Fixing income inequality in the workplace

Income inequality is a divisive issue in our political climate, bolstered in no small part by lingering tensions from the 2008 financial crisis, a recent push for a higher federal minimum wage, and a 2010 Princeton University study that identified $75,000 as an ideal salary for achieving happiness.

Combine that with the fact that the average CEO earns 350 times what the average employee makes in the U.S., the largest such disparity in the world, and you can begin to understand how fair pay in the workplace has become a priority for U.S. employers hoping to retain top performers. In fact, some companies are taking drastic steps to address it.

I read it on Reddit

Maybe you’ve heard of Ellen Pao, interim CEO of the juggernaut discussion site Reddit. She recently was at the center of a high-profile gender bias lawsuit against her former employers, a Silicon Valley venture firm. Although she lost the case, she won a devoted following and opened up a dialogue about the equal-pay challenges women are facing in Silicon Valley.

Apropos, Pao instituted a new salary strategy at Reddit to combat unfair pay -- banning salary negotiations from the interview process. Pao is on to something. A University of California at Berkley study found that women negotiators are considered easier to mislead, increasing their risk of entering sour deals, and a study of Carnegie Mellon MBAs found that both women and men rarely negotiate their starting salary in the first place (7% and 57% of the time, respectively), for lack of training in negotiation skills. It begs the question of whether salary negotiations are actually helping pay inequality. Pao suggests that doing away with negotiations would help level the playing field, as they aren’t going to reward people who are better negotiators with more compensation.

Google me this

Google is on the other end of the spectrum -- its policy is to pay unfairly on purpose, and it’s been that way since as early as 2006, according to Laszlo Bock of Google. In an excerpt from his book “Work Rules!”, Block recounted how following the company’s 2004 IPO, they had to come up with a retention strategy that would ensure their top performers weren’t poached by other companies. They came up with “pay unequally.”

At Google, it’s a common practice to pay top performers a bigger salary than anyone else, and it’s taken to an extreme degree. Two employees with the same job title can have a pay variance of 300% to 500%. Salary is based on results alone, and they take it very seriously. Top performers get top pay, and vice versa. This aggressive approach to salary has paid off (no pun intended), as Google rarely loses top performers.

Take it with a grain of salt, since as we know Google recently paid out $415 million to settle a lawsuit stemming from an illegal anti-poaching agreement made with Apple, Adobe and Intel. Having said that, a drawback to Google’s approach is that it creates what’s called a Power Law Curve in the workplace, where the top 5% of your employees are generating the lion’s share of productivity, making the organization more vulnerable to turnover (hence the extraordinary pay required to keep them).

But to gain some perspective, Google is also the type of company that gets mildly disappointed by a $14.5 billion revenue statement. Even Bock admits that the wheelbarrows-full-of-money strategy may only be useful to highly competitive companies with deep pockets.

Specific Gravity

Gravity Payments, a Seattle-based payment processing company with 120 employees, would be the first to admit it doesn't have Google money to toss around, but it is taking huge steps toward pay equality regardless with a decidedly different approach: pay everyone equally, no matter their position. CEO Dan Price took a $930,000 pay cut from his $1 million salary, and he’s doing it to make sure every single Gravity Payments employee gets paid at least $70,000 (a baseline figure arrived at thanks to the ubiquitous Princeton study mentioned earlier).

Price calls his radical method a “capitalist solution to a social problem,” and is banking on getting a return on his investment in the form of employee loyalty, productivity and well being. Price went so far as to film himself making the announcement and share it online to spread his message far and wide. It’s notable that city of Seattle has led the nation in the fair-wage fight, recently instituting the highest minimum wage goal in the country. Gravity Payments is only the latest company to come out in support of fair pay in a city that has become the spiritual center of the movement.

More work to be done

As the definition of work continues to blur, everything else will blur with it, including what constitutes a fair salary. As we move forward, there will be several more experiments and debates over what workers should be getting paid for, and how much that pay should be. There is also a growing sense of social responsibility that workers are all too aware of since the financial crisis. The company of the future must find objective methods for valuing employees, because the days of saving a few bucks at the negotiation table may be coming to an end.

Cord HimelsteinCord Himelstein is vice president of marketing and communications at Michael C. Fina.

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