Can we close the 'pay gap'?

A few companies are trying to counter ‘the Matthew effect’. Some are giving equal pay, some are capping salaries between the top and entry level, some are making the salaries public. Founder of a Bengaluru company lets us in on the experiments

In 2015, Seattle-based entrepreneur Dan Price arguably became ‘the best boss’ one could ask for. He decided that all 120 employees of his credit card processing company Gravity would get the same salary, irrespective of experience and job profile. He revised everyone’s annual salary to 70,000 dollars — ‘the amount needed to live a normal life in the US’. His own earnings plunged from 1.1 million to 70,000 dollars. That is a cut of about Rs 8.5 crore. He reportedly sold his second home as well.

The action was praised and criticised in equal measure. The 30-something was dubbed the ‘lunatic of all lunatics’, a ‘socialist’ wrecking the free market, and a publicity seeker. Two of his senior staff resigned. His brother, a 30 per cent shareholder, sued him. Some customers cut their ties with the company. Critics predicted bankruptcy.

The author (in front, blue t-shirt) with his team.

The journey was marked by ‘spikes and valleys’, Dan admitted in an interview. But the company went on to report an increase in revenue, staff size and retention, and customers. In 2022, Dan quit when he was accused of reckless driving and assault.

Our company’s story is nowhere as dizzying as Gravity’s or even of Boston-based Pharmalogics Recruiting, which bumped the base salary of its staff by 33 per cent following in Dan’s footsteps. However, we potentially share the same ideals. We are testing ways to close the gap in autonomy, pay, and professional and personal growth.

We started TerreGeneration, a content company, in 2018. But only recently did I find a term for the work culture our company and a dozen others are experimenting with — the anti-Matthew effect.

Mind the gap

It was March. About a hundred of us, in the blockchain and conservation fields, were attending a beach festival in Gokarna, Karnataka. It was an evening with a breeze on our faces, and the sound of the waves in our ears. We were discussing how blockchain could be leveraged to ‘program’ values like equity, justice and transparency into the economic order.

The Matthew effect was addressed. It refers to the widening gap between the haves and have-nots. It argues that people who begin with advantage gain more advantage over time, and the disadvantaged become more disadvantaged. However, the Matthew effect is not limited to wealth, as one of the speakers that evening, Kevin Owocki, co-founder of GitCoin, said, “It also applies to matters of fame and status.”

The Matthew effect can, thus, also allude to the influencer culture. Social media extroverts gain more followers than social media introverts. People who have devoured the Sherlock Holmes series can anticipate the detective’s next move faster. On that lovely evening, a speaker said she gets exponentially more invitations to speak every year perhaps because she has a lot of speaking events under her belt already.

American sociologist Robert K Merton used the term ‘Matthew effect’ in a 1968 research paper to contend that established scientists get disproportionately more credit for a discovery than up-and-coming scientists. In 1983 and 1986,the term was used to communicate a gap in the cognitive abilities of those who read early in life and those who began later. 

The origin of the term is a biblical verse (Matthew 25:29): “For unto every one that hath shall be given, and he shall have abundance: but from him that hath not shall be taken away even that which he hath.”

For the greater good

Eating from the same bowl of peanuts, Irthu Suresh, co-founder of Atlantis, a company creating a decentralised network to conserve water, prioritised “greater good” over greater profits.

We were small companies. We acknowledged that our experiments were not easily scalable yet. Sitting in a hammock in Colorado, Kevin asked a rhetorical question over a video call, “Why don’t we build economic systems that don’t have the Matthew effect in them from the start?”

Most of the organisations that I spoke with agreed that radically new forms of governance and economics begin with certain privileges. Privilege, in my opinion, can come from where we live and work, our accumulated assets, educational opportunities, appetite for risk, ally-ship, and personal journeys, many of which are coloured by caste realities in India.

Office POV

I was at the beach festival to host a workshop on communications for people leading social impact organisations. Part of the workshop was about writing an organisation’s Culture Document.

At TerreGeneration, we have a 25-point Culture Document. Clause 1 opens with ‘We are experimenting with a potentially new form of work culture. Help us develop this as we get things wrong, so we course-correct and move forward’.

Talking money first, we haven’t flattened our pay like Dan could. We currently cap our salary gap at under 2x to recession-proof ourselves. We also give annual bonuses, based on cash-flow surges from sporadic projects. We are a combination of four full-time employees and four part-timers, and are bootstrapped.

