Pay Disclosure: The Big Reveal


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Author: OmniMedia Editoral Boardexpert perspective telescope

One small step for transparency, one giant leap for the competition?

In her article entitled “SEC Ready to Require More Pay Disclosures” published in the Wall Street Journal on June 3, 2009, Kara Scannell reminds us that “The Securities and Exchange Commission plans to propose that companies disclose in general terms how they compensate lower-ranking employees, expanding disclosures for the first time beyond the executive suite…. Currently, companies are required to explain executive-pay plans for only its five highest-paid executives.” 

Ms. Scannell hints at a “push back” occurring like that which greeted a similar proposal in 2006 to expand disclosure rules, noting that: “Industries successfully pushed back, saying that information was akin to a trade secret and disclosing it could allow rivals to steal employees.”  Will a similar revolt succeed this time around?  The next few months will tell, but we predict that indeed pay disclosure rules in effect will be extended in the foreseeable future. Some will gain and some will lose as a result of this increased transparency.

One industry very likely to profit in a more transparent environment is Recruitment. Transparency in pay can provide recruiters with the information and ammunition to help their corporate clients woo key employees from competitors, encouraging and intensifying turnover.  Additional disclosure requirements could be irresistible to recruiters. Like a kid in a candy store or perhaps more aptly a bull in a china shop, recruiters and search consultants will mine this newly available information to determine what people in which companies to approach and how to position an offer that could readily convince a key individual to consider a new job.

Companies will need to respond to the pressure from recruiters to preserve their “own” by designing creative rewards structures that link to business strategy, manage risk and incorporate retention devices to help hold onto essential employees.  It might seem incongruous that with high unemployment companies may need to address retention. But if new disclosure rules give recruiters information about pay practices, then incorporating new and creative retention strategies into your total rewards structure will be key to holding onto your best talent.

Who will lose as a result of this increased transparency? Everyone to some extent, if the churning of the employment market that benefits recruiters adds to the money already spent to compensate executives.  This seemingly small concession to transparency may create a giant’s share of complexity and cost.

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