Why is it important to talk about wage inequality? A simple solution to combating wage inequality might help, but there are challenges on the road.
In 2021, Colorado enacted the Colorado Fair Pay Law. This first-of-a-kind law requires all job listings to include salary. But while companies such as IBM espouse dedication to fair pay in posts like these, they are posting jobs saying, “IBM intends this job to be performed entirely outside of Colorado” for all remote work. Why is a company, dominated by liberals, so opposed to an effective law that aims to reduce wage inequality? And are other liberal tech companies right to follow suit?
- Note: See a list of all companies refusing to hire in Colorado here.
Why is this important?
Everyone is aware that inequality has social and economic impacts, and can reinforce existing forms of discrimination and bias. It’s in vogue to be promoting fairness, economic stability, and social justice. But the issue of wage inequality goes beyond the negative impact on individuals and families. It can impact society as a whole. When some individuals or groups are paid less than others for doing the same work, it can lead to financial insecurity and reduced purchasing power. This can have ripple effects on the economy, as people with less money to spend are less able to support businesses and drive economic growth. So it’s a prerequisite for not only a morally healthy society but a healthy economy.
The Colorado law that went into effect requires companies to transparently list their salaries in job postings. I don’t think the leadership at IBM, or the hundreds of other tech companies, have bad intent. I think the opposite.
Many leaders feel anxiety over matters of diversity and inclusion matters. They think they are powerless over the injustices they see in our world. They like to think that only policymakers have the power to make a difference. Yet, as we can see with the Colorado law, companies are opposed to these policy changes.
I will explore how adopting wage transparency is an easy and low-risk path toward equality. It is our behavior, as leaders of tech companies, that creates this unjust workplace and world. And that is why we need to adopt the measures passed by Colorado.
The Problem of Pay Gaps
Americans have been experiencing unprecedented socioeconomic stratification in recent years. The gender pay gap is at the forefront of attention but sadly, it’s not the only form of the pay gap that is creating inequality in our nation. Ethnicity, socioeconomic background, political leanings, and even one’s personality traits correlate with pay gaps. In an analysis, researchers found that income gain for the top 1 percent was 31.4% from 2009 to 2012, while the bottom 99%’s income only grew by 0.4%. This has only gotten worse since the pandemic. All Americans are experiencing increased pay gaps when compared to a privileged elite.
The Solution to Wage Inequality
We like to think that only policymakers have the power to make a difference. That’s not true. We can’t change national laws, but we can adopt wage transparency, which reduces the exploitation of underprivileged working-class people. Sadly, leaders are already opposed to the Colorado law. That’s why change has to come from within your company. You need to do away with salary negotiations determining pay, which is a practice that disadvantages minorities, women, and people from low socioeconomic backgrounds. It’s a simple step to combat the growing economic divide.
The Research on Pay Gaps
Women are less likely to negotiate salaries based on the job interview process and job listing (source). Researchers found that subtle words you use on the job listing, or interview process, can lead to women making thousands of dollars less than men. It may be hard to believe, but our words signal what is and are not acceptable to different groups. And when we use ambiguous language around salaries in job listings or job interviews, we’re setting women up for failure.
Looking for an easy solution? Make salaries transparent on the job description and remove guess-workaround salaries.
Your ethnicity and race impact your salary. And guess what? Minorities are less likely to negotiate salaries, which leads to lower overall salaries (source). Researchers found that “Black employees, relative to other racial and ethnic groups, are more likely to be taught at an early age that life is unfair through a process known as racial socialization.” This leads many minorities, especially blacks, to never attempt salary negotiations. Why would they do so when they have been taught that it would only cause them more trouble?
In fact, the mere act of negotiation leads to lower salaries for blacks, “the perception of having been pushier resulted in Black job seekers receiving lower starting salaries.”
You can’t change a person’s upbringing. Nor can you change how a manager responds to negotiation attempts. We can try, sure, but human behavior takes a lot of effort to change. Instead, we need to create an environment and incentive structures that ensure you don’t take advantage of people. Once again, the simple solution is to make your salaries transparent.
Even poor men raised in low socioeconomic status environments and without elite education are less likely to negotiate (source) Our goal should be to uplift everyone’s well-being and create equality for everyone. Sadly, our current methods favor coastal elites from high socioeconomic status families with fancy schools on their resumes. The researchers say,
“Indeed, research on wage bargaining indicates that the potential to negotiate higher compensation is typically a privilege reserved for higher educated workers, and not even all of them — men included — negotiate for higher pay.”
