A survey of startups and scale-ups suggests that pay transparency reduces gender pay gaps. Is this just good to know, or something entrepreneurs should tackle as they grow their business?
There was a time – in the deep and distant past – when everyone in an organization knew what their peers were earning.
OK, maybe that’s a bit of an exaggeration. But if we go back twenty or thirty years and look in particular at the practices of large employers, jobs were classified according to the skills required, their position in the company hierarchy and seniority. . Within each group, everyone was paid more or less equally, with larger or smaller incremental payments reflecting length of service. This was especially true in unionized workplaces and in the public sector.
But the workplace has changed, salary structures are less rigid, and employees – some of them at least – can be paid significantly different rates for more or less identical jobs.
This approach has some advantages, but also potential problems. If employees are instructed not to discuss their salaries – as is often the case – it is difficult for individuals to know if they are being harmed and this can create problems for the future in terms of motivation. , morale and retention.
And unless there is a greater degree of transparency within industries, employers may struggle to set rates.
Admittedly, it was the experience of CEO Virgile Raingeard, co-founder and CEO of Figures, a company that assures “I was HR manager in a startup”, he says. “I had tremendous pain in that I didn’t know we would have to pay.”
In practical terms, this meant that if a candidate asked for 70,000 euros per year while the employer was expecting, say, a 60,000 agreement, it was very difficult to know who was reasonable. This issue led Raingeard to come together with other employers to pool salary information that could be used to identify some sort of industry standard. That ad-hoc approach — built around a spreadsheet — morphed into Figures, a company that provides compensation data, largely to startups and tech companies in Europe.
The gender pay gap
Earlier this month, Figures released new research based on interviews with approximately 500 tech scale-ups and startups looking at the issue of pay transparency.
The main finding is that pay transparency within organizations tends to reduce the gender pay gap. More specifically, in non-transparent companies, the pay gap is on average 3.5%. In fully transparent companies, it shrivels to zero.
Raingeard says the research results confirm his own expectations. “I had a strong belief that transparency would help solve the gender pay gap, but there was no proof.”
But what does transparency really mean for a start-up? Well, from a numbers perspective, it spans a spectrum. On the one hand, there is no transparency. Employees know their own salaries and that’s about it. Then there are companies that provide staff with information on how their salaries are calculated and perhaps the rationale. Take the bar further, and you have completely transparent companies putting these calculations in public view. Staff can see where they stand relative to others and why compensation decisions were made.
Full transparency is rare
As things stand, full transparency is a rarity. While 59% of companies publish salary grids, only 11.9% map individual salary information, according to Figures research.
But is transparency a good thing? Raingeard thinks so. According to him, the only reason to avoid transparency “is to avoid accountability”.
And with more companies embracing openness on pay, he says question marks will hang over those who are more secretive. “Once companies do it, those that don’t will be seen as unfair.”
Then there is the issue of the gender pay gap. Morally, it’s right for men and women to be paid the same, but is there a business imperative?
“Most people who work in HR want to do it (equal pay) but when you have to justify it in business terms, it’s not that easy. Closing the wage gap costs money,” he says. “But the most important factor is reputational risk. If you are exposed, it can damage your reputation.
In these terms, a startup that is struggling to make sales and control costs may not see this as a priority. However, Raingeard says reputation isn’t the only issue. “There is an opportunity,” he said. “You have a huge hook in terms of access to talent.”
Outside of a few industries, there is little chance of a return to rigid pay scales, but there is undoubtedly a case to be made for greater transparency in how salaries are awarded and decisions made. This could be a factor when candidates consider the companies they would like to work for and stay for. Additionally, sites such as Glassdoor and Twitter allow information to spread quickly. Against this backdrop, pay transparency — or lack thereof — will likely remain on the agenda for tech founders and their employees.