The Company Where Everybody Knows What You Make
The Company Where Everybody Knows What You Make
Women in general don't earn as much as men do, and there's plenty of economic data to prove it. At the same time, there's almost no data to know whether any individual woman is underpaid. Most companies don’t openly share salary information; nor do most employees. Without that knowledge, how can anyone—male or female—be sure they’re fairly compensated?
In an effort to close the gender pay gap, one New York-based tech company is taking a more open approach to compensation. Eight months ago, Fog Creek Software Inc., a 20-year-old software company, revealed company-wide salary information to its three dozen employees. On this week's episode of The Pay Check, we visit the company and find out what it's like when that Band-Aid finally comes off.
Officially, the jury is out on the overall effects of pay transparency on wage gaps. The gender pay gap is a little smaller among public sector employees, in which salary and wage information is public for about 70 percent of workers. Women in the public sector earn 81.4 percent of what men do, according to a report from the Institute for Women's Policy Research. In the private sector, where most employers discourage workers from talking about how much they earn, women make 79.3 percent what men do.
Talking about money at work can also just make people cranky, according to a study from the University of California, Berkeley. In an email sent to thousands of employees at a handful of UC schools, researchers revealed a new database that showed everyone’s pay. Then researchers surveyed the employees to gauge their happiness with their jobs and their wages.
Unsurprisingly, the people who found out they made less than their coworkers reported low job satisfaction. But workers who learned they made more than their peers didn't report being any happier, either. The researchers concluded that in the “short term,” employers have “a strong incentive to impose pay secrecy rules” because it leads to low job satisfaction among the lowest-paid workers. They also saw a longer-term benefit, namely that it could lead to overall changes in wages and employee composition.
Fog Creek's chief executive officer, Anil Dash, believed in those longer-term effects—that salary transparency would shine a light on unfair pay practices and ensure things stayed that way. Dash, an entrepreneur, prominent tech blogger and prolific tweeter, is a rare, pro-union, tech CEO who also believes in the old-guard internet principle that information wants to be free. “Transparency is not a cure-all and it's not the end goal, it's a step on the way to the goal, which is to be fair in how we compensate everyone,” Dash said.
Fog Creek opted to introduce salary transparency slowly, deliberately and with a lot of communication. Starting at the beginning of 2017, the company sent out multiple surveys asking people what they were comfortable sharing. Not everyone was comfortable with the most radical reveal: everyone knowing exactly how much everyone else made. But all voted for more transparency than the status quo.
Dash decided that Fog Creek would ease into transparency. At a company meeting in mid-2016, he announced that the company would publish salary ranges, including titles, with no names attached. He opened up the floor for comments. People could also submit thoughts, feelings and opinions anonymously, via an internal survey, after the meeting.
Nobody objected, and so one morning last September, employees got access to a Google spreadsheet with titles, levels and the corresponding salary bands of everyone in the company. Some salaries are more public than others. Dash and the other C-level executives all put their salaries on the spreadsheet, for example.
At a meeting an hour later, Dash explained the rationale behind the ranges. He then opened the floor up for questions and comments. Some people said they were pleasantly surprised by where they fell. Two people thought they made too much. (The company did not reduce their pay.) Others were glad to have proof that they were fairly compensated.
“We'd done enough prep work where I don't think anybody was caught off guard or surprised by it, but it was still a moment where people were sort of saying, ‘Wow, I'm actually seeing, you know, how this company runs,’” Dash said.
It turns out that when it comes to money, people care a lot more about “fairness” than raw numbers. One study found that as income inequality in the U.S. has increased, American happiness has decreased. The study found “perceived unfairness”—not lower incomes —breeds a lack of trust, which, in turn, diminished happiness.
Something similar is true at work. A PayScale survey of more than 500,000 people found that people who feel confident in the fairness of their employers’ pay process were 5.4 times more likely to report high job satisfaction than those paid a market rate. Feeling as if you’re getting paid fairly matters more than actually getting paid fairly.
Fog Creek is just at the beginning of its transparency campaign, said Dash. The company will continue to tinker with ranges and job titles and potentially bring even more transparency, communicating with employees the whole way. “This is an industry that is very, very generous in a lot of ways with compensation,” Dash said. “So why not make it a fair and level playing field?”
Want to hear more? Subscribe on Apple Podcasts, or wherever you get your podcasts. The Pay Check is a six-episode deep dive into the big, expensive, global mystery of why, in 2018, women still earn less than men.
To contact the editor responsible for this story: Janet Paskin at jpaskin@bloomberg.net
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