Breaking Silence ... Over Pay

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By: Nathan Penn

The manager had a secret. But it wasn’t that his son was having legal issues—he’d been open about that with coworkers. It wasn’t his mother’s cognitive issues, either; he talked about her every year when he collected donations for an Alzheimer’s charity. No, his secret was so private, he hadn’t even shared it with his closest friends.

Once upon a time, a worker’s salary was among their most closely held secrets, both at the office and at home. Money was something you didn’t discuss in polite society—nobody else’s business, even if it might also be a defining aspect of your identity. “Your parents taught you two things growing up,” says Dan Kaplan, a senior client partner for Korn Ferry’s CHRO practice: “Don’t ask a woman her age, and don’t ask someone how much money they earn.” You’d as soon discuss money in public as you would your marital issues. Or your drinking problem.

But ask any corporate leader today, and you’ll find that yet another long-held workplace reality has been quietly undergoing a dramatic change. Beginning in 2018, laws around the country—in municipalities from New York City to Cincinnati and in states from California and Washington to Connecticut and Rhode Island— have begun requiring employers to disclose salary ranges in job postings. As a consequence, more and more people are becoming aware of pay scales. In fact, some of the country’s leading companies, among them American Express, Microsoft, and Whole Foods, are disclosing (if only internally) the salary ranges of everyone they employ, from entry-level junior staffers to the C-suite.

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Such moves are part of the larger goal of diversity, equity, and inclusion, an attempt to shine a light on inequities in the workplace. Increasingly, shareholders and activists are exerting pressure on companies to address wage imbalances, says Tom McMullen, senior client partner for ESG and inclusive rewards at Korn Ferry. As with the other elements of DEI, the ultimate objective of pay transparency is fairness in the labor market—aligning the pay of women and underrepresented groups with that of men. “The transparency rules are all written with the idea of leveling the playing field,” McMullen says. “It’s overdue.”

But how welcome is all this openness? Certainly, it is making many managers and HR officials brace themselves for an onslaught of workers upset about being paid less than a colleague. But when it comes to the topic of pay, there’s a curious generational divide, one that threatens the comfort of many work environments. Younger workers, raised in an age of greater transparency in all things, are embracing this cultural change. Boomers and their peers, on the other hand, are having trouble breaking from the past.

They belong to a generation that holds salary to be a private matter, and the anxiety they feel about having their pay involuntarily disclosed can affect them on a psychological—and even neurobiological—level.

According to a survey by people-analytics firm Visier, as many as 20 percent of workers would prefer that their salaries remain confidential. The generational divide raises key questions that leaders will need to understand better as pay-disclosure laws spread, experts say: Why does pay disclosure make so many people so anxious? To what extent does it affect attitudes and performance? And what can be done about it? “It’s a big deal, both to companies and to a lot of workers,” says McMullen.

“It seemed unseemly to say more than a few words about money when I was growing up.”

Through the years, companies have strived to keep wages confidential. Many even instituted policies prohibiting workers from revealing their pay—rules that have since been outlawed. There was a logic to this: information asymmetry gave organizations a huge advantage in setting and negotiating pay. It allowed firms to use high salaries to woo superstars and to underpay others—without anyone being the wiser. It enabled them to establish artificial limitations on pay that employees couldn’t question. Pay scales have always been black boxes for employees, impenetrable and unfathomable. If there was a formula or metric for assigning a value to their performance, no one shared it with them. A worker might strongly suspect she made less than her male counterpart, but she had no way of confirming it.

This was the status quo for decades. “It seemed unseemly to say more than a few words about money when I was growing up,” says Stephen Maine, a boomer who is currently a lecturer at SUNY Purchase. “I once asked my mother how much money my father made, and she said, ‘Enough.’” People grew up without ever knowing how much their parents earned, then took jobs in which they didn’t know how much their coworkers earned. This secrecy protected and perpetuated social inequities, experts say—men over women, Whites over people of color, White men in particular over everyone.

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It was millennials who began to change all this as they entered the workplace. These younger workers had come of age sharing intimate details about their personal lives on Tumblr, LiveJournal, and similar confessional websites. To talk openly about their professional lives—on GlassDoor, PayScale, Salary.com, and Monster—was a natural progression. Millennials shared every detail of their job experiences on these sites, from office politics to the truth about advancement opportunities to, yes, salary.

These younger workers hadn’t spent as much time in the workforce as their forebears, so they weren’t as wedded to salary as a piece of their identity. They talked less about compensation and more about finding meaning in their work. They were, however, deeply concerned about fairness in the workplace, says Cathleen Swody, an industrial/organizational psychologist and managing partner at Thrive Leadership. They were the first generation to collectively protest unpaid internships, which previously had been a rite of passage into the professional world—albeit one available only to those who could afford to work for free.

According to a recent Bankrate survey, nearly 42 percent of Generation Z workers and 40 percent of millennials have shared their salary information with a coworker or other professional contact. That’s compared with 31 percent of Gen Xers and only 19 percent of baby boomers. Today, the job market increasingly demands pay transparency. A Monster.com study found that 53 percent of candidates nationwide would refuse even to apply for a job that doesn’t disclose a salary range. Gabriel Sanchez, a millennial in Montreal, Canada, who most recently worked as a database analyst at a large cosmetics firm, has talked openly about his pay with friends since first entering the labor market. He says that the salary for his own job is freely accessible on GlassDoor. “I’m perfectly fine with that,” he says cheerfully.

