Virgile Raingard, CEO of Figures, says pay transparency is an opportunity for startups
A survey of start-ups and scale-ups suggests that pay transparency reduces the gender pay gap. Is this just nice to know, or something entrepreneurs should keep in mind as they grow their business?
There was a time – in the deep and distant past – when everyone in an organization knew what their colleagues earned.
Okay, maybe that’s a bit of an exaggeration. But if you go back 20 or 30 years and look at the practices of large employers in particular, jobs were classified based on skills required, position in the corporate hierarchy, and seniority. Within each band, everyone was paid more or less the same, with incremental payments corresponding to seniority. This was particularly the case in union workplaces and the public sector.
But the workplace has changed, pay structures are less rigid, and workers – some at least – can get significantly different rates for jobs that are more or less the same.
This approach has some advantages, but also potential problems. If employees are instructed not to discuss their salary – which they often do – it is difficult for individuals to know if they are being shortchanged and this can spell trouble going forward in terms of motivation, morale and retention.
And unless there is a greater degree of transparency within industries, employers may struggle to set rates.
Sure, that was the experience of CEO Virgile Raingeard, co-founder and CEO of Figures, a company that provides compensation data primarily to startups and scaleups. “I was an HR manager at a startup,” he says. “I was in a lot of pain because I didn’t know we had to pay.”
In practice, this meant that if a candidate asked for €70,000 per year against the employer’s expectations of, say, a €60,000 deal, it was very difficult to know who was reasonable. That problem led Raingard to team up with other employers to compile salary information that could be used to identify some kind of industry standard. This ad hoc approach – built around a spreadsheet – evolved into Figures, a company that provides compensation data, largely to start-up and scale-up technology companies in Europe.
The pay gap between men and women
Earlier this month, Figures released new research based on interviews with some 500 tech scaleups and startups on the issue of pay transparency.
The main finding is that pay transparency within organizations 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 shrinks to zero.
Raingard says the study’s findings confirm his own expectations. “I was firmly convinced that transparency would help solve the problem of the gender pay gap, but there was no evidence.”
But what does transparency actually mean for a start-up company? Well, from the perspective of Figures, it runs along a spectrum. On the one hand, there is no transparency at all. Employees know their own salary and that’s about it. Then there are companies that provide employees with information about how their salary is calculated and perhaps what the rationale is. Continue down the bar and you have fully transparent companies making those calculations public. Employees can see where they stand in relation to others and why the compensation decisions were made.
Complete transparency is rare
As things stand, full transparency is a rarity. While 59 percent of companies publish salary schedules, only 11.9 percent map individual salary information, the figures show.
But is transparency a good thing? Raingard thinks so. According to him, the only reason to avoid transparency is “to avoid accountability”.
And with more companies embracing openness about pay, he says questions will linger over those who are more secretive. “Once companies do it, those who don’t will be seen as dishonest.”
Then there is the issue of the gender pay gap. It is morally right that men and women should be paid equally, but is there a business obligation?
reputation risk
“Most people who work in HR want to do it (equalize pay), but if you have to justify it in business terms, it’s not that easy. Closing the pay gap costs money,” he says. “But the biggest factor is reputational risk. If you are exposed, it can damage your reputation.”
In those terms, a startup struggling to generate revenue and control costs may not see it as a priority. However, Raingard says reputation isn’t the only problem. “There is a chance, he says. “You have a huge hook in terms of access to talent.”
Outside of a few industries, there is little prospect of a return to rigid pay rosters, but there is arguably a case for greater transparency in how salaries are allocated and decisions are made. This can be a factor when candidates consider which companies they want to work for and stay with. In addition, sites such as Glassdoor and Twitter allow information to spread quickly. In that context, pay transparency — or the lack of it — is likely to remain on the agenda of both tech founders and their employees.
Janice has been with businesskinda for 5 years, writing copy for client websites, blog posts, EDMs and other mediums to engage readers and encourage action. By collaborating with clients, our SEO manager and the wider businesskinda team, Janice seeks to understand an audience before creating memorable, persuasive copy.