely sensitive issue, not least because there tends to be a general acknowledgement – albeit unspoken – that you’re essentially feeling your way in that regard, and more or less making it up on the fly. Mistakes made early on become a lot more difficult to correct gracefully in a highly transparent environment, which is the one slightly more convincing argument against it. And sure, once things settle down, openness obliges you to keep things shipshape: issues like hugely inflated packages designed to hold onto your brightest talents, disparity between male and female pay or sudden inexplicable adjustments might very well be leapt upon when everyone can see them happening.

Ultimately though, that’s not an argument against openness – it’s yet another argument for it.

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