A Surprisingly Transparent Way to Save Money

for Townsquared’s Resources blog

Figuring out how much to pay your employees can be a tough decision, and it’s likely much more local, and more personal for you than it is at larger companies. Everybody, employer and employee alike, needs information to make good financial decisions (and to feel confident they’re making good decisions). Yet our sense that discussing money is vulgar or impolite—particularly how much we make—has turned what could be money-saving conversations, like those around salary transparency, into awkward exchanges, or even confrontations.

While the thought of being more financially transparent with your employees might make you queasy, ensuring everyone has just the right amount of information can actually save you time and money. Salary transparency, a policy by which employees know not only their own compensation but also that of their coworkers and superiors, is an increasingly popular way of providing workers and businesses with more financial information. This kind of transparency may seem counterintuitive, but evidence of its benefits is piling up.

What’s the appeal of salary transparency?

Glassdoor salary transparency chartTransparency can have positive benefits as well as eliminate potential existing problems. Perhaps the greatest argument for transparency is that it increases the likelihood of happy and loyal employees. It turns out that transparency can be more important than the actual compensation. PayScale’s 2015 Compensation Best Practices Report found that a “top predictor of employee satisfaction and their intent to leave was a company’s ability to communicate clearly about compensation” (emphasis added). In fact, even when employees received lower-than-industry-standard pay but their employers clearly communicated why, 82 percent of employees were satisfied with their jobs.

Transparency eliminates the possibility of employees overestimating their coworkers’ pay or their own market value. According to a 2006 study done at Yale, we tend to assume that our peers and subordinates are making more than they really are. However you feel about transparency, there’s a good chance that keeping employees in the dark about how you decide to compensate them means, at best, they’re wondering about whether or not their pay is fair in relation to both yours and their co-workers, and, at worst, you’re creating resentment. Workers who are paid at market value but don’t know it are also likelier to be looking for a better deal at another company. PayScale’s report indicated a search for increased pay was the most common reason employees quit in 2014.

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