Men, like women, don’t negotiate when they “anticipate that their claim to higher pay could result in negative social consequences.” It’s just as important to understand that “negotiating for higher pay is a privilege.” Not everyone feels like they can do it. And not everyone can do it without negative consequences. So we’ve created a world where higher-status people “raise their compensation through negotiation, [which] only contributes to inequality.”
If you are coming from a first-generation, working-class, or otherwise from a low socioeconomic background and going into your first professional role (or seeking a promotion or raise), you’re less likely to ask for fair salaries (source). Just like the author, I came from a long line of people who were just grateful to have a job. Grateful to be living in the U.S. My parents would freak out any time I mentioned anything about asking for a higher salary.
This wasn’t just because we are first-generation immigrants. It’s also embedded into the fabric of the midwestern culture I experienced in Kentucky. Whether you’re an immigrant, white, or a woman, being from Kentucky means that you were most likely raised in a culture where you’re discouraged from asking for promotions and pay raises. I am sure this is true of most working-class states and communities in the south and midwest.
Even our personality traits, which are determined by our environments and genetics, impact our ability to negotiate salaries (source). Unfortunately, people with anxiety, depression, and agreeable personality traits are disproportionately impacted. People can change, and there is promising work being done every day to help people become bigger actors in their lives. Sadly, this takes time. So our current model favors the Harvard MBA graduate. That’s why the researchers found, “Individual differences, including risk-aversion and integrative attitudes, played a significant role in predicting whether or not individuals negotiated, and if so, what strategies they used.” If you’re not part of the select few blessed with an environment and genetics that promote certain traits over others, you’re sure to be consistently underpaid your entire life. This is no way to set up a fair and equal society.
In my research, I was able to find only one good reason to keep salaries hidden. There is typically a very skewed performance distribution. Recapping the research, someone told me, “The top 10% generate 90% of the value and largely finance the salaries of the lower 30% or even 50% of the performance distribution. In some industries and jobs, this is even more extreme. Making the salaries of the top performers public makes it easy for competitors to cherry-pick your staff by offering a more attractive package to the undervalued top performers. Even paying them double can make sense financially.”
So will my best performers want high salaries? And will I lose top performers if I cannot offer high salaries?
Yes, you will. And I have not nor do I argue that everyone should be paid the same. Instead, I argue for fair pay. Meaning that people are getting paid what they are worth. That is only possible when people know their worth through transparent salaries.
Going back to the research, “the most important contributor to job satisfaction for all employees was base pay, followed by bonus pay. High performers cared significantly more about both of these factors than average or low performers. Tenure-based or compensation strategies with little differentiation between high and low performers are likely to alienate your high performers the most.”
So how do I avoid building resentment if employees see such salary discrepancies?
In fact, you can build resentment and lose employees if you don’t pay fair salaries. If you pay top performers less than they deserve they will leave. Wage transparency is not the same as treating people unfairly by paying them less than they deserve for the work they do. That is not what I am arguing. Transparency is inherently about fairness. Top performers should be paid more. The livelihood of everyone’s job, and your company, depends on their performance. The goal of transparency is keeping yourself, your managers, and your company accountable.
According to Wharton Business School professor, Peter Cappelli, the issue comes down to “whether employees believe that the amount you are paying them, all things considered, is unfair relative to what you are asking them to do and relative to what [type of job] they could get someplace else.” According to the research, as long as the salary is determined by merit, justified, and arises from unambiguous rules, then people will perceive it as fair. Humans are complicated creatures, but they also respond to logic and reason. Pay them fairly, be transparent about why, and people are likely to accept your explanation. And we can take another step towards a fairer society.
Salary transparency is a direct way for companies to do the right thing and promote pay equality. It’s easy, has few risks, and requires no changes to existing laws.
Insisting that all women, minorities, or low socioeconomic status groups have to do is to “always negotiate,” is not the solution. Instead, you need to completely eradicate any chance of societal norms and biases from being used to hurt certain groups. There is only one way to do this and the research on this is abundantly clear: transparent salaries.
Thankfully, there is an easy path that the amazing people at Buffer have laid out. Not only have they had transparent salaries since 2013, but they’ve created a handy calculator to ensure you’re assigning salaries without bias. It seems radical or even impossible. But it’s being done and it’s changing lives. It’s even helped the business as Buffer has no shortage of amazing talent to pick from.
An anonymous researcher told me the following when I asked why companies don’t have transparent salaries,
“It’s purely a way to keep wages down. If wages are public then the individual has more information and more negotiating power when coming to the offer table. Keeping that information secret allows the company to continue to offer low wages.” So put a stop to this practice now. Embrace making transparent salaries the norm.