“Salary is all about, Do I matter in this organization?"

Nothing is more precise and unambiguous, more rational, than a number. Right? Wrong—at least when that number is somebody’s salary. “Salary is all about, Do I matter in this organization?” says Mike Feiner, who has held top HR jobs at PepsiCo and Irving Place Capital, and who is now president of his own consulting firm. Salary can be irrational and subjective, a container for complicated feelings about self-worth— particularly if a worker discovers that someone else with the same job earns more. This is the crux of the generational difference in money attitudes between baby boomers and millennials: the former tend to see their salary as a critical (perhaps the critical) measure of their value. The latter generally define themselves by what they do, not what they’re paid.

But salary isn’t just an illogical number; it’s often a distorted one. According to a 2021 PayScale study, two- thirds of job seekers believe they’re underpaid, when in fact more than half of them earn market rate or above. It’s yet another reason that experts—no matter their stance on the subject—agree that pay disclosure will cause widespread disruption, at least in the short term. Some employees will allege racist and sexist practices. There will be lawsuits; on the eve of pay-transparency laws going into effect in New York, the internet was rife with legal blogs offering advice to employers on how to avoid getting sued. Some companies will try to finesse the law by featuring salary ranges in job postings that are so broad as to be meaningless, as one bank did when it posted a position paying between “$0 and $2 million.”

“Discrepancies often arrive when things are made public.”

Pay disclosure affects people on two different levels. Firstly, there’s the public nature of it. We constantly compare ourselves to the people that we interact with daily, says John Terrizzi, an associate professor of psychology at Texas Woman’s University. We also compare ourselves to our possible selves. “Discrepancies often arrive when things are made public,” he says. Parents who have taught their children to avoid discussing money do so precisely to help them avoid such discrepancies.

Because—secondly—these discrepancies can be embarrassing. Shame can play a critical role in mediating our place in the social hierarchy, says Terrizzi. Imagine the Darwinian dynamics of the company cafeteria on the day after a company’s salaries are published. That guy over there, at the salad bar? He’s the highest- paid person in his role. Now he’s got “a target on his back,” says Kaplan. Pay disclosure has put him in the position of having to defend what he earns. What about the dude standing at the soda machine, the one nobody wants to make eye contact with? That’s the lowest-paid member of the department—a person, Swody says, who may now feel impelled to act out. “One of the classic examples we have in psychology is if somebody feels that they’re not being fairly valued for their contributions, they find other ways to make up for that,” she says. They might dedicate themselves to finding some way (renegotiating vacation days? a four-day workweek?) to compensate themselves for what they feel they’re owed. Or, more problematically, they might withhold effort at work.

According to experts, shame produces a neurobiological reaction associated with a portion of the frontal cortex of the brain called the insula. When shame threatens our self-worth (perhaps when we discover our employer apparently doesn’t value us as much as we’d thought they did), our fight-or-flight response is triggered. That’s the same crisis response that’s activated in reaction to physical danger. In other words, the brain experiences shame as an existential threat—as something so dangerous that it could destroy us.

What workers care about above all—even more than they care about other people’s salaries—is the system’s fairness, says Dow Scott, a professor at Loyola University Chicago’s Quinlan School of Business. They want to understand a company’s policies and structures for defining pay grades. When these things make sense, employees feel encouraged, Swody says. For instance, she cites a study showing that employees work harder when they find out that their managers make more money than they do.

Experts say it’s essential for leaders to contextualize the numbers for their workers—which is to say, those leaders had better have good and sensible reasons to account for their decisions on compensation. And honesty will matter—“no bull,” says Feiner. Certainly, the stakes are high: A pay scale that’s regarded as logical and fair can actually benefit an organization and its workers, because it incentivizes hard work. A biased pay scale can have the opposite effect. As Korn Ferry’s McMullen sees it, pay scales at many firms are a “bouillabaisse of opacity.” Companies may need to restructure their comp programs, making them more transparent, in order to build trust and credibility with their employees. “Organizations that can’t be transparent with a reward program rest on a shaky foundation,” he says.

Even with a rational pay system, awkwardness is inevitable. Feiner describes a hypothetical encounter with an aggrieved employee who complains that a coworker—who hasn’t been with the company as long—earns $50,000 more. In this situation, Feiner says, a thoughtful leader won’t deny or deflect. They’ll explain that the state of the market necessitated paying the coworker a higher salary. Then they’ll offer realistic encouragement: They might say that the employee, given the excellent quality of their work, can reasonably expect to pull even with the coworker within a year or two.

All of this is uncharted territory that leaders will have to map out very clearly and coherently for their subordinates. “A lot of managers struggle with being able to tell a good story to their employee,” says McMullen. Leaders will have to be far better prepared than a colleague Scott describes, a senior rewards leader at a major firm. One day, the colleague arrived at his office to discover two employees waiting for him. He was startled; he hadn’t ever had direct contact with employees before. But these two workers had found his office, and they wanted him to explain why they were getting paid different salaries to do the same job. “He told me he was just fit to be tied,” Scott says.