Working for Justice

Shedding Light on Pay Inequality

Posted July 15th, 2014 by in Wages and Overtime Law.

Last week, a federal judge in New York ordered that notice of a lawsuit under the federal Equal Pay Act be sent to at least 7,000 female employees at KPMG—one of the nation’s “Big 4” tax, audit and accounting firms.  The lawsuit details how KPMG illegally paid female professionals less than it paid men for the same work (in addition to other discriminatory acts).

Receiving notice about the lawsuit and being informed of their right to join this collective action might be the first time that many women at KPMG learn that they may be underpaid compared to their male colleagues.  But the existence of a pay differential between women and men in the United States is no secret: The Department of Labor reports that women in the United States make only 82.1% of their male counterparts’ weekly earnings.

There are innumerable reasons for this disparity, including intentional and systemic wage discrimination.  But no matter what the source of prevailing pay disparities, one reason disparity persists is that most private-sector employers insist on keeping pay secret.  The refusal to provide employees with information about how their compensation compares to that of their colleagues keeps employers in a position of power in salary negotiations and prevents discovery of pay discrimination.

Some companies, though, are moving in another direction.  A recent piece by Lisa Pollak of NPR’s Planet Money explores how one startup founder decided to make internal pay information available to all employees and the results of this shift at his workplace.  The founder, Dane Atkinson, explains that previously, he had “paid the exact same skill set wildly different fees because I was able to negotiate with one person better than another,” saving money for his company when he was able to hire a well-qualified individual at a low price.

That just seems like good business, right?  Not necessarily.  The likelihood of keeping salaries truly secret is low; at least intimations of compensation will surface.  Someone’s bound to leave a paystub out, or let salary slip in conversation.  And, as the NPR piece observes, when people learn that they are being underpaid, it results in significant cost to the employer in the form of loss of employee trust, ill-will and attrition.

Negotiating starting salaries when employee pay is kept secret might also have a disproportionately negative effect on some: a growing body of information indicates that far fewer women than men negotiate job offers, and that when they do they are often penalized because of gender stereotypes about femininity and likeability.  In fact, some have even suggested that women should adopt special tactics to negotiate the raises and promotions they want in order to address or conform to expectations about women’s behavior.

Atkinson told Pollak that at his new company, all employees can view a spreadsheet of each other’s salaries and prospective hires are provided with both a salary range and a fixed starting rate.  Although some potential employees are turned off by the inability to negotiate their starting pay, others note that pay transparency has led to the ability to focus on other (more business oriented) things—knowing that a spreadsheet listing everyone’s pay is available to them, some of the employees Pollak interviewed reported that they hadn’t been motivated to look.

The practice has another real benefit in that it allows employees to request raises based on the salaries of employees in comparable roles and fosters discussion about why some employees might make more than others (and ways to improve).

Making compensation information available internally also promotes fairness.  Pollak says an employer “can’t pay women less than men if everybody can see what you’re doing.”  That overstates the matter.  Salary transparency does not eliminate pay discrimination, but it does make it more difficult.  Publishing unjustifiable salary discrepancies invites rather unpleasant consequences, and so employers who choose to make salary information available have an incentive to review employee compensation for fairness and make adjustments before the information becomes public.  Once employee pay is shared, it gives all parties involved the tools in discussing compensation openly, without the informational asymmetry that usually provides employers an advantage over employees.

Whether salary transparency will catch on in the private sector remains to be seen.  But it seems this approach offers an opportunity to quell office disputes, increase productivity, and promote equality in the workplace. Salary transparency could also help companies like KPMG, and many others facing pay discrimination lawsuits, address employee concerns before the prospect of litigation arises.  Where disparities persist, employees are armed with the information necessary to assess their options and vindicate their rights in court if necessary.

Sanford Heisler Sharp, LLP

Sanford Heisler Sharp, LLP

Sanford Heisler Sharp, LLP is a nationwide litigation law firm with offices in New York, Washington, DC, San Francisco, San Diego, Nashville, and Baltimore. We represent individuals against powerful interests. We act as a private attorney general in support of the private and public good. Learn More

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