Salary transparency within an organization is not only required by law in some states; it’s now a frequent topic of conversation among young workers. The idea of internal salary transparency, where the compensation of all employees or positions is accessible by everyone in the company, is not something every CFO feels is workable or wise.
But as younger employees continue to make their way into the workforce, CFOs and their fellow executives should be prepared for their employees to continue discussing salaries openly and more frequently.
We asked CFOs: What are your thoughts on internal salary transparency, and would it be possible to implement it while preserving company culture?
CFO, Cowan Group Engineering (civil engineering firm)
In theory, salary transparency is great: it helps ensure equity, improves trust, and makes compensation [standards] more clear across the organization. But in practice, it can lead to envy and resentment and give managers less negotiation flexibility. You also have the "hidden" benefits that still aren't transparent and where inequity can continue. In some ways, that is a more dangerous scenario and makes tracking true compensation more difficult for accounting.
To truly implement salary transparency, the organization needs to be transparent. So, while it might work for some companies, it's not a great system for many of them. Without an understanding of the [bigger] picture and team members working towards shared goals, it can quickly become a distraction and ultimately be counterproductive.
When I've been asked about salary transparency in the past, it has always been one of those things that's a default "no" unless there is a clear case to move to a “yes.” In that situation, you also have to mitigate other risks and lack of transparency before salaries can truly be out in the open.
CFO, MedSpeed (healthcare and medical courier service)
About a year ago, we had a situation [in which] one individual senior analyst who got a special increase mid-year ended up telling her peers. So, [employees will] tell each other anyway, at least in a tight group of peers.
Say there’s a position posted in another part of the organization, and people don't understand the nature of the work, the scope of responsibility, the complexity, the classic job spec. It can be challenging to know why other areas are compensated the way they are, and this is something I am kind of unclear about how to approach. I wish there was a space that could explain to others why positions like data and software engineers are paid what they are and the responsibility those roles entail.
Regarding asking for raises based on new information, we’ve had some people who manipulated the system in their favor. We had some human resource directors who got their salary bumped to higher than a vice president, and there was a lot of negative reaction from my CEO and other senior leaders because those individuals did something for their own personal gain.
CFO, MSI Viking (metrology equipment provider and servicer)
You know, I've been working in business and accounting for over 50 years, and I've seen the same issue on this topic for fifty years.
The company brings somebody in from the outside who may have more knowledge in certain areas, and that person chats about how much money they’re making. And now one person is upset. So, all you can do is sit down with that person and say, ‘here's why we're paying them the way we are.’ That’s the only way you can approach it.
When I started working in the late 1960s, no one ever told anybody how much they made. Now, younger people talk about it. But the process of dealing with it as a CFO hasn’t changed.
CFO, Hofman Hospitality Group (restaurant chain ownership group)
If everyone throughout the company knew the salaries of every other person, I think it would absolutely deteriorate culture. Regardless of what position the business is in, it can become a major distraction if everyone is keeping tabs on how much their peers are making. We are dealing with fast food minimum wage requirement laws in California, and it’s going to be a challenge for us to compete for labor in our restaurants if an employee can go make a few dollars per hour more working in fast food.
You could try to deter this talk from happening, but it’s not going to [work]. Talking about this stuff is a natural phenomenon, and as humans, we are always trying to level up. But as a CFO, some of these regulations have made things difficult, especially when you’ve had a positive culture built into an organization over decades. Now, leaders are forced to deal with these things to maintain that culture.
From a leadership perspective, I try not to benchmark myself on what the other person is not doing. That’s my thought process and what I practice. I believe certain regulations need to be in place when it comes to compensation, but if salaries were put out to the public or the entire employee base, I think it would be detrimental.
CFO, Ocrolus (lending document analyzation software-as-a-service)
I think it is extremely important for a startup to be and feel like a meritocracy and different companies leverage different levels of transparency to establish that. While we don’t plan to provide full salary transparency, our goal is to ensure every individual knows that they have an impact on the company and that they will be rewarded relative to their peers and the market.
There is an obvious tendency for the squeaky wheel to get all the attention, so we’ve invested significant time into salary bands at our company. Multiple times a year we evaluate each employee’s compensation to ensure that they are fairly positioned in the salary band [that reflects] their current responsibilities and performance.
Given the importance of equity for startup compensation, we have also established strict equity bands and a calculator to create consistency and fairness across both new and existing employees.