Money is not an easy subject to talk about in American companies. Whether pressured by written policies or unspoken rules, most people refrain from discussing salaries with their coworkers.
Curious scholars trace the origin of pay secrecy back to the early 1900’s. Despite the absence of any proper research that thoroughly weighs its benefits versus costs, pay secrecy remains a common practice at most companies in Western societies.
A consensus has formed, it seems, among employers that keeping salary figures in the dark keeps competitors away from this sensitive information and helps avoid any “hard feelings” among their own employees over competing with each other on the money front.
Turning to Outside Sources
“The easiest way to find out how much you are paid compared with peers has always been turning to outside sources like job sites or HR consulting firms,” said Michael Wesson, a management professor at Texas A&M University.
For most people, the first resource that comes to mind is Glassdoor or similar job sites that offer a salary estimate feature. However, for serious job seekers and people looking for promotions, the estimate provided by Glassdoor is often not good enough. The most common complaints are that the salary ranges for certain positions are too large to be meaningful and that some numbers are simply inaccurate.
Salary information on Glassdoor is primarily based on voluntary submissions from its users. As a general rule, “the more salary information available for any specific role, the more reliable the salary data that Glassdoor displays for that role will be,” a company spokesperson said.
For example, the average salary for a Google software engineer on Glassdoor is $127,000, based on more than 5,600 salary reports submitted by Google employees with this job title.
“This is a large sample size, suggesting the data is very reliable,” the spokesperson said.
But data obtained from a simple user submission system can be misleading.
“This is what I teach in my compensation class: if the salary information you find online is self-input by users, the average tends to be higher than the actual average salary,” Wesson said.
On the other end, average salary figures released by government agencies usually come out below the actual industry average, simply because the private sector is often willing to pay more than government agencies for the same job, he noted.
“Because when somebody asks how much money you make, you have every incentive to overstate the number to make it look like you have an above-average pay,” Wesson explained.
“On top of that, most surveys done by job sites don’t get into the nitty-gritty of compensation, which can include base pay, bonus, retirement contribution, equity arrangement and so on,” he continued. “The numbers users submit can be any combination of these things, so when you compare those number, you aren’t really compare apples to apples.”
Perfecting Salary Estimates
The most reliable source for salary estimates, Wesson said, is professional consulting firms, which conduct thorough compensation surveys across companies and industries. However, these services can be costly and are generally not realistic resources for individual job seekers.
Realizing a strong demand for pay transparency, startups have emerged in recent years to fill the gap between expensive consulting services and free—but rough—online tools.
In 2015, Chris Bolte, a former advertising executive at Walmart, co-founded Paysa, a salary-tracking site for the tech industry, with a mission to help one million people each achieve a $5,000 raise in annual salary.
A major improvement of Paysa’s salary estimate approach over Glassdoor’s is sourcing data beyond just consumers.
“Consumers are responsible for a portion of where our data comes from, but we also gather salary information from recruiters, employers, as well as public information such as the Labor Department’s reports,” Bolte told Observer.
Another innovative feature of Paysa is a high degree of customization.
To access Paysa’s service, a user needs to submit information about his location, education, work experience, key skills and current pay. (A full resume would be ideal, but it’s optional.) With this detailed information, Paysa is able to crunch out a specific number, rather a vague range, that accurately reflects your market value.
This personalized service, Bolte believes, incentivizes users to provide accurate information.
“We help people get raises and promotions and negotiate job offers. But for us to do that, we need the most accurate data possible. The salary for a software engineer job at Apple may range from $120,000 to $170,000. But that’s not very helpful. If you tell us more about who you are, we can tell you where exactly you should fall in that range,” he said. “The trade here is much more above-ground.”
The same logic applies to recruiters.
“Recruiters need to know where they stand in market competition as well. So we provide them an avenue to check if the offer they are going to make someone is a fair market offer,” he continued.
Paysa currently stores about 50 million salary data points from its 1.2 million monthly users and other sources. Since its founding, it has also expanded beyond the tech industry to media, finance and other sectors. Bolte estimates that any of the white-collar industries in the U.S. should have some information available on the site.
More established companies are getting into the salary game, too.
In November 2016, LinkedIn introduced its own compensation service, LinkedIn Salary. LinkedIn’s model runs similarly to Glassdoor’s, which primarily sources data from users. But the world’s largest career networking site has something only it can offer.
The main goal of LinkedIn Salary is to help people uncover important patterns in the job market so they can better plan their career advancement. For instance, obtaining an MBA leads to larger pay increases for marketing directors than any other position; and sales positions in healthcare consistently pay better than the same role in other industries.
“At the heart of it is the ability to understand why certain people make more than others and what you can do to set yourself up for greater earning potential. Every professional in the world wants to know what they can do to earn $10,000 more,” Daniel Shapero, LinkedIn’s former director of career product, told Forbes at the time of product launch.
“People would invest more in their careers if they knew what the return would be,” he added.
The Future Job Market
Asghar Zardkoohi, an economist at Texas A&M University, said the teardown of pay secrecy will have a huge impact on the labor market. And some of the effect is already being seen in the tech sector.
“The average time a person stays with an employer is much shorter today than in the 1950s and 1960s. That change has a lot to do with the tech startup scene. The turnover rate in tech companies is much higher than other industries,” Zardkoohi told Observer.
According to Paysa data, employees at Silicon Valley’s largest tech companies change jobs every two years. That’s more than twice as frequent as the national average. (2016 data from the Bureau of Labor Statistics showed that the average employee tenure in the U.S. was 4.2 years.)
Zardkoohi believes the high turnover rate in tech is partly due to the speed at which new startups pop up and how the demand for skilled workers changes. But pay transparency might accelerate it even more.
“As people jump from one company to another, they have a better knowledge of how different companies in the same industry pay. That further stimulates turnover, because the more salary information they have, the easier it is to change employers whenever they feel underpaid,” he said.