Pay Transparency

Why it works and how to make it happen

The concept of pay transparency is intimidating, and rightfully so. Once people know what others are making—and how their own pay measures up—conflict is natural next step. At least, this is what most business owners have historically assumed.

However, many in the coffee industry—especially in the retail sector—are moving toward or have already implemented pay transparency. Not only a way to make their cafés more equitable, pay transparency can be a tool to set transparent expectations, increase productivity, and reduce conflict.

What are the benefits of pay transparency, and how can cafés implement transparent pay structures without added expense or conflict? Experts from pay-transparent cafés have the answers, and they are eager to spread the word.

WHAT IS PAY TRANSPARENCY?

Among compensation professionals, there are actually three specific categories of policy that fall under the umbrella of the term “pay transparency”—

  1. Pay process transparency refers to being clear and open about how compensation decisions are made.
  2. Pay disclosure refers to revealing employee-level compensation information to other employees.
  3. Employee-led pay transparency is when employees share and discuss their pay amongst themselves.

According to Stephanie Thomas, Ph. D., of compensation professional website Compensation Cafe, many employers have tried to discourage this employee-led policy, and others would argue it is illegal to prevent employees from discussing their salaries under the 1935 National Labor Relations Act.

Many employers fear pay transparency because what they’re picturing is pay disclosure, often without pay process transparency. In fact, while the two policies complement each other, pay process transparency is often completely independent from pay disclosure.

Whereas pay disclosure could lead to conflict around certain employees getting paid more than others, pay process transparency promises to reduce that type of conflict by explaining why those employees make more, and give others a chance to increase their own earnings.

Where pay disclosure in a vacuum could highlight and publicize salary inequities within a company while not inherently fixing them, pay process transparency actually reduces or fixes salary inequities by creating positive, equitable systems for compensation and accountability.

While many companies have implemented pay transparency policies to great success, there’s crucial factor to keep in mind: when people know that another person makes more than they do, they fully understand why. Since employers have no legal power to restrict employee-led pay transparency, they benefit from getting ahead of it in every way they can.

SHOW ME THE BENEFITS

Pay transparency comes with many well-documented benefits, including:

  • Promoting equity and fairness
  • Helping motivate workers
  • Reducing gossip and negativity around compensation
  • Improving retention

Pay process transparency is relatively easy to implement and paves the way for smooth implementation of pay disclosure and full pay transparency, which combines the two.

Fairness & Equity

When there are transparent pay ranges in place for worker compensation at every level, employees are practically guaranteed fair and equitable salaries based on clear, tangible markers.

Pay process transparency helps reduce the gender pay gap, where, according to the Bureau of Labor Statistics, white women make 78 cents on each dollar compared to white men. Black women earn 64 cents, and Latinx women just 54 cents. Clear processes also help with similar gaps that exist for non-white male workers.

In other words, pay process transparency helps all workers know they are getting paid fairly, which positively impacts morale. When pay processes aren’t transparent, workers may hear pay details through the grapevine, not knowing why certain employees are paid more than others. This fosters resentment and makes employees question whether they’re truly valued.

Conversely, when people know exactly why they are paid what they’re paid, that resentment is replaced with understanding and motivation.

Stephen X. Welch is education director at Ultimo Coffee in Philadelphia, a company that has implemented pay process transparency to great success.

“I’ve found that employees tend to be more satisfied with their pay rate when they know they’re on equal footing with their peers, or if they aren’t, having very clear explications why,” he says. “It removes the confusion and resentment I’ve encountered in other cafés that grow around unequal or unfair pay practices.”

Ritual Coffee Roasters in San Francisco emphasizes the benefits in situations where employees come in with different experience levels. At Ritual, all employees start at the same rate with the same pre-scheduled raises based on in-house training.

“Everyone has the same expectations and the same rules apply to everyone,” says Daria Whalen, Ritual’s director of education. “I think people value understanding what is expected of them and knowing each of their co-workers has been in the same position.”

Motivation

When companies implement transparent pay processes, they encourage employees to take specific steps to increase their value to the company, thereby increasing their pay. By laying out tangible steps that lead to pay increases, companies define their values in a way that enhances company culture and focuses baristas’ energy in the right direction.

Ritual’s baristas, for instance, earn a raise for passing a milk test and then an espresso test. These tests take place at intervals based on experience level and learning speed. Next comes a six-month and one-year check-in, then annual reviews and raises.

When Ritual makes major changes to employee compensation based on cost of living in San Francisco, those changes are implemented as a specific increase to all retail employee pay, announced at a company-wide meeting. Ritual adjusts from the bottom up, raising the company minimum and other retail salaries by the same amount. By having everyone start at the same rate and get the same raises over time, the company clearly demonstrates that they value equality and loyalty.

At Ultimo Coffee, baristas benefit from transparent raise structures that reward standard time and training markers. Other motivators include advanced participation in educational programs within the company and success at local competitions. By raising pay based on factors like competency in espresso, time spent in the company, continuing education, and wider industry participation, Ultimo shows baristas they are okay with employees doing just their shift work, but there’s room for them to grow past that. A raise for winning a local throwdow demonstrates that the company values representation in a larger industry context. When everyone is working with the same values in mind, this helps focus company culture.

Less Conflict & Negativity

When everyone knows who makes what, there is no place for hearsay or resentment. When one worker finds out that a less-tenured worker makes more than they do, or if someone questions why a worker they manage makes more than they do (answer: it’s because of longer tenure), such conflicts have less room to thrive. Pay transparency lets workers focus on their work. This result is not only logical, it’s also validated by research.

