Moderator: Hank Stringer
For this Clearview Collection point-counterpoint debate we approach the topic of salary transparency and compensation concerns for 2010. Many companies have reset salary and bonus baselines (and maybe pay bands) in the past year and even though predictions of recovery rise, many companies are not planning to increase salary budgets.
I’ll start by telling you about a recent experience in which I was surprised by a Board Director when he explained that in order to save costs for one of the companies he served, he and the Board presented the CFO and other executives of the company with the ultimatum of reducing compensation significantly or they would let them go and hire executive talent available at much lower compensation. Now there are lots of reasons why this won’t work and there are certainly situations where companies must take these measures to survive. If this occurs at the executive level is it occurring at lower levels? I see that it is and I don’t see it changing anytime soon, not at least until the economy improves and that does not appear to be around the corner.
And not as long as companies have found that the road to profitability in today’s economy requires reduced staff and reduced pay.
The important point for all to consider is salary transparency. In the example above, the Board member made what I believe is a poor management decision based on his understanding of the market value of CFO’s. He had seen and spoken to enough interested parties to believe this was the best way to manage the companies’ finances going forward. Truth, management and HR have traditionally managed company finances by headcount expense so the thought process should not be that surprising. Today we have increased salary transparency through Glassdoor.com and other sites. So now both employees and management can know the value of a specific job in a specific city. As this salary transparency spreads throughout our global marketplace there simply will not be room for ‘bad actors’. In other words, companies competing for the best talent will have to provide great cultures, work environments and competitive salaries.
I personally believe in relying on market forces such as Glassdoor to lead the way in effective salary transparency. Put the word out there and employees and companies alike will learn how to react appropriately. However, we are a litigious society and government intervention to make ‘things right’ seems to be the name of the game. One year ago the Obama administration enacted the Lilly Ledbetter Act to insure any employee unfairly compensated when compared to others could receive up to 2 years of back wages and significantly extends the window an employee may make a wage discrimination claim. The act has been in place a year and has resulted in human resource departments taking a close look at equal compensation throughout their ranks. Overshadowed by current unemployment and negative economic news the act will play a greater role when the market begins to turn positive. Again, the natural market force of available salary information through Glassdoor may play a much bigger role in ensuring wages are fair, equal and competitive as time passes.
Our career and workplace experts weigh in on lower pay and the call from many corners requesting pay transparency. Please read on…
“We [employees] are like retailers selling a product and letting someone else set the price and we negotiate back with little to no knowledge and then we take the deal.”
Hank, you and I coined the term back in the early 2000’s: “Arrogance of Supply”. This is when companies start acting like people and talent are commodities versus appreciable and precious assets. Stories like the one you tell in the preamble make my blood boil. And is there any surprise why employees today are preparing and looking for their first chance to bolt from companies that think this way? Companies that think this way should be on Alert Stage Red for talent defection.
It’s crazy in this day and age to think that salary transparency is anything but already out in the open. It’s not just with sites like Glassdoor.com. It’s open sharing in the lunchroom, in the truck cab, at the water cooler. It wasn’t always this way in the past but it is now most so because (hold onto your seats) workers have united. No, they aren’t flocking to labor unions, although I believe how companies treat their employees in the months coming as we exit the recession could result in the largest growth of labor unions in 60 years if companies handle it wrongly, it is instead that the divide between management and labor has never been greater that I have seen in my work-life. Trust has been eroded and emotional contracts so damaged that employees have banded together like a survivor alliance and as such sharing and transparency among each other is at an all time high. So, any company that thinks they can underpay, relatively pay against nebulous standards, or just try and test the lower limits of pay scales to save a buck, is up against a force of knowledge and emotion that managers have never seen before.
It’s time that anyone who works moves beyond guessing or having little knowledge about their job, pay and career prospects. For too long we have managed our careers in the dark and it is time to take the reins and arm ourselves with knowledge. When was the last time any of us made a major purchase without knowing the price tag, doing comparative shopping and trying to leverage and find the best deal? Think about it, we are like retailers selling a product and letting someone else set the price and we negotiate back with little to no knowledge and then we take the deal. The only place this works are yard/tag sales when you are just happy that all of the junk is gone at the end of the day. We shouldn’t allow our talents, services and experience be bought like we are on the table at a garage sale.
“Once you’ve undergone a pay cut without explanation, and without the transparency-and-future-visibility items, and then once you’ve sealed the deal by continuing to work hard in the hope that things will mysteriously turn around for you, you’ve effectively cemented your new market rate for the foreseeable future.”
Whether an employer has been 100% transparent or (as is more common) 100% private about its pay practices in the past, the game changes when an employee is asked to take a pay cut.
