Today, in the context of wage equality, we hear a lot about pay transparency. But what does a policy of pay transparency really mean in a company? In this article, we explain why pay transparency is still difficult to implement, especially in the current labour market.
Why is pay transparency difficult to implement?
A vision distorted by the prism of our own needs
While many covet it, wage transparency implies very critical self-perception. Our view is inevitably distorted by the prism of our needs. We may feel that we need a pay rise because we are in financial difficulty, and we may feel that, by nature, given the amount of work we do and the amount of time we spend with the company, the company could give us an increase!
However, does the time we spend on our assignments really add value to the company? Do employees even ask themselves this question? Not necessarily. In this sense, it is very difficult to be transparent about salaries.
That being said, there are still differences in performance and individual contributions for the same job. An employee can produce twice as much as other employees without earning “double the pay.” In reality, there is a 10-20% pay gap, which by its very nature does not reflect the “double output” of an employee, even if they perform twice as well as somebody else in the same position.
The added value of performance goes far beyond the notion of working time and is measured by the results produced. This is because it is not the time spent at work that is rewarded, but the output, the added value brought to the company – even if it may be linked to the time spent there.
You can work for days and still fail to produce what another employee has managed to do in just a few hours. And this has to be recognised regardless of your own personal needs.
While some may see pay transparency as a motivator, it could actually create envy, jealousy and frustration in an employee who does not understand the basis of the salaries posted.
If the discrepancies are not justified, the company has failed and this will become known at some point, especially if employees regularly discuss this issue among themselves and remove the taboo. However, there is no need for a salary transparency policy for this!
Market developments against wage transparency policies
Apart from the inconsistency of an unjustified salary increase, salary transparency is problematic in view of the evolution of the labour market. It is now much harder to attract the talent you want, as you need to invest more money than before. Companies have therefore found themselves in a situation where they are likely to “buy” talent with less experience, but which is “more expensive” than before. As a result, “junior” profiles are offered salaries which are relatively close to those of employees with five to 10 years’ experience in the same company.
This means businesses have new recruits who, because they are entering a favourable market, will indeed earn a fairly similar salary to that of more experienced employees. This is quite a paradox, and yet reality at the moment!
For instance, in 2022, an IT developer with a decade of experience can aim for a gross annual salary of around €50 k, whereas a few years ago we were closer to €38 k gross per year. This €12 k gap is neither justifiable nor justified in terms of assignments or profiles: it is the direct result of the tensions on the job market.
Pay transparency is therefore again problematic. Economically, it is not viable to compensate for this market trend by rewarding every employee because a newcomer will earn more when they arrive. You can’t decide that everyone will earn €50 k gross per year in the same company!
While the differences here can be explained by market trends, how can do you explain to a disadvantaged employee that it is precisely this same market under pressure which causes us to recruit “more expensive” employees?
Wage transparency in an ideal world?
The need for self-analysis
When an employee says they don’t understand the reason for a pay gap, they must be able to objectively evaluate their background, experience, know-how and soft skills. For this, the employee needs the honesty to ask themself where they stand in relation to the company and their output, taking care not to overestimate their skills. It is not only a question of self-analysis but also taking an objective look at colleagues – who (perhaps) earn more – by considering their performance capacity, their entire career path, experience and know-how. In this way, salaries can be compared. But in reality, do employees actually take this step back?
In any development strategy, it is in the interest of companies to have a coherent HR and salary policy. This must be adapted to each individual’s skills and what the employee brings to the company. This obviously needs a critical eye. It makes sense for one employee to earn 10% more than another one because they are deemed to have produced more results at a given time in the company and, because their performance is better, the company is doing better.
If transparency is really implemented, will the lowest paid – because they are less productive – employees be aware that their level of productivity is not the same as other “more efficient” employees? In an ideal world, and philosophically speaking, transparency would be quite feasible. But we have to make do with the reality that we have today.
Salary transparency implies that everyone is able to recognise each other’s qualities, which is difficult when you want to earn more, including for managers who will have to be brave if they want to be honest with their less “productive” employees.
The difficulty of reviewing salary scales: is benchmarking the way forward?
Salary transparency implies that salary scales have been “cleaned up” beforehand, in an extremely technical way. It also implies that all employees have a fixed salary that corresponds to their skills, level of education and experience, so that any differences in the company are justifiable. If a company is not able to do this, a pay transparency policy will be detrimental to its internal functioning. It will lead to an increase in salaries which is not necessarily justified and will undoubtedly lead to controversy.
Transparency could work if every employee was indexed to a benchmark, all companies indexed their pay scales to it, and everyone was therefore paid according to this scale, which was the same benchmark followed by all staff members.
It should be remembered that benchmarking tends to smooth out the effects of salary increases (no yo-yo effect!). If the expertise of benchmark organisations ensures that an IT developer with five years’ experience should earn a gross annual salary of €45,000, then it will be easier for companies to base themselves on these criteria. However, in a market of supply and demand, everyone will be keen to adapt to the market and therefore to be better off.
Although there is a tendency today to extol the virtues of a topic which is apparently becoming less of a taboo, pay transparency can be problematic – and even detrimental – to companies and their employees in a number of ways. On the one hand, it is difficult to enforce because an employee’s view of it may be distorted by their own personal needs. On the other hand, the employee will have to be honest with others and with themself about their level of productivity in the company and should not give in to the temptation to overestimate themself.
In addition, the tension in the current market means more investment is needed to recruit new talent, which creates a certain inequality with other employees with more experience. Pay transparency, which is said to motivate staff, could instead create internal tension, relational friction and frustration. If you want to apply pay transparency, you have to take all these parameters into account and index your pay scales to a reliable benchmark, which is not always easy to assess!
