Wage disclosure promotes good business through better pay and better workers

This piece was written by our treasurer, Beth Anderson, and published on the Savage Pacer website on October 19, 2015.

Employers and employees alike are squeamish when discussing wages and how they are determined.

Traditionally, employers have discouraged employees from comparing salaries or discussing their wages. In some cases it has even been a condition of employment. In Minnesota, that is now illegal. And I argue that wage discussions amongst employees should be encouraged to the benefit of employers and employees alike.

The Women’s Economic Security Act (WESA) was enacted in Minnesota on Mother’s Day 2014. The law covers many issues involving women’s rights in the workplace and is designed to address the causes of the gender pay gap and to protect the rights of pregnant employees. The Minnesota Legislative Office on the Economic Status of Women just issued a report on WESA implementation over the last year and I thought it was a good time to discuss one of its provisions: wage disclosure.

WESA makes it illegal to prohibit employees from discussing wages or to retaliate against employees who discuss their wages or another employee’s wages. This is a key provision for women workers, or for any workers that have faced wage discrimination. How do you know if you are being paid in accordance with your peers if you can’t discuss it with them? We know in general from salary surveys and hiring statistics what types of salaries can be expected in broad job categories, but most of us don’t know how our personal salary compares to that of a similarly employed co-worker.

The Minnesota Department of Labor and Industry is tasked with enforcing the wage disclosure protection portion of WESA. Between July 2014 and September 2015, there have been only three worker’s complaints regarding the wage disclosure provision of the law. This may be because employees are not experiencing problems with discussing salaries, but I think it is more likely that the traditional reticence we have for discussing our salaries and wages has kept us from exercising this right.

After all, if you found out you were making less than a similarly qualified co-worker, it might make you feel bad about your job, perhaps decrease your job satisfaction. And if you found you were making more than your co-worker, you might not want to discuss it with them if it only served to make them feel bad about themselves or their job. Why risk the discomfort?

One obvious reason to risk it is economic. If you are underpaid, you can use the information to negotiate for a fair wage. For example, it has been shown that even small differences in starting salaries can multiply over time and have a large effect on your lifetime earnings. Since most future pay raises are based on current salaries, if you start with a smaller salary, it can affect not only your current wealth, but your future earning potential. A $5,000 difference in starting salary can grow to a $12,000 difference in salary 30 years down the road. And that’s an extra $12,000 each year!

Similarly, if you find your salary is less than your co-workers mid-career, you can use that information to argue for a raise, or correction, to bring your wages in line with the going rate. Some of this can be done based on national or local wage statistics, but disparities within a company may not be picked up by comparison with national averages or ranges, and the differences can be significant. Wage disclosure discussions will help make salaries fair an d lessen the inequalities.

A second reason for having this wage discussion is to make the market more efficient. If a worker is not being paid according to similarly qualified co-workers, it may be because they are underperforming. Having the wage discussion could prompt better performance on the part of the worker or it could cause the employee to seek employment that is more suited to their skills. Both the employer and the employee benefit from having high-performing, fairly-compensated employees. The market should self-correct, matching the right employees to the right tasks.

In order for this to work, an employer has to determine what factors influence salaries in their company and clearly communicate that to the employees. Are wages and salaries based on customer satisfaction, hours worked, quality of product produced, sales figures, seniority, specialized skills or education, commitment to the company, etc.? What matters when setting salaries and what doesn’t matter? If your company hasn’t clearly stated this, it might be a good time to ask.

As a small business owner myself, I know the challenges involved in applying a consistent standard to employee wages and clearly communicating the criteria. Jobs evolve, employees gain experience and education, and the company’s performance varies. Every year, I reflect on the salaries I am paying my employees and how they compare to each other and to national standards. I take into consideration the performance of the individual, the performance of the company as a whole, the education and training the employee brings to the position, and the complexity of what is being asked of the employee. I use the annual salary review to make changes where necessary to eliminate arbitrary or unconscious bias that may have crept into the compensation packages over the years. I envision the discussion that I would have with that employee if confronted with questions regarding their pay in comparison with others in the company. And I walk away with a new appreciation for the bargain we all make to provide a fair wage for a job well done.

Whether you are an employer or an employee or both, the wage disclosure discussion will result in better pay and better workers. If you have questions about the wage disclosure protection provision of WESA, you can contact the Labor Standards unit of the Minnesota Department of Labor and Industry at 651-284-5070.