I’m not talking, of course, about a performance-based pay reduction. I’m talking about the common situation where the employer says “Costs have risen, sales are down, and if you want to keep your job you’ll be working for 10 to 20/whatever percent less than you were before.” That may be an unavoidable business decision, but it comes with requirements, in my view.
An employer can’t expect an employee to take a pay cut and keep working hard without, at a minimum:
- Letting the affected employee know what other cost-saving measures the company is taking (unrelated to salaries);
- Assuring the employee that his or her leaders all the way up the chain have also taken pay cuts. If this isn’t happening, then it’s highly unethical to ask the rank-and-file employee to bear the cost-reduction burden – I hope this goes without saying;
- Letting the employee know what ‘reasonableness’ concessions the employer is making as it announces the employee’s pay cut – for instance, letting the employee work a 1/2 day less per week or letting the employee work some days from home; and
- Letting the employee know which financial milestones — e.g., reaching a certain quarterly EPS target — will trigger the employee’s return to his or her previous pay level.
If we cut an employee’s pay without these very reasonable transparency-and-future-visibility checklist items, we are saying “We need you to trust us, although we don’t trust you to know what we’ve done to reduce our executive comp numbers — if anything — or what else we’ve done to cut costs or grow revenues, or when or whether your pay might return to its previous level. Oh well. STBU.”
As soon as employee salaries are cut, the question arises in an employee’s mind: “What is my market salary now? Is it $85K, the rate I was earning six months ago? Is it $72K, the rate I’m earning now? Is it something else entirely?” Sites like Glassdoor help an employee in this situation peg his or her market level, but at the end of the day there’s no better tool than a live job offer to let an employee know “Here’s what the market thinks you’re worth.” An employee without an employment contract who’s had his or her pay slashed and who isn’t job-hunting is hiding his head in the sand, sad to say. Once you’ve undergone a pay cut without explanation, and without the transparency-and-future-visibility items mentioned above, and then once you’ve sealed the deal by continuing to work hard in the hope that things will mysteriously turn around for you, you’ve effectively cemented your new market rate for the foreseeable future. If you truly don’t have options, there may be no better course. If you’re clinging to the hope that the company that has treated you like an interchangeable cog in the machine is going to miraculously see your true value when the economy (slightly) improves, I have a bridge in Brooklyn you really must see.
“People who can demand salary transparency are going to get the lion’s share of the compensation.”
Companies are habitually risk adverse. Every thought is believed to be unique intellectual property, every relationship proprietary. Transparency has not come easy to these walled gardens.
If anything can change this knee-jerk approach to risk, it is greater risk. Disclosing compensation details may feel risky, but not being able to secure the talent needed to innovate and drive new markets is far riskier. And great talent will only go where they know they have the greatest possible control over their success.
But the big problem facing us is not whether companies are going to have to disclose compensation data. They are. And it is not whether people are going to be disappointed with their compensation packages in the future. Most will.
The big issue that is facing us is that the people who can demand transparency are going to get the lion’s share of the compensation. And the people who wouldn’t dare ask for such transparency, the people who feel lucky to just have a job, are going to be the people who are going to watch their real wages continue to decrease, just as they have done over the last 30 years.
Why does this matter? Because America is still the biggest market in the world and with the death of easy credit that market will only grow if people’s real wages are growing. Not just the few stars who can demand corporations bend to their will.
Companies tend to ignore these connections between their daily work practices and their markets. It seems like Henry Ford was the last person to understand that paying his people well created customers for his products. But companies are going to be forced to confront the deep connection between how they pay people and the size and opportunities of their markets.
Getting transparent is just the first step. Next comes the hard work of figuring out how to make that transparency part of a larger effort to increase profitable employment.
“Today, transparency is a career survival tool.”
This is a time of enormous change in our organizations, large and small. The economic earthquake changed the face of many businesses. In the old days, the guys (all white, older) in the head shed made theor decisions in a vacuum. Today, transparency is a career survival tool.
So, the business needs to make pay cuts at all levels. It’s not uncommon. Yesterday’s flush markets are gone. Today require a new view. Pay cuts are here to stay.
The scenario in which a board member threatens a CFO smacks of really bad management. By the time the issue gets that far, the answer is obvious. Any CFO who cannot see the need to cut her own pay is not doing the job. If a board member is threatening, the CFO is headed to the door.
For the rest of the organization (CEO and Board members included), when the business shrinks, so does compensation. Layoffs are a good start but compensation is directly related to revenue. When revenue drops, a fair number of overhead functions shift their focus.
A salary is not an entitlement. It’s earned by working in the business. When the business stumbles, so does compensation. It’s basic math.”