Radical Pay Transparency Can Narrow Unfair Disparities and Create an Environment Where People Can Focus On Doing Their Best Work

I recently spoke to CGTN and the New York Times about new pay transparency laws that require employers to disclose salary ranges. These new laws are the first step toward narrowing unjust disparities that create significant roadblocks to success for underrepresented folks.

These excerpts from my latest book Just Work explain why pay transparency is not just a “nice to have,” but rather why it’s a critical component that absolutely must be in place for people to be able to do their best work.

 

The PAY GAP IN THE UNITED STATES

On average, women in the U.S. make 82 cents on the dollar compared to men. And things are more unjust at the intersections of race and gender.

Latinas are paid 54 cents for every dollar paid to white, non-Hispanic men, and Black women 62 cents.

Over a 40-year career, Black women earn almost a million dollars less than white men.

In addition to the wage gap, there’s a promotion gap and numerous “invisible” injustices.

We can’t solve the pay gap until we resolve those issues as well.

Unless you believe that white men are superior to others and that’s why they’re paid more, it’s impossible to believe that bias is not a factor here.

If you’re in charge, it’s your job to measure the pay gap in your organization and identify the ways that bias or prejudice or bullying contribute to that pay gap.

Here are some specific things you can do — and you may want to do them even if the new law passed in New York City doesn’t apply to you.

1. CONSIDER STANDARDIZED, TRANSPARENT SALARIES

More and more companies are finding that the simplest way to address pay disparity is to take the mystery out of the process by adopting pay transparency.

No negotiation. No secrets. Put a page on your website that outlines different salaries and compensation for different roles. That solution will save you and all your candidates a lot of time and emotional energy.

You might lose some candidates to better-competing offers. But the job market tends to be relatively efficient. If you set salaries at the right level, they will not be markedly different from those at other companies.

If candidates let a small compensation difference determine which jobs they take, you haven’t done a good enough job selling the opportunity. And if there is a big salary difference, try to understand why.

Perhaps you need to adjust everyone’s salary. Underpaying most of your employees and then having one person who is paid a lot more than everyone else kills morale and generates resentment.

If you need something to haggle over, make it a signing bonus. But publish the signing bonus ranges so that people who are underrepresented will know what they are walking away from if they don’t push for one.

2. CREATE A FAIR COMPENSATION SYSTEM

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It’s absolutely crucial not to give managers unilateral authority over salaries, bonuses, stock, or other forms of pay. Instead, develop a compensation system that everyone understands and stick to it.

Someone in your organization — the compensation group in HR at a big company, the head of HR at a medium-size company, or you, if you’re leading a small company — should come up with salaries or salary ranges for particular jobs and functions.

People doing the same job should get job offers with the same salary. If you pay bonuses, people in the same job with the same performance rating should be paid the same amount. Any exceptions should require sign-offs from at least three different executives at the same level.

For example, if you are hiring five entry-level engineers at the same time, they should all have similar — ideally, identical — offer letters. If there are big discrepancies, there will be problems.

If people who are overrepresented are being paid more than people who are underrepresented or vice versa, there will be even bigger problems.

Doing this will do two things for you. One, it will mean that pay will be more fair, and less subject to the bias of individual managers or the demands of employees who feel entitled to make them; two, it will “reduce the return on politics,” thereby encouraging people to focus more on innovation and less on pleasing their boss.

3. MEASURE YOUR PAY GAP

What is the pay gap, if any, between the compensation packages of the underrepresented and the people who are overrepresented in your organization? Cut the data by all categories of underrepresentation — by race, by gender, and so on.

If one demographic in your organization is consistently paid less than the others, figure out why. Sometimes there might be a valid reason;  for example,  an exceptionally high bonus for exceptional performance skews a small data set.

But these should be outliers, not norms. And some people who are underrepresented should be getting exceptional pay as well!

If it’s always people who are overrepresented who are the exceptions, ask additional questions. There’s probably an issue you need to get to the bottom of.

New HCM requirements in the law mean that you are required to know when there is a gap. In the past, some leaders were reluctant to pull data that could potentially be used against them in a discrimination lawsuit.

But ignorance of “unconscious discrimination” is no excuse in the eyes of the law. Certainly, you should seek the advice of your legal team before you take any advice here.

And remember that if you wind up in a lawsuit, this information is going to come out.  You are better off knowing early if there is a problem and starting to address it before you’re being sued rather than waiting until you have to react.

