When Salaries Arent Secret - Essay Example

HARVARD BUSINESS REVIEW- WHEN SALARIES AREN’T SECRET d HARVARD BUSINESS REVIEW- WHEN SALARIES AREN’T SECRET INTRODUCTION Compensation secrecy has been an established management norm for more than decades. It is believed that it protects employees from undue jealousy and demotivation upon getting to know pay discrepancies (Colella et al., 2007). Employee tolerance towards inequity can have implications on both the practices of pay secrecy and pay transparency (Belogolovsky and Bamberger, 2013). Many researches aimed towards identifying the gaps between the costs and benefits of pay secrecy have identified various aspects associated with it and situations in which they are beneficial or harmful to the organization. This paper is aimed towards highlighting the phenomenon of pay secrecy and the changing trends in compensation management that propose pay transparency. In the light of the research, solutions will be presented for the case in question. BRIEF SUMMARY OF THE CASE ‘When salaries aren’t secret’ written by John Case for the Harvard Business Review, presents a rather complicated situation that was being faced by the management of a fashion retailer called RightNow! (Case, 2001). The CEO Hank Anderson was facing the retaliation of an ex-employee who had overheard the management discussing employee payment in a meeting and had probed into the company data to find out blatant discrepancies. Displeased with the inequity, she not only resigned but also gave a departing gift to the company, making the individual employee payment amounts known to all through an e-mail to the whole workforce. This had caused a lot of mayhem as many employees discovered they were being paid only a percentage of what their counterparts were being paid. Many demanded a raise and threatened to leave the organization. The CEO was accompanied by the Vice president of the company, Charlie, and CFO, Harriet, to discuss this situation. The furious employees had been seen discussing nothing but the revealing e-mail all day and the management had their share of concerns. They discussed how the situation could be manipulated to give a bad name to the whole organization and its practices, publicly. Their concern was also the height of retaliation that could result from the angry and heartbroken employees who had been exposed to the harsh truth. The vice president gave an instance of three highly paid male employees in an all-female department as possible grounds for a gender discrimination suit. The trusted advisors of the CEO, Hank, present their concerns and possible solutions to the problems namely, sympathizing with the employees, listening to their pleas and demands and promising them a review to get the compensation system in order. Hank, on the other hand, had quite contrasting views as compared to the proposed solutions. An optimist and opportunity-seeker, he believed that the company could turn the situation in their favor by being outright clear and public about their payrolls. He believed that transparency could earn raving innovative practices reviews for the company, save them from future employee threats of ‘exposing’ and help the workforce understand why they are being paid what they are. The two advisors strongly opposed his ideas and predicted that it may backfire because it was equal to instigating an already infuriated set of employees. The main theme of the case is the practice of pay secrecy and whether it is effective at keeping employee demotivation at bay. The case asks the readers to devise an action plan for Hank to counter this situation. KEY RECOMMENDATIONS Pay secrecy is a psychological and historical managerial tact that is aimed at keeping the employees in the dark about the variable pay scales in an organization (Schuster and Colletti, 1973). Every employee believes he is being paid adequately until he becomes aware that his counterpart or co-worker is being paid higher than him. They end up feeling demotivated, exploited and angry and this is ultimately reflected in their productivity. From an organizational point of view, this practice is the need of the day after all every business is in the run for making the best use of its resources. New skills and young blood does triumph years of employee loyalty if the scale of measurement is the compensation. As mentioned in the case, hot skills usually have market backing when it comes to determining the pay. The question is whether it is ethical to make the employees live under a false impression that the organizational pay scale is equitable and fair. it also questions whether it is worth the risk of constant threat of being exposed by a vindictive employee, much like the one in the case study, and having employees demand higher pay or resignation. The element of secrecy can also become inherent in other organizational aspect, plaguing it internally and externally. This brings us to the contemporary practices in today’s organizational management, particularly the one of pay transparency (Ramachandran, 2011). Even though it is not supported by the majority, theorists have highlighted the possible advantages of having an open system. The first advantage of having a transparent system is the employee trust that can be gained as a result. They are accepted as adult decision-makers who can handle the truth and make conscious choices accordingly. Current reluctance of firms to disclose their pay scales is attributed to unfair compensation and being open about the facts can help organizations counter such concerns (Timms, 2014). Secondly, public disclosure can have a positive impact in building market competitiveness on the basis of pay. It builds an atmosphere of mediocrity that reflects fair practices and does away with the challenges of politics of payment discrepancies. The key to countering the problems associated with pay secrecy, thus, lies, in not just advocating complete pay transparency but in establishing a system that is fair and equitable, so the companies have nothing to hide. When the employees know they are being paid fairly according to their skill set, expertise and experience they are likely to perform well. Employees should also be made aware of how they can reach from the current level of pay to a higher one, positively affecting their work behaviors