Pay transparency is practiced by a fraction of all companies, but the approach—which involves disclosing individual workers’ pay to their colleagues—promises to help narrow gender and racial pay gaps and reduce some of the distraction and contentiousness around salaries.
Many government employees already have their pay published publicly, and workers at some companies have disclosed their salaries on shared spreadsheets in hopes of uncovering pay gaps and empowering individual workers to pursue fair wages. In her recent book Just Work, Kim Scott argues that companies should publish salaries for any position on their website, in order to reduce pay disparities and the impact of bias.
One company that has gone further than most is Buffer, an 85-person San Francisco social media tools company. Buffer, which adopted pay transparency in 2013, publishes online the formula it uses for salaries and, unusually for a private company, makes all individual workers’ salaries public as well.
To better understand the advantages and disadvantages of pay transparency, how Buffer has tweaked its approach over time, and how pandemic-related changes to work have impacted it, I recently spoke with Caryn Hubbard, the company’s vice president of finance and a central player in Buffer’s approach to compensation. Here are some best practices and other takeaways:
The salary formula weighs a number of factors. Buffer looks up what other companies pay for a given job title using salary survey data from Radford, identifying what the 50th percentile of pay is for the position when it’s based in San Francisco. It assigns the employee to a level from one (entry level) to nine (c-suite), based on their experience and the scope of their responsibilities, and includes that in the compensation formula. It then factors in cost of living where an employee is located, with four bands weighted from 75% to 100%. “The formula today is the most basic that it's been over the past several years,” says Hubbard. “We set out to simplify, simplify, simplify.”
Hubbard says that Buffer sticks to the formula amount, even if it means the company loses a job candidate or employee to a higher offer elsewhere. It does offer other compensation, including stock-based awards, that it calculates using formulas and discloses internally but not as part of the numbers released publicly.
Buffer hopes to eliminate the location-based component of compensation. The company calculates that it would cost $1.2 million annually to increase salaries for employees in areas with lower costs of living to what it pays in the most expensive regions, and intends to gradually make that shift. Buffer operated remotely even prior to the pandemic, but the broader shift to remote work during the pandemic has highlighted for it how geographic considerations for salaries no longer fully make sense. “You can't have a cost of living factor for an executive role when they could work remote pretty much for any company,” says Hubbard. “So it has been limiting.”
Buffer tries to incentivize performance using what it calls steps. For any of the nine job levels, there are four “steps,” which employees advance along based on their achievements in their roles. After the fourth step, they move up a level. “It's a little bit over-engineered,” says Hubbard. “But people do have that sense of progression and striving towards achieving certain things, knowing they'll see the financial reward.”
Pay transparency improves the culture of an organization, says Hubbard. “We're able to minimize many of the emotional parts of salary negotiation, because secrecy is eliminated,” she explains. “You're not going into these conversations with a manager feeling like you have to prove your worth and your value and negotiate.”
Buffer says it has no gender wage gap for people with equivalent roles and experience, since compensation is determined by formula. But the average salary for women is 5.5% lower than that for men, because of men in more senior positions. That unadjusted gap was over 15% in 2019, and Buffer says pay transparency has been critical to narrowing it by bringing attention and accountability.
Could any company theoretically shift to pay transparency? Hubbard believes the answer is yes. “The first step, though, is you've got to get the buy-in from your people and have real conversations to talk about the discomfort,” she says. “Talk about the benefits, talk about wage gaps. It's a lot of internal communication work leading up to doing that, but it's possible.” And she argues that shifting to pay transparency is worth it: “It's a high-impact shift you can make within your culture.”
What is it like to have your salary published online? Hubbard acknowledges some reticence about having individuals’ pay out there publicly, saying “not everyone wants their friends to know their salaries.” A startup cofounder once told her “I know I can't afford you because I know what you make.”
Discussion about compensation doesn’t go away. “It's not perfect,” acknowledges Hubbard. “It can introduce the human behavior of comparison and judgment about why someone is achieving more—how are they being measured? Why are they in that role? Why are they making more; Why were they leveled up, and not me?” She continues: “Some of those sidebar conversations and concerns that can exist in any company culture, they don't go away with salary transparency. There's still a level of competition for those who place so much value on title or compensation.”
My own experience is that the startup where I was formerly co-CEO was acquired by a Japanese company that had pay transparency. But we decided against shifting to that approach because our staff didn’t have any expectation that their compensation would be shared. As we begin hiring for Reset Work, my colleagues and I are discussing whether to implement pay transparency. You can email us at firstname.lastname@example.org if you have other examples of how companies have handled this.
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