4. ADDRESS NEGOTIATION BIAS

pay transparency

A common reason why women are paid less than men is that they are punished for being “abrasive,” “selfish,” or “not a team player” if they negotiate too hard.

This doesn’t mean they are bad negotiators; it means that they are rational actors. If a woman thinks she is going to be penalized for negotiating, why take the risk?

Here you have two biases to address. One is the bias against women who negotiate. Two is the bias that says women are bad negotiators, so it’s their fault if they don’t get paid more.

As a leader, you can do two things about this. You and your team can work hard to interrupt this negotiation bias, or you can simply not allow anyone to negotiate — set salary bands as discussed above and do not deviate.

Make sure that you offer bonuses and promotions as part of a routine process that looks at everyone at the same time.

5. DON’T REINFORCE MARKET BIAS

Another reason why women are paid less than men is that the market itself is biased. A report on wage inequality in tech from Hired shows that “63% of the time, men were offered higher salaries than women for the same role at the same company.

Companies were offering women between 4% and a  whopping  45%  less starting pay for the same job. And that only looks at salary. In some industries, a huge part of compensation is equity, where the data is more opaque.

How can this be?

Even if you’ve done the hard work of eliminating gender pay inequity from your own system, you can still “catch” it from other companies. Imagine that you are interviewing a man and a woman for similar jobs. You are careful to offer them identical compensation packages.

But these candidates are also receiving competing offers from other companies, and the man’s is better. Do you raise your offer? If so, do you also offer the same salary to the woman? If creating a fair workplace is your  goal,  the choice is obvious: you do.

“But my company can’t afford this!”  you may think.  Ask yourself whether your company can afford to keep systematically paying women less than men. The problems you create may be harder to measure in the short run, but they are still very real.

When you pay women less than their colleagues who are men, it’s demotivating for them and harms their productivity. It creates resentments that make your teams less cohesive. It introduces the risks of class action lawsuits. And it’s just not fair.

6. PAY ATTENTION TO THE SPREAD

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Take a look at the gap between the highest-paid and the lowest-paid people in your organization. Don’t let the gap get too big.  You can pay yourself and your top executives less; you can pay the lowest-paid employees more.

And be aware of empathy bias. You’ll be most aware of the gap between your compensation and that of those who work for you. Often that is how executive compensation grows while that of the lowest-paid employees doesn’t.

CEOs compare their compensation to that of other CEOs and maybe that of their direct reports but rarely look at the gap between their compensation and that of the person working in the mailroom.

7. DON’T BIFURCATE

Also, don’t outsource all the lowest-paid work to spare yourself the discomfort of knowing just how little the lowest-paid people get.

For example, consider not outsourcing janitorial work; instead, hire people and treat them like other employees. If all leaders did this, it would at least begin to bridge the gulf between low-paid work and highly paid work.

By far the greatest injustice in compensation is the one percent problem. I have worked with several CEOs who, frustrated at their board’s unwillingness to create an employee stock-option pool that felt fair, gave up a significant portion of their own equity to their employees.

That was good and generous and took their companies a step forward toward Just Work.  However,  even in these situations,  it was still the superrich sharing with the rich, and then only voluntarily.

Many of the ways in which our economy has “evolved” to be more “efficient” have both heightened inequality and hampered our efforts to confront it.

One CEO I worked with tasked me with figuring out how to give equity in the company to the people who cleaned the offices. This work had been outsourced. I was bewildered by the legal and bureaucratic obstacles to offering these workers equity.

The system seemed designed to prevent them from getting a financial windfall, even in the face of two competent executives determined to offer one.  I started asking around to find out how others had managed this issue.

One executive told me about a time when her firm offered a $1,000 cash holiday bonus to all employees. For most people at the company, $1,000 in cash was nice to have but not that big a deal. She suggested the gift would be more meaningful if it was extended to the janitorial staff.

Again, this work was outsourced, and there were incredible, insurmountable difficulties to paying these people the same cash bonus the firm offered its own employees. Frustrated, the executive just pulled out her personal checkbook and gave people she saw every day $1,000 each.

In the end, the only solution the CEO and I could come up with was for him to take money out of his personal bank account and hand out cash to individual cleaners on IPO day. And not as much cash as he would’ve liked to give. Otherwise, he’d run into tax and legal issues.

I still regret that we didn’t find a way to offer these essential workers the opportunity to earn equity. They deserved it.

Pay Transparency CASE STUDIES

pay transparency

Gender Pay Gap: Salesforce

Marc Benioff, the CEO of Salesforce, had said all the right things about the importance of retaining and promoting women. But two of his top SVPs, Leyla Seka and Cindy Robbins, were concerned that, despite the boss’s good intentions, women at the company were being paid less than men.