and productivity levels, keeping them motivated to achieve more. Possible solutions to rectify the current problems faced by RightNow are as discussed below (Case, 2007) 1) Making pay one of the factors for attracting talent: the pay should not be made the only factor to make an employee want to stay in an organization. Non-monetary factors like challenging tasks, learning atmosphere, professional growth opportunities etc. should be emphasized upon as well. Hiring employees on a position that is higher than the one they had in their previous organization also gives them the incentive to take up the job as a step up. 2) Establishing salary transparency collaboratively: since complete pay disclosure is not advisable for any business nor is advocated by any big firm at present, establishing pay bands that are based on ranges can help businesses absorb market fluctuations and unavoidable discrepancies and also keep employees in the loop regarding the payment. Communicating potential to employees can help them move within a payment band or move to the next level altogether. Needless to say, it will give the employees the necessary push for job productivity. 3) Adopting a performance based system: giving the employees the opportunity to control their ay according to their performance can do wonders for an organization. It will instill the necessary drive in the employees to excel at their work and give them satisfaction regarding the pay they receive. Variable pay per project and value determination collaboratively can benefit both, the organization and the employees. In a nutshell, the proposed recommendations are in favor of Hank’s point of view, aimed at making the best out of the current situation. JUSTIFICATION FOR THE PROPOSED SOLUTIONS In this era of business transparency, employees, customers and other stakeholders demand to be kept abreast with the latest happenings, fairness of operations, safety procedures, responsible approach etc. RightNow! Situation can be used to re-design the fairness in compensation practices and promoting transparency to establish the organization’s commitment to be open about its equitable processes. However, the propositions by Charlie and Harriet cannot be ignored either. At the moment the employees are hostile and infuriated and the best approach is to listen to their concerns with an understanding ear. Intention to publicly disclose the pay scales should be replaced by disclosure of variable salary bands. Thus, the next step is to collaboratively reform the compensation structure to accommodate salary ranges that are communicated to all. By clarifying how employees can influence their pay scales through performance, they are likely to develop an understanding of how the business operates and what is expected of them. At the time of hiring, skills should be sought and compensated for by factors that are non-monetary as well. In this way, employees who look for intrinsic factors for motivation are likely to pursue the job with motivation and additional vigor at being offered more than just good pay for their efforts. Hank’s approach of molding the situation to the organization’s benefit can be successful in strengthening the name of the firm as a transparent business and fair employer. This has several implications for success as it helps highlight its market standing and establish best practices for the industry. The case reveals that the pay system is unfair and unduly influenced by non-work based factors like personal relationships, thus there is a dire need to bring about a change for the better and keep the employees in confidence regarding the organizations commitment to offering the best compensation to the people who make it successful through their efforts. CONCLUSION The importance of pay transparency has had it due share of discussions in the recent times (Hartmann and Slapni\vcar, 2012). The case highlights many aspects of reality that contribute towards pay discrepancies in a workplace. By advocating the practice of compensation secrecy, organizations put themselves in harm’s way and fear threats like the one the ex-employee of RightNow! Posed. Establishment of a fair system that compensates for efforts on an equitable basis satisfies employees, helps build their trust in the system and leads to higher work productivity levels. Transparency in the payment system is bound to seep through other aspects of the business and make it one of the organizational values. It is also imperative that the organization creates an environment of open communication so that employees can voice their concerns with ease. Two-way communication can also help organizations communicate to the employees the various means through which they can positively influence their salaries and compensation practices. The human resource of an organization plays a key role in contributing towards the success of the business and it is important to make them feel valued and fairly compensated for their efforts. Motivated and happy employees can do wonders for any organization and the key to achieving all this is working collaboratively and communicating openly. REFERENCES: Belogolovsky, E. and Bamberger, P. (2013). When Pay is Kept Secret, the Implications on Performance are Revealing. Case, J. (2001). When salaries arent secret. Harvard business review, 79(5), pp.37--49. Case, J. (2007). When Salaries Arent Secret. [online] Businessweek.com. Available at: http://www.businessweek.com/stories/2007-10-11/when-salaries-arent-secretbusinessweek-business-news-stock-market-and-financial-advice [Accessed 17 Jul. 2014]. Colella, A., Paetzold, R., Zardkoohi, A. and Wesson, M. (2007). Exposing pay secrecy. Academy of Management Review, 32(1), pp.55--71. Hartmann, F. and Slapni\vcar, S. (2012). Pay fairness and intrinsic motivation: the role of pay transparency. The International Journal of Human Resource Management, 23(20), pp.4283--4300. Ramachandran, G. (2011). Pay Transparency. Penn St. L. Rev., 116, p.1043. Schuster, J. and Colletti, J. (1973). Pay Secrecy: Who Is For and Against It?. Academy of Management Journal, 16(1), pp.35--40. Timms, M. (2014). Pay secrecy could soon be a thing of the past. [online] Worldfinance.com. Available at: http://www.worldfinance.com/strategy/pay-secrecy-could-soon-be-a-thing-of-the-past [Accessed 17 Jul. 2014]. Read More