One study, by Emiliano Huet-Vaughn, an assistant professor of economics at Middlebury College, found that participants who were shown their earnings and how they compared with others generally worked harder and increased their performance.

A similar study from Elena Belogolovsky of Cornell University and Peter Bamberger of Tel Aviv University found that pay secrecy was associated with decreased performance.

On top of that, a study from PayScale, a wage data collection and analysis group, found that only 45% of participants who felt they were underpaid were actually earning less than their peers in similar roles.

By showing people where they stand, you reduce negativity and conflict based on misperception of inequity as well as reducing inequity itself.

Illustrations by Jordan Johnson
Illustrations by Jordan Johnson @DrawnHungry on Instagram

Retention

A survey from data collection group PayScale found that the more information employees have about why they earn what they do, especially in relation to their peers, the less likely they are to quit. According to the survey, the main predictor of both “satisfaction” and “intent to leave” is whether employees feel they are paid fairly.

Transparency raises the “satisfaction” metric dramatically—even at companies that pay below market wages. When employees know why they’re paid less than they could earn elsewhere, 82% say they’re “satisfied” with their jobs and plan to stick around.

Welch has definitely seen positive retention as a result of pay process transparency. “It shows people what they’ll be making at what point on their career path in the café, even without a promotion to upper management or another role. We have folks on staff who have been with the company for years, so I can’t help but think it helps.”

The key is that, on top of the increased morale that comes with knowing you’re being treated fairly, people can actually look within the pay structure and plan for their future, making them more likely to stick around and plan their future as part of a transparent business.

IMPLEMENTING PAY TRANSPARENCY

Now that we’ve established the benefits of pay transparency, here are actual steps to make your company transparent. These steps will help you define your values and outline your policies, which in turn will help focus managerial and staff efforts. Taking these steps is worth your time whether or not you value pay transparency.

Spreadsheet it

Put everyone’s wages into a spreadsheet with their title, number of years at the company, and relevant experience level before they joined the company. This info should be private and not seen by anyone but you.

Figure out starting wages

Determine your company minimum. Does everyone in your company start at the minimum? If not, what is the starting range? Break starting wages into one, two, or three starting rates, based on specific factors like experience.

Examples

One starting rate looks like: all baristas make $13/hour to start.

Two starting rates looks like: baristas with 1–3 years of experience make $13 an hour to start and baristas with four or more years make $14/hour to start.

Three starting rates looks like: baristas with 1–3 years of experience make $13 an hour to start, baristas with 4–6 years make $14, and baristas with seven or more years make $15.

Review your review process

Break down the different tiers of training your company has and decide when to reward with raises. If raises already happen informally, you now get a chance to formalize the process. You can do this either by process or by time period; for instance, a milk-training raise or a three-month raise. You can also decide these tiers are not when raises happen, but it’s important to outline them regardless.

Think about how often reviews should happen. Are they linked to raises or not? Which factors determine that? Remember, if you like your process but want it to be more transparent, you don’t necessarily need to change it—you just need to figure out what it is and communicate it clearly.

Record, record, record

Using your spreadsheet, outline all the different positions that exist in your company and create pay ranges for the various positions. Here again, break them down into one, two, or three rates based on real-world factors.

Illustrations by Jordan Johnson
Illustrations by Jordan Johnson @DrawnHungry on Instagram

Square up

This is the one tricky part. You might see that within the new structure you’ve created, someone’s compensation isn’t fair. Sometimes lack of pay transparency leads to certain employees getting raises because they asked, or because they were in the right place at the right time.

When a transparent system is in place, get ready to square up the compensation of anyone who is out of range of their position. Since you created the ranges based on current wages, this shouldn’t be too likely, but be ready to do the right thing and fix the disparities with the rollout of your new pay process transparency. Employees should be excited about the new process, and squaring up helps get everyone onboard.

Spread the word

Once you have your policy in writing and are ready to even out any past errors, add your transparent pay process policy to your handbook and send a memo to your staff. Give them a clear venue to get in touch with any questions they might have.

Extra credit

If you enjoy this process and want to take things further, you can get even more transparent by adding pay disclosure to your business and becoming fully transparent. To do this, update your spreadsheet and make it accessible to your employees. Once they have the tools to understand why people are making what they are, there’s no reason it should cause extra conflict.

If you’re really excited by your newfound pay transparency, you can post this information for the public on your website. You can even issue a press release and tell the world about your transparent company. The more you promote a culture of transparency and the benefits it brings, the better the chance you’ll attract new talent who share those values and who want to work with you.

TRANSPARENCY AROUND THE WORLD

In specialty coffee, industry marketing has placed a heavy emphasis on the value of transparency in promoting sustainability, quality, and equity across the supply chain—and rightly so. It’s important to justify why the best coffee costs more. It’s not just because of quality, but because of fairness and sustainability.

Transparency often stops at the green coffee level of the labor chain. Nowadays, more and more coffee US companies are investing in transparency as a means to promote equity and sustainable compensation for labor, ensuring that—just as paying fair prices for green coffee makes coffee production sustainable—paying fair prices for café labor makes café work sustainable.

As companies that have taken the transparent leap have seen, the benefits can be solid. They are not just moral or theoretical, but fiscal. Companies that invest in transparency receive dividends in morale, retention, and fairness, and they promote a positive labor standard that makes coffee work sustainable into the future. Increasing pay transparency is absolutely doable, and if it interests you, you should try it.