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Lets Talk About Not Talking About Compensation

A push by some companies to refuse to haggle over compensation has caught the attention of financial executives.

A movement in Silicon Valley to adopt a “take or leave it” approach to salaries and stock grants has financial executives intrigued, with the promise of greater transparency and certainty around compensation costs.

But compensation professionals warn that refusing to negotiate over salaries is not a silver bullet that can be applied across companies or industries, and that the current job market in finance and accounting, in particular, would not be able to withstand giving the candidate the cold shoulder.

“It’s more important that a company is being consistent when recruiting and that they have a consistent company culture and pay philosophy, rather than simply refusing to negotiate,” says Linda Barrington, executive director of the Institute for Compensation Studies at the ILR School at Cornell University. “Better cultures lead to better negotiations for all sides.”

Last week Ellen Pao, interim CEO of the online forum Reddit, told the Wall Street Journal that she had implemented a policy that bans compensation negotiations for new hires. “We come up with an offer that we think is fair,” Pao told the Journal. “If you want more equity, we’ll let you swap a little bit of your cash salary for equity, but we aren’t going to reward people who are better negotiators with more compensation.”

The goal of discarding salary negotiations for Pao is to equalize the pay gender gap, since women are often penalized “when they do negotiate.” Several recent research reports have cited the fact that men are more likely to negotiate a salary while woman often forgo a salary discussion. Pao is particularly interested in the subject of gender equality in pay as a result of her highly publicized discrimination lawsuit against a former employer.

It was later reported that several other companies — especially Silicon Valley startups like Quidsi and Magoosh –had implemented the same policy.

Despite the argument that not negotiating salaries can close the gender gap, the current job market dynamics make the approach unworkable, says Brett Good, senior district president for Southern California and Arizona at Robert Half International.

“Candidly, we have not seen this in our marketplace and we have not seen companies migrate to these pay structures for new employees,” Good says, adding that a relatively light unemployment numbers for professionals has made it a “job seeker’s market.”

“If we go to where we were in 2007, you could make the argument that this could work. But even during that period, great talent still had great opportunities.”

Good adds that not negotiating with accounting or finance candidates would be especially difficult given their prospects of taking a better job from a firm willing to make a counteroffer.”You have unemployment around 5.4 percent, and you dig deeper into finance and accounting were at 2.9 percent. So there is not a lot of talent readily available, and this approach may have challenges.”

Barrington agrees, adding that the take-it-or-leave-it approach would work better in a soft labor market. “It was a soft market three years ago, and we will see where it is in the next three years,” she says, adding, however, the discussion of not discussing starting pay is “one way pay equity and diversity get introduced into the conversation.”

“In general, it’s good pay practice to have confident policies around pay negotiations,” Barrington adds. “Everyone one is treated the same, and they negotiate coincidently the same deals. In that case, it’s important that the CFO and head of human resources are  in sync and agree.”

In addition to being consistent, employers also need to be willing to negotiate beyond salaries and offer “other incentives,” Good adds. “It’s more than just the base compensation, it’s also the company’s environment. Employees are willing to give up on compensation in return for continuing education, work/life balance initiatives and career development. It’s part of a whole package.”