Transparency and fairness of remuneration systems

In Finland citizens’ have a right to access information of every citizens’ paid wages, known as Incomes Register, by visiting the tax office and using their computer. This service is free of charge. (Vero, 2020). In addition, to this right, Finnish citizens can read annually from yellow tabloids who have earned more than 100 000 euros during last year’s January and December.

(Verokone, 2020). Some Finns called it “National Jealousy Day” (Barry, 2018; Paddison, 2018) as it may reveal your colleagues’ or neighbours’ salary to be much higher than you originally thought it could be. Many years in a row, entrepreneurs of software businesses have been on the top of these annual income lists. Yellow media creates success stories of those on the top of that list. The information does not tell everything about the income level of Finns, as not all income is taxable. Tax data describe wage income quite comprehensively, but capital income only in part. Smit & Montag-Smit (2018, p. 4) underline how common it is that individuals prefer to keep their own wage confidential to protect interpersonal relationships yet express interest in others’ wage to ensure equal distribution.

Smit and Montag-Smit (2018) introduced a pay transparency dilemma which captures employ-ees’ willingness to exchange pay information between each other. They propose that a prefer-ence to either share or hide wage information is primarily driven by aspirations to protect social relationships and one’s reputation, in other words, “when people share pay information, they inherently allow others to make social comparisons with them”. (Smit & Montag-Smit 2018, pp. 3-5). As discussed above, Finland has an Incomes Register, however it is not the only way for software developers to compare their salary to others. Stack Overflow, a free global com-munity platform for programmers, publishes an annual developer report (Stack Overflow sur-vey 2019) concerning SW developers desires, goals and demotivators related to their current position or future targets. From this data, more specific evaluations of salaries are derived.

(Stack Overflow Salary calculation, 2020; Gwosdz, 2020). Naturally, professionals may use other ways to find relevant information of their industry’s salary range and other compensation and benefits, but this verifies the point that the data exists if an individual is looking for it.

Pay transparency is a matter of equality, usually referring to non-discrimination between gen-ders or various population groups. Veldman and Timmer (2017) drafted a comprehensive report of Pay Transparency in the EU. In Finland employee representative has a right to get pay infor-mation for conceivable discrimination claim yet just with the assent of the individual concerned.

If not, the Equality Ombudsman must be reached. Equity Act additionally commits to do re-quired compensation mapping at organization level. The proper compensation conditions and level of least wages set in union agreements are accessible, however, employers are reluctant to uncover the genuine wages paid. (Veldman & Timmer, 2017, pp. 62-70). As noted in the EU’s report, Finland is forcing employers who have more than 30 employees, to report a pay survey (Finlex Act on Equality, 2016; Finlex Non-Discrimination, 2020; Tasa-arvo, 2020). Sur-vey’s intention is to ensure that women and men engaged in the same work or work of equal value have no unjustified pay differences (Finlex Act on Equality, 2016, see Section 6b 1329/2014). This survey is one of the methods included in the Act on Equality between women and men (see Finlex 609/1986) published already in 1986. Finnish Parliament composed an-other law in 2014 to promote equality. Non-Discrimination Act (Finlex Non-Discrimination, 2020, see Finlex 1325/2014) prohibits discriminating anybody based on age, origin, nationality, language, religion, beliefs, opinions, political activity, trade union activity, family relationships, state of health, disabilities, sexual orientation, or other personal characteristics. This study is not focusing on the pay gap of genders, nor reasons behind it, rather it will scratch the surface of what kind of reward methods are used among (Finnish) software enterprises to gain better understanding on what is the current status quo on the market.

Leventhal (1980) coined Distributive Justice which refers to how remuneration is distributed to people, and whether these recipients feel they have been treated fairly. Sense of fairness is linked with what the employer has promised to employee, what they actually received, and accordance with the value of their contribution. (see Armstrong, 2010, p. 11-12). Procedural Justice is introduced by Tyler and Bies (1990) and it refers to the actions how managerial deci-sions are made, and reward policies are put into practice. There are five factors which affect perceptions of procedural justice; (i) employees standpoints are properly considered, (ii) per-sonal bias towards employees is suppressed, (iii) consistent criteria is applied to all employees, (iv) early feedback is provided to employees about the outcome of decision, and (v) adequate explanations are provided to employees of why decisions have been made. (see Armstrong, 2010, p. 11-12).

“As Bill Gates once famously said: A great lathe operator commands several times the wage of an average lathe operator, but a great writer of software code is worth 10,000 times the

price of an average software writer.” (Low, 2016)

Creating a pay model is certainly one of the most difficult issues in HR management. It is never possible to get it completely objective - so much reward includes a variety of personal meanings and emotions. Transparency is not the easiest way for a company, either. Difficult discussions come up, not least because people experience the definition of fairness in such different ways:

one feels that the outcome of work alone should be decisive, while another thinks that long work experience should automatically be reflected in pay. However, letting people express their views and discussing things with them in an honest way will leave the organization less secre-tive. The less concealable, the more confidence. It ultimately also means rewarding (Fitz-enz, 2000). Employee participation is encouraged, via surveys, design teams, annual performance appraisals and other methods, to enable holistic view of the reward system. (Fitz-enz, 2000, p.

51)