Can HR be transparent with salaries?

Rajeev Bhardwaj

“The contents of this letter are to be kept confidential” — This instruction often accompanies offer letters containing details of compensation package to new employees. Others are verbally advised by the HR to not disclose salary details to anyone. Most of us have often wondered what makes compensation of an ordinary employee such a matter of secrecy. Yet, this is more of a norm rather than exception in the corporate world where salary offers and appraisals are usually made after intense negotiations. 

There has been a growing debate in the industry in recent years as to whether this policy of keeping salaries confidential should be jettisoned in favour of an open-compensation system under which there is a clearly- defined pay scale with transparency. However, very few organisations have adopted this practice. 

While open compensation policy can keep many employees motivated, it can also lead to widespread dissatisfaction. Let’s elaborate this with an example. Rachna, a 27-year-old employee of an advertising agency has been an outstanding worker ever since she started her career with the same organisation five years back. Every appraisal, every feedback concludes her to be one of the most valuable employees of the organisation. Yet, her salary ranks much lower than several of her peers who are at similar positions. Why? For the simple reason that she started at a low pay scale as a fresher and has risen within the organisation, while several others were hired mid-career from elsewhere, giving them a benefit of negotiating from a higher scale. Now, despite giving her decent raises, the managers find it hard to immediately and abruptly bridge the pay gap between her and some of her peers. Thus, an open- compensation package can wreck the confidence of many employees like Rachna. Many others might not be satisfied with the ‘why’ aspect of a differentiated salary, and may feel disenchanted.

So, if you are a large organisation with some of the best pay packages in the industry, go ahead and adopt an open-compensation system. It would not only boost your organisation’s image in the industry, it will act as a magnet for the most talented professionals. However, if you are a small or medium sized company, which doesn’t have the wherewithal to pay as per the best industry standards, it would be advisable for you to wait a few years before adopting an open system.

Counting the pros

Like everything transparent, an open compensation practice comes with a lot of benefits, including raising the ethical standards of an organisation and thereby attracting the most talented workforce to its folds.  When an organisation clearly lays down a salary range, it eliminates the apprehension of not being compensated fairly, does away with the need for tedious negotiation and makes the process of recruitment more efficient. 

Not only does it improve the recruitment process, it lays the foundation of a highly satisfied workforce.

Comparison and complaints of discrimination take a backseat This is likely to boost productivity by inducing positive competition and eliminating negative vibes.

The cons you can’t ignore

While it rings in many benefits, an open compensation practice is more suitable for larger organisations that boast of the best compensation packages in the industry. For the smaller and lower paying organisations, such a policy may even backfire if not handled appropriately since the salary comparisons not only happen within but also with industry peers. With a transparent system, smaller organisations may run the risk of repelling potential talent even before they apply or interview for a position.  

On a macroeconomic level, an open compensation system is more suited to mature markets like the US or Canada as it requires maturity on the part of both employees and employers. Indian industry, which is less than three decades into liberalisation, might still need some time to adopt such practices. 

— The writer is VP, HR, Sunlife Financial, Asia Service Centre