Out In The Open: Should Startups And Scaleups Embrace Pay Transparency?

A survey of startups and scale-ups suggests transparency on remuneration reduces gender pay gaps. Is this merely a nice to know, or something entrepreneurs should be addressing as they grow their businesses?

There was a time – back in some deep and distant past – when everyone within an organisation knew what their peers were earning.

OK, perhaps that’s a bit of an exaggeration. But if you go back twenty or thirty years and looked at the practices of big employers in particular, jobs were classified in terms of skills required, their position within the corporate hierarchy and seniority. Within each band, everyone got paid more or less the same, give-or-take incremental payments reflecting length of service. This was particularly true in unionized workplaces and the public sector.

But the workplace has changed, pay structures are less rigid and employees – some of them at least – may be paid significantly different rates jobs that are more or less the same.

There are some advantages to this approach, but also potential problems. If employees are instructed not to discuss their salaries – as they often are – it’s difficult for individuals to know if they are being short-changed and this can store up trouble for the future in terms of motivation, morale and retention.

And unless there is a wider degree of transparency within industries, employers may struggle to set rates.

Certainly, that was the experience of CEO Virgile Raingeard, co-founder and CEO of Figures, a company that provides “I was an HR manager at a startup,” he says. “I had a massive pain in that I didn’t know we should be paying.”

In practical terms, that meant if a candidate was asking for 70,000 euros per annum against the employer’s expectations of, say, a 60,000 deal, it was very difficult to know who was being reasonable. That problem led to Raingeard getting together with other employers to pool salary information that could be used to identify some kind of industry norm. This ad-hoc approach – constructed around a spreadsheet – morphed into Figures, a company that provides remuneration data, largely to startup and scaleup tech companies in Europe.

The Gender Pay Gap

Earlier this month Figures released new research based on interviews with around 500 tech scaleups and startups looking at the issue of pay transparency.

The headline finding is that pay transparency within organisations tends to reduce the gender pay gap. To be more precise, in non-transparent companies, the pay gap averages 3.5%. In fully transparent companies, it shrivels away to zero.

Raingeard says the findings of the research confirm his own expectations. “I had a firm belief that transparency would help to solve the gender pay gap problem but there was no evidence.”

But what does transparency actually mean for a startup company? Well from a Figures perspective, it runs along a spectrum. At one end, there is no transparency at all. Employees know their own salaries and that’s about it. Then there are companies who provide staff with information about how their salaries are calculated and perhaps the rationale behind it. Move further along the bar, and you have fully transparent companies that put those calculations out for public view. Staff can see where they are in comparison to others and why the remuneration decisions have been made.

Full Transparency Is Rare

As things stand, full transparency is a rarity. While 59 percent of companies publish salary grids, only 11.9 percent mapping on individual salary information, according to the Figures research.

But is transparency a good thing? Raingeard thinks so. As he sees it, the only reason to avoid transparency “is to avoid accountability.”

And with more companies embracing openness on pay, he argues that question marks will hang over those who are more secretive. “Once companies do it, those that don’t will be seen as unfair.”

Then there is the question of the gender pay gap. Morally, it is right that men and women be paid equally, but is there a business imperative?

Reputational Risk

“Most people who work in HR want to do it (equalize pay) but when you have to justify it in business terms, it’s not so easy. Closing the pay gap costs money,” he says. “But the biggest factor is reputational risk. If you are exposed there can be reputational damage.”

Couched in those terms, a startup that is struggling to make sales and keep costs under control may not see that as a priority. However, Raingeard says reputation is not the only issue. “There is an opportunity he says. “You have a massive hook in terms of access to talent.”

Outside a few industries, there is little prospect of a return to rigid salary grids, but there is arguably a case for more transparency around the way salaries are assigned and decisions made. This could be a factor when candidates consider which companies they would like to work for and stay with. Added to that, sites such as Glassdoor and Twitter allow information to spread fast. In that context, pay transparency – or the lack of it – is likely to remain on the agenda of both tech founders and their employees.