This post was originally posted on Built In.
From salary formulas to publishing employee pay rates, a range of options can help to ensure your company compensates all employees fairly.
Although the question “How much do you make?” is not often heard, you don’t have to ask me to find out. That’s because my salary is published on my company’s website, alongside everyone else’s at Buffer, from the CEO to the newest teammates. I appreciate that I never have to ask myself, “Am I being paid fairly?” I know that I am because I can see everyone’s salaries. Buffer also uses a salary formula to determine pay, so I also know why my salary is what it is. Many of my peers who worry about their compensation can’t point to the factors that influence it.
This level of transparency isn’t for everyone. At Buffer, however, this practice has created what Paul J. Zak, the founding director of the Center for Neuroeconomics Studies, calls a high-trust environment, which is beneficial for everyone involved. In an article in the Harvard Business Review, Zak said, “I’ve found that building a culture of trust is what makes a meaningful difference. Employees in high-trust organizations are more productive, have more energy at work, collaborate better with their colleagues, and stay with their employers longer than people working at low-trust companies.”
The things Zak identifies are just some of the benefits of pay equity and transparency, as we’ll see. So, for those who are interested in building a similar culture, here are some first steps any organization can take towards greater pay transparency.
WHAT IS PAY EQUITY?
Implementing Pay Equity
According to the National Committee on Pay Equity, this principle “means that the criteria employers use to set wages must be sex- and race-neutral.” One straightforward way to achieve that neutrality is to use the same salary formula across an entire organization.
Buffer has used a salary formula since 2013, which ensures that the company pays everyone equitably. This both eliminated situations in which one person made more money for the same role as another due to canny negotiation and answered questions about why someone is paid what they are. In the beginning, Buffer’s 2013 salary formula was as follows: Salary = role type X seniority X experience + location. Over time, however, it changed, and the most recent version is both simpler and more evolved.
Today, Buffer’s salary formula is this: Salary = role type X cost of living. The biggest change was evolving how we approached setting pay for each role type. Rather than coming up with the base pay ourselves, we now use data from Radford and benchmark it based on standards in the broader software industry and the 50th percentile of San Francisco market data. So, the current formula much more accurately reflects market rates and is more competitive.
Salary formulas are becoming more popular. Slite, a company that makes collaboration software for remote teams, publishes their salary formula as well: Gross salary = people level X role X location X setup status. Outside of the software industry, the U.S. military has long published its basic monthly pay tables for every year.
Using a salary formula is also a fairer to approach compensation and hiring than asking employees what their former salary was. In fact, that question is now banned in several states since it can perpetuate pay disparities across gender and race.
Setting a specific salary formula for your organization is powerful because it answers questions about how salaries are determined and prepares the organization for transparency in terms of pay. From an operations and human resources standpoint, this policy also adds a layer of simplicity rather than having to calculate a salary from scratch whenever a new teammate joins.
Pay Equity and Remote Work
In the above examples, both Buffer and Slite used cost of living multiplies in their formulas to determine salaries. Although some companies don’t adjust salaries based on geographic location, it’s not an uncommon practice since it allows companies to stay competitive with those that pay higher salaries in places like San Francisco and New York.
At Buffer, however, our CEO, Joel Gascoigne, has been open about working towards location-independent salaries. We recently reduced our cost of living bands from four separate bands to just two, with the goal of removing the cost of living component entirely. When explaining his thinking behind this change, Gascoigne explained that removing cost of living would “enable an even greater level of freedom and flexibility.” Remote work is also “increasingly breaking down geographical borders.” These are two key reasons for the adjustment.
Even in the military, location is a factor in pay, where it’s called Basic Allowance for Housing (BAH). BAH is an allowance that adjusts compensation when a service member moves to a new duty station. It fluctuates based on a number of factors, one of them being geographic location.
Location-based pay is a controversial topic with knowledge workers who are remote, however. Their location doesn’t impact their work, which some would argue means it shouldn’t impact their pay. Ryan Harter, an android developer at Pixite, wrote a blog post on this topic in 2020 in response to the news that companies like Facebook were cutting salaries for remote workers. In his post, Harter argued, “If I produce my product by working in inexpensive Chippewa Falls, and sell it to my employer in expensive Menlo Park, my salary should be based on cost of similar quality labor in Menlo Park. If my profit margin is higher than someone who chooses to base their production in more expensive metros, that’s their choice.” This sentiment — that the work is the same so the pay should be the same — has been echoed by many in the tech industry.
Ultimately, whether pay is location-dependent or not, the salary formula should make clear to all employees whether or not their location impacts their salary, as this information could influence several decisions they make.
Increasing Pay Transparency
Pay transparency has become an increasingly popular topic as more people demand some level of transparency in the process to ensure they’re being paid equitably. Outside of individual organizations, several tools show pay data across various roles and industries. Buffer’s Salaries and Salary Calculator, Glassdoor, Payscale, and Elpha’s Salary Database are just a few examples.
Once an organization establishes pay equity through a salary formula, increasing overall pay transparency becomes easier because it should be clear to anyone who sees pay information where that number comes from.
Buffer’s method of publishing every salary to the company website is on the far end of the pay transparency scale. Companies can find a lot of other ways to add more pay transparency, both internally and externally, however. Things like sharing how pay is determined and publishing pay ranges for different departments and roles within an organization, as well as when hiring for new roles, can all have a salutary effect. In fact, publishing pay ranges is now required by law in some states in an effort to help continue to close gender and racial wage gaps by ensuring all candidates have the same pay information.
Speaking about pay transparently and being open about salaries and pay ranges with both employees and applicants can have a true impact on the organization. At Buffer, not only has pay transparency created a high-trust environment, at the time of first publishing salaries, it also drastically increased the number of applicants we received to open roles. To this day, we receive a large number of applicants to any Buffer role. Although a lot of factors are at play, we hear consistently from candidates in the interview process that pay transparency was a factor that drew them to Buffer specifically.
Fairer Pay Starts Here
Choosing to make pay more equitable through the use of a formula and increasing pay transparency whether by publishing ranges or individual salaries can go a long way toward creating a better work environment and transforming into a company that pays everyone fairly, regardless of gender or race. Ultimately, pay transparency can help create better organizations where there is more trust and hopefully positively impact the entire tech industry to ensure that under-represented groups aren’t being paid less for the same work.