How Transparent Can Managers Be About Pay?

​When workers and managers talk openly about compensation, they can uncover pay inequities that managers may need to rectify. On the other hand, that same transparency could lead to anger and resentment among workers who feel they aren't being fairly compensated, even if you and your HR department believe they are.

So how much transparency should—or can—a manager allow?

Currently, only 17 percent of U.S. companies explicitly allow employees to discuss their pay at work—outside of managers discussing compensation with employees privately or with each other to set hiring and compensation levels—according to a 2017 study on pay transparency by the Institute for Women's Policy Research (IWPR). Furthermore, 41 percent of private companies actively discourage employees from talking about pay on the job, and another 25 percent said that "pay discussion is formally prohibited" and that employees "caught discussing wage and salary information could be punished."

Yet many managers likely don't understand that under the National Labor Relations Act (NLRA), employers can't forbid nonmanagement employees from discussing their terms and conditions of employment, such as compensation.

Employers cannot verbally or in writing forbid employees from discussing pay issues, according to Terese Connelly, a partner in the Chicago offices of Culhane Meadows where her practice focuses on labor and employment law.

"That's because the NLRB [National Labor Relations Board] sees that as 'chilling employees' Section 7 rights to engage in 'concerted activity,' " Connelly said. "The key here is the NLRA applies to all employees, except supervisors and managers."

That begs a question: Is the NLRA a toothless law, or are managers taking a risk by stopping staffers from discussing pay in the workplace? It's probably more of the latter, she said.

"Companies are likely ignorant and still believe that the NLRA only applies to unionized work forces; it applies to unionized and nonunionized workplaces," she said.

There are differences between private and public sector companies. The IWPR study noted that over 66 percent of private companies either discourage or don't allow discussion of pay in the workplace. But "most government agencies have formal grade and step systems that make general wage and salary information public (70 percent), and only 15 percent of workers are discouraged (9 percent) or prohibited (6 percent) from publicly discussing salary information at work."

The question for managers is: How transparent should you be on pay?

Most workplace experts advise pushing for pay transparency.

"Ending pay secrecy is a necessary step toward achieving pay equity," said Kyle Elliot, career and life coach at CaffeinatedKyle.com, and a member of the Forbes Coaches Council.

"Staffers discussing and comparing salaries can help move the needle forward on pay equity. You cannot address issues that you are not having conversations about."

A Path to Acceptance?

Workplace experts say that the horse has already left the barn, because today's workers are talking more openly than ever about their pay.

"Yes, this is a complicated topic, but managers should probably just assume that employees could be talking about pay with one another," said Ingrid Fulmer, a management professor at the Rutgers School of Management and Labor Relations. "Formally discouraging conversations among employees about pay is not only problematic under U.S. labor law—and other countries as well—there's some research to suggest that it doesn't really work."

A Way Forward

Given the fact that employees have the right to discuss pay in the workplace, employers can accommodate that right by establishing some transparency of their own.

It's better for a manager to get out in front of the issue by being transparent about their own pay, management experts advise.

"Talking about how much you earn has been a taboo in the workplace for so long that I think transparency has to start from the top down," said Matt Erhard, managing partner at Summit Search Group, a professional recruiting firm in Winnipeg, Manitoba, Canada. "The best way for managers to handle it is to be open with how much they earn, and then encourage others to do the same."

By encouraging pay transparency on the job, managers give employees a better sense of their own value at the company and the ability to negotiate better compensation deals, which would improve morale and productivity.

"One big concern is people entering the workforce with no idea of what their skills are worth and no easy way to research and learn the answer," Erhard said. "This leads to a situation where your equally skilled employees start with a pay discrepancy simply because one decided to ask for more money than the other. More transparency from employers can help level the playing field in this regard."

A Three-Pronged Approach

Experts advise companies to take three proactive steps when it comes to pay transparency.

Get rid of discussion restrictions. They may create more problems than solutions.

"It's unclear whether communication restrictions are even effective, plus they may violate labor laws, and indeed, may backfire by fostering increased suspicion among employees," Fulmer said.

Balance transparency and privacy. Some organizations publish averages, medians, pay bands or pay ranges for jobs in a group or pay grade. "It's also possible to publish the salary levels in a group, but without identifying the specific individuals by name," Fulmer noted. "The most open version … is exemplified in public employees' salary databases, where employees' salaries are required to be listed alongside their names, and perhaps with other information such as their title. There are other versions, however, that may preserve privacy while still giving employees a bit more information about what others make and what they can expect to make in the future themselves."

Aim for "pay process" transparency. This means giving people information about how their pay is determined, how they can earn a raise, and how their bonus is computed, among other compensation-related information. "This is the least controversial strategy, because … it takes away some of the mystery surrounding how their pay is determined," Fulmer said.

Getting Pay Out in the Open

Just having the issue out in the open would be a breath of fresh air, after decades of secrecy on workplace pay, Erhard said.

"It's impossible to fix a problem that you can't see," he said. "The more we talk openly about relative pay across demographics, the more we can begin to address the roots of pay inequality."

Brian O'Connell is a freelance writer based in Bucks County, Penn.