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Sunday, February 25, 2024

The Entirely Predictable Impact of Salary Transparency

On March 8, companies in the UK jumped on social media to promote themselves during International Women’s Day—posting about how strong and inspiring their female employees are and how hard they have worked to break biases in the workplace. But GenderPayGapBot, a Twitter account run by Manchester-based copywriter Francesca Lawson and her software developer partner Ali Fensome, had other ideas.

When management consulting firm McKinsey posted a promotional video with a message that read “Meet Francesca, ‘I believe that no mountain is too high to climb!’” the bot pointed out that the firm pays women 22.3 percent less than men. When fintech company GoCardless promoted quotes from a senior woman that included “Best advice: Feedback is a gift,” the GenderPayGapBot provided some, pointing out that the company pays women 19.9 percent less than men. In hundreds of tweets, the bot showed that very few of the outspoken companies paid women and men equally.

Despite workers demanding better working conditions, flexibility, and benefits, pay transparency is the final bastion of equitable working. Broadcasting exactly what everyone earns still feels inconceivable. “The European Commission’s most recent data shows that the gender pay gap in the EU is 14.1 percent and only diminishes at a snail’s pace,” says Christian Wigand, a spokesperson from the European Commission. “The existing pay gap is particularly relevant during the pandemic, which has reinforced gender inequalities and put women into greater risk of poverty.”

But a proposal presented by the EU Commission to the EU Parliament and Council in early March sets out to legislate pay transparency and enforcement measures for all types of workers in EU member states for the first time.

As well as requiring employers to provide salary ranges on job ads and banning questions about pay history, it will give employees the right to request information on pay levels and force companies that employ more than 250 people to publish their gender pay gap data. It could also enshrine improved justice for victims of pay discrimination, including full compensation of back pay and related bonuses, and sanctions for companies found to be underpaying staff. At the start of December 2019, EU Commission president Ursula von Der Leyen promised to deliver the directive within 100 days, and it took at least four times that time due to the pandemic, but the Parliament and Council could be deciding on an outcome and legislating it in a matter of days.

Imposed salary transparency could help to dramatically reduce the gender pay gap, according to research by HEC Paris Business School. Researchers found that, over the course of two decades, radical transparency, whereby salaries of all of the participating 100,000 academics were posted online for universal access, reduced the gender pay gap by up to 50 percent.

Companies have resisted salary transparency because there are no global studies that show what happens if staff know each other’s wages, says professor Tomasz Obloj, who co-led the HEC study.

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“Firms are also wary of wages getting compressed and losing their best talent to competitors without transparency,” says Obloj. “But in the data, the opposite happens—there’s no exodus of superstars from organizations that become transparent, and amid the Great Resignation, we can’t apply the lens of the ’70s and ’80s, when it was enough to offer high-powered incentives.”

An example of large-scale salary transparency is taking place in Iceland, where, as of 2018, companies with more than 25 employees have had to prove they pay equally for equal work and correct any pay equity gaps. If companies can show they pay equally, they receive certification, and those without will incur a daily fine. A similar scheme for companies with 10 or more employees was implemented in Canada at the end of 2021, with a view to correcting all pay equity gaps by September 2024.

Bryndis Alexanders, a studio manager at the Reykjavík-based software development company Aranja, had always questioned her salary before the equal-pay-for-equal-work law was introduced. “I was promoted to middle management and went up a pay bracket, with my salary increasing by 20 percent,” she explains. “I wasn’t expecting such a big increase, and I’m not sure it would have happened without the law.”

Her colleague Sævar Már Atlason moved to Aranja from another Nordic IT company, which he claims had no pay transparency and where employees did not disclose their salaries. Although he joined with an almost identical position as a senior software developer, his pay increased with the move. “The 100 percent transparency was a welcoming change—it creates a better team dynamics, and you get a better feel for the market salaries to ensure you are top end for your position,” he says.

Aranja has a transparent pay system and uses salary bands based on Reykjavík market rates, which are close to the top end of the tech market. But no matter where employees live, they get paid the same, so there’s no penalty for relocating to a cheaper-cost-of-living area. “One interesting thing we've learned with having transparent salaries is it can add undue pressure on new employees to prove they ‘deserve’ the salary level they negotiated,” says technical director Eiríkur Heiðar Nilsson. “This is counterproductive, since it's already a stressful period for new employees, and we want existing employees to help onboard and mentor them without toxicity if they underperform.” To avoid this, a lower starting salary is negotiated, with a promise of a performance review after six months when they are moved to the right level.

In some countries, gag clauses are widespread. One in five UK-based workers are banned from talking about pay with colleagues, and in Australia, pay-secrecy clauses are often written into employees' contracts.Under US law, employees have the right to discuss compensation, and anti-gagging clauses are law in 21 states, prohibiting employers from requesting salary history information from job applicants to stop previous salary discrimination carrying forward.

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Instead of a few token gestures, a set of interlocking, watertight policies—similar to those proposed by the European Commission—could instigate large-scale accountability and progress. If and when a decision is made on the directive, EU member states will have two years to translate any legislation into national law. In theory, this is the time for companies to clean up their acts and balance the books. They may need to address how location bias affects pay and deepen their commitment to closing the racial pay gap, which is arguably greater than the gender pay gap.

Sam Franklin, cofounder of tech jobs portal Otta, is excited. “The legislation—with no loopholes—could be amazing, because there will be no escaping it for European businesses,” he says. “Companies will need to prepare for hard conversations and decide how to manage this, but it will be a much better world for job seekers in Europe, and hopefully other countries will follow suit.”

According to Franklin, almost half of the companies on Otta (46 percent) do not include any details of pay in their job adverts. “There aren’t many companies bold enough to offer public pay transparency across the whole company—I reckon there are less than 10 in London,” says Franklin. Other companies in the US, like Gitlab and Codacy, have online salary calculators to ascertain salaries depending on role and level.

The transition period for any kind of legislation will be difficult. “There will be an increased burden on organizations as they adjust to new metrics to comply with and be held accountable for: Expect much bargaining and readjustment,” says Obloj. “Organizations have to rethink what they take for granted—and as costly as that may be, transparency is just a means, not the ends.”rtunities.


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