Can pay transparency help reduce pay gap?

Pay transparency is a double-edged sword

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Achieving pay equity has been a challenge for most organisations, not just in India but around the world. Multiple research reports suggest that genuine pay gap in organisations exists either on the basis of gender, or race, or colour or ethnicity.

In India, the pay gap mainly exists between men and women professionals doing similar work, and that too in similar roles and positions.

The Gender Gap Report 2021, released by the World Economic Forum states that in India, women earn merely 21 per cent of the total income earned by men. Why?

From less representation of women in the workforce to organisational biases against women in certain roles and women returning after career break, are only some of the many reasons for the widening pay gap.

“Transparency in explaining the pay in hand, job grades and levels can be effectively practised”

Chandrasekhar Mukherjee, CHRO, Bhilosa Industries

Some global firms and institutions have tried to follow the pay transparency philosophy and have also seen encouraging results. Buffer, an American social- media management platform, has been following the pay transparency formula since 2013.

As per the reports shared by the company on public domain, in 2020, the unadjusted gender pay gap at Buffer stood at 12.5 per cent, and in 2021, it came down to 5.5 per cent. This did not happen overnight. The Company has been practising the pay transparency policy for a long time now.

In 2019, the gender pay gap at Buffer stood at 15.1 per cent. In 2020, it came down to 12.5 per cent and in 2021, it stood at 5.5 per cent. In fact, at the time of launch, the representation of women in the Company stood at 30 per cent, and now it is almost touching 50 per cent!

Buffer has shared its salary formula on the public domain and internally as well. Every employee knows how their own salary and that of their co-workers in the same role is designed.

A small research involving professors of public universities in Canada shows that a bit of transparency in salaries does impact the pay gap in companies. In 1996, the government passed a law making salaries of people earning above a certain threshold, ranging between $50,000 to $125,000 annually, a bit transparent.

The research based on the salaries of professors of public-sector universities revealed that within a few years of the transparency law being implemented, which was 1996, the gender pay gap had reduced by 30 per cent.

“While the intent around complete pay transparency may be genuine, it may not really be a good idea”

Anil Misra, CHRO, Jio Mart, B2B Grocery

Will complete pay transparency reduce pay gap?

When it comes to bringing about pay transparency, the response from the HR leaders is mixed.

Sailesh Menezes, CHRO, HPE India, feels that bringing in pay transparency will further create challenges for the HR team, as compensation is very confidential to a company and an individual as well. Rather, he suggests, “Companies need to bring in transparency in their pay philosophy. Unless that happens, transparency in pay will not help reduce the pay gap”.

Anil Misra, CHRO, Jio Mart, B2B Grocery, points out that when companies start making salaries transparent, people will start comparing each other’s salaries, and this will lead to utter chaos. “While the intent around complete pay transparency may be genuine, it may not really be a good idea,” mentions Misra.

Although research shows that pay transparency has helped reduce pay gap, the fact remains that making salaries open to all or transparent can bring in a lot of other challenges. Pay transparency is a double-edged sword.

What level of transparency is appropriate?

It is essential to establish what level of transparency a company can bring in the salaries.

Chandrasekhar Mukherjee, CHRO, Bhilosa Industries, believes that there is scope for a certain level of transparency in pay, which can actually help reduce the pay gap.

“Companies need to bring in transparency in their pay philosophy. Unless that happens, transparency in pay will not help reduce the pay gap”

Sailesh Menezes, CHRO, HPE India

According to Mukherjee, companies can choose not to share the entire salaries of all, but instead, share information about all job grades and the salary ranges in the company across all bands. Companies can even share how the salaries of the employees are determined. “Transparency in explaining the pay in hand, job grades and levels can be effectively practised,” Mukherjee states. In fact, he has seen multinational firms practising this. They share information around grades, salary formulae and how salaries are determined.

The above examples of Buffer and public universities in Canada also show that there the pay transparency is not really complete. In both cases, the transparency in pay was established only at some levels.

Though researchers believe that bringing in more pay transparency will further reduce the pay gap, how much transparency about pay is legitimate for an organisation is something that experts may have to seriously think about.

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