When they brought this to Benioff’s attention, he didn’t believe them. “That’s not possible,” he remembers saying. “We have a great culture. We’re a ‘best place to work.’ We don’t play shenanigans paying people. It’s unheard of.”

Seka and Robbins kept pressing, finally getting him to agree to do a thorough analysis of compensation across the company. First, though, they wanted a commitment from Benioff that he would promise to fix any disparities they might find. “The one thing we can’t do,” Robbins said, “is to . . . look under the hood, [notice] a big dollar sign, and shut the hood.”

It was a wise move to prepare the CEO. The analysis showed that Salesforce was indeed consistently paying women less than men to do the same job. Benioff was stunned. “It was through the whole company,” he said. “Every division, every department, every geography.”

Benioff made good on his word. He fixed the problem. And just as significantly, he took measures to keep fixing it when it happened again, which it inevitably did. He asked Seka and Robbins to regularly monitor pay rates to make sure that women didn’t fall behind again.

Measuring the pay gap is something you are well served to do every year. Obviously, you must make adjustments if your measurements reveal a problem. If you are a leader, there is a good chance you are paying not only the women but all the people who are underrepresented in your organization less than their overrepresented peers — even if you don’t intend to. Your intentions don’t matter to the underpaid women. The money does.

Pay Gap at the BBC

In 2017 a powerful lobby in the United Kingdom demanded that the BBC make the salaries of their highest-earning presenters public. The goal was to make sure the public knew how much money the BBC was spending to get top talent. The unintended consequence was clear and public evidence that the women were not paid as much as the men.

With so much pressure on the BBC to reduce their budget and pay top stars less money, they couldn’t fix the problem by paying the women more. They could only fix it by reducing the men’s salaries.

Needless to say, the men resisted this solution. Conversations meant to be private were leaked. One broadcaster said to another, “I could volunteer that I’ve handed over already more than you f***ing earn, but I’m still left with more than anybody else and that seems to me to be entirely just.”

Maybe he was just kidding around. But people who make a lot of money usually do think they “deserve” it.

A top BBC editor, Carrie Gracie, resigned. The BBC apologized to her and gave her back pay; she donated the full amount to the Fawcett Society, a charity focused on gender equality and women’s rights.

Since 2017, the BBC has issued a public gender pay gap report and has committed to fixing the problem. They have indeed reduced the pay gap every year. In 2019 it was 6.7%, significantly lower than the national average of 17.9%.

The BBC story reveals another way that bias plays out. It’s hard not to contrast the man’s bravado about how he deserves to be paid more with Carrie Gracie’s decision to give her back pay to charity.

Wealthy women, even when they are dramatically underpaid vis-à- vis their men counterparts, face a level of intense scrutiny and resentment that wealthy men simply don’t. Activating that resentment is an unintended consequence of revealing a pay gap between wealthy men and women — which is where the biggest pay gaps are.

In tech, I know many women who are paid not 10 or 20% less than the men who are their peers but multiples less. Ten times less, 20 times less. It’s worth repeating that the pay gap between the wealthy and the poor is a far, far greater injustice than a woman earning $1 million while the men who are her peers get $20 million.

Income inequality must be addressed across the board.  But it shouldn’t be addressed by paying women less than men.

Journalist Kara Swisher put it well: “You don’t have to feel sorry for rich people, but if they’re gonna be  rich, they should be equally rich.” It’s important to recognize that this prejudice about women and money runs deep.

Justice is not a zero-sum game. Federal laws (e.g., the Equal Pay   Act, the Equal Protection Clause, Title IX) apply to people across the wealth spectrum because equity is fundamental to a fair and just society.

Economic injustice cannot be addressed by pressuring wealthy women to work for less and give their compensation to charity while assuming wealthy men deserve what they have earned and more.

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Kim Scott is the author of Radical Candor: Be a Kick-Ass Boss Without Losing Your Humanity and Just Work: How To Root Out Bias, Prejudice, and Bullying to Create a Kick-Ass Culture of Inclusivity and co-founder of Radical Candor, a company that helps people put the ideas in her books into practice. Kim was a CEO coach at Dropbox, Qualtrics, Twitter and other tech companies. She was a member of the faculty at Apple University and before that led AdSense YouTube, and DoubleClick teams at Google. She's also managed a pediatric clinic in Kosovo and started a diamond-cutting factory in Moscow. She lives with her family in Silicon Valley.