Welcome to TL;DR (Tracy’s Latest Discussion Recap). We’re keeping you up to date on thought leadership from Tracy Lawrence, CEO & Co-Founder of Chewse. Today’s topic: how transparent salaries benefit both employees and employers – and how you can implement them in your office?
Hungry for more? Check out IKR (It’s Kash’s Recap), keeping you updated on thought leadership from Chewse COO Kash Mathur.
Transparent salaries: for some, they’re a myth, for others, a way of life. And that’s only putting it mildly dramatically. We’ve written about transparent compensation before, and it’s one of the core tenents of our business, but today we wanted to tackle it from a different angle: who benefits, and how to implement transparent salaries at your office.
Life may not be fair, but employee compensation should be
So writes Tracy Lawrence, Chewse Founder & CEO, in her Recruiter article, “When Pay Is Transparent, Employees and Employers win.” As a female founder of color, Tracy strongly believes in the way transparent compensation creates encourages equality and fosters trust within offices. In fact, she goes on to write:
“[Without transparent compensation], you can expect increased turnover and a breakdown of trust between your employees and the company.”
When you make salaries transparent, you’re placing your trust in your employees – and encouraging trust from them in return. This creates a healthy workplace community – instead of fostering uncertainty and frustration like traditional salaries do.
Closed-door negotiations and MI6-level secrecy
When all of your compensation conversations happen behind heavily-locked doors in hush-hush conversations, your employees may feel like they’re floating in uncertain space. Are they being paid fairly for their time? Does their performance affect their end-of-year bonus?
Traditionally, companies believed this type of nebulousness increased competition and produced better results. After all, employees will always work to outdo one another, and the company reaps the rewards. But, in fact, closed-door negotiations can create exactly the opposite effect. The uncertainty they encourage is actually detrimental for your office – and can even play a role in high turnover. As Tracy says:
“In a 2017 survery of tech workers from the Kapor Center for Social Impact, 37 percent of respondents said unfairness or mistreatment was a key reason why they had left a job in the last three years.”
When employees feel they’re being treated unfairly, they don’t work harder – they look elsewhere. Tracy continues:
“Employees who feel the company is acting unfairly will stop trusting the organization. When that trust disappears, so does motivation. That leads to lower performance and a disconnect from your company’s mission.”
Just like you want to see buy-in from your employees – your employees want to see buy-in from their company. The best way to do that is to show them you value them. Transparent salaries, benefits like office catering, and healthy office culture events (check out our monthly ritual for some inspo), are huge steps in that direction.
Basing pay only on performance – not on bargaining moxie or tenure
For employers, the benefits of transparent salaries go hand-in-hand with the increased trust at your company. When your employees feel heard, they’re more invested – and when they’re more invested, they’re more likely to find the “umph” that makes companies great.
By fostering transparency, you’re creating a road map at your company. You can simultaneously show what you want your company to be, how you want your employees to feel, and where you want your company to go. According to Tracy:
“Anecdotal evidence from companies that have already adopted transparent salaries shows the policy makes employees more satisfied and productive; on the flip side, companies such as Uber, BBC, and Google have come under fire due to perceived gender pay gaps.”
Leveling the playing field
So, how can you get there? Transparent compensation are not exactly easy to implement. Trust us, we know. The transition takes time and effort – here’s how Tracy went about it:
“A transparent salary structure involves two main components. First, salaries must be based on a formula that judges performance. At Chewse, we look at output levels and rank them from A through G.”
B, for example, means “Some proven aptitude, but still green.” Every employee has an output level, and every output level for every role is matched with a salary. These salaries are shared freely – so employees know what they have to do to get to the next output level, and what’s awaiting them when they do.
Output-based compensation, while great for everyone, is particularly relevant for women and people of color. As Tracy writes:
“With a compensation formula based on performance, you reward employees for their ability to produce results… This levels the playing field for women and people of color, who can be at a disadvantage during salary negotiations… Performance-based pay also ties everyone’s salary to the fairest criterion possible — output — while giving employees a clear road map for advancement.”
But output levels are only half of the formula:
“Next, salaries must be open, with everyone able to see everyone else’s compensation — including executive leaders’.”
By making compensation output-based, then removing the opaqueness that typically covers compensation, you can hold company leaders accountable. At the same time, you’re also proving to your company that you are holding company leaders accountable. In her Recruiter article, Tracy says:
“Even I, as the company leader, am not immune: My output level is set by the board, and my full compensation (including equity ownership) is accessible to everyone.”