Let me tell you about the clauses my colleagues like. ‘Compliment in public, but give critical feedback in private’, enshrined in Clause 6 is Disha A R’s favourite. One day, Disha, with much mirth, told us how she would like her feedback to be worded: “Say ‘What you did was perfect, but here’s how it could be more perfect…”. Divya Narayanan likes the ‘Apologies & Compliments’ clause. It is something many organisations talk about but she has never seen it “written in an official document”. Kaushik Kannan favours Clause 23 — ‘No one is obligated to reply to work messages during off-hours’. In his off-work hours, he volunteers his design skills for teams that need it. Regenerative personal time is essential to a healthy work culture.

My favourite is Clause 24, which says, ‘Develop a hobby, over and above work’. I think this helps foster a happy team. We set aside a budget of up to Rs 1 lakh for teammates, who’ve been around for over a year, to take up an upskilling course.

Not easy to rewire

On that beach, people of all genders and levels of work experience ate and drank merrily, and discussed ideas of change freely. Such freedom is not easy to scale. We know we are working to reset centuries of social and professional conditioning.

I have worked in a traditional setup, first as a business journalist, and then as a communications consultant. Over a decade ago, my editor-in-chief asked our team to design a financial website like Facebook. We prepped for a week, and realised that we needed at least 10 full-time programmers for the job but we had one part-time programmer. And the deadline was impractical. Most of us threw the prep-work in the bin and quit. There was nothing we could say or do.

“Even though I head the organisaton, anyone in our team can question what I say and it wouldn’t have any repercussions. It takes time and effort to build that kind of comfort,” said Vinuta Gopal of Asar, a private company in the social impact space. My colleague Sumedha Kandpal champions speaking truth to power. That’s our Clause 5. She plays Ultimate frisbee, a sport that has self-regulation at its core, and she feels workplaces should be regulated by employees as a community, and not by bosses and HRs alone.

Today, despite the open forum we think we provide in our organisations, some colleagues hesitate to ask for leave, hikes and more responsibilities. When they do, we see how their approach is influenced by their experience, gender, and tenacity.

Even I struggle to keep up with our own Culture Document, especially the clause on work-life balance. As a founder who gets new projects, I end up working too late and too early. Also, most clients don’t hold their or others’ personal time as sacrosanct. Relatable? So, one day, a writer on our team asked me to stop working overtime and to delegate instead. She pointed out that I was violating Clause 23, and got the team to rally around her. I have 17 years of industry experience, and she has three years of experience since she graduated. She knew she had the freedom to call me out. I am happy she did.

Another time, my young teammates unanimously raised a red flag when a large potential client known for greenwashing approached us. It didn’t align with our values, the team reasoned. After much back and forth, we worked out a solution. The brand wanted something else. We walked away.

Others at a glance

I know of seven companies in Bengaluru and one in Delhi running similar experiments. Their staff size varies from eight to 300. They weren’t aware of the term ‘anti-Matthew effect’ until our conversation.

Many did not want to speak about their efforts to create a ‘fair’ and ‘equitable’ workplace on record. Some felt the concept could spook their collaborators and supporters. Others feared losing funding and negotiating power because the clients could mistake them for a social service. They wanted to keep things internal until they found a way to ‘rationalise’ the mathematical formulas and community protocols they are shaping.

A blockchain company gives the same salary to six of the top full-time employees on par with the founder. In the tech field, this often does not go down too well. The founder told me, “Software engineers want a higher appraisal to match their peers outside.” Low hikes can trigger a bidding war for their talent, he feared.

However, to close the wealth gap, most organisations are prioritising salaries and increments at the entry level and controlling wages at the top. The argument is that one doesn’t need eye-watering money to live a comfortable life.

Aparna Ashokan, who works with the campaigning organisation Jhatkaa, said they calculate increments using the highest coefficient multiple at the entry level (1.5) and the lowest at the top (0.6).

Another organisation has earmarked six months as the period for evaluation of contributions for entry-level associates as against 24 months for CXOs.

At Saahas, a solid waste management NGO, the top management has capped the salary difference at 10x, and the ratio has not crossed 8x so far. “ Even in the 1940s, when many people didn’t really believe in capitalism, Ram Manohar Lohia (activist and politician who held socialist views) knew it could lead to disparity and had suggested 8x to be the maximum social gap between the haves and have-nots,” said CEO Archana Tripathi.

Vinuta of Asar said, “On the salaries we pay at the entry level, a person can live in Delhi, pay for a child’s schooling, and enjoy the lifestyle of the top 2% of India. Increment-wise, we do 12% at the bottom and 5% at the top.”

At Fields of View, which uses games and simulations to help make better public policy, the salary difference between the highest and lowest level is 2x. As far as increments go, they are arrived at after a consensus-based process. Director Karthik Natarajan acknowledged this system of involving everyone in decision-making may not be feasible if their team size crosses 20. It may call for a new wage process, he added.

Reality check

Understandably this sounds like an echo chamber. While breaking out of it, we found a 22-year-old media professional who has worked for less than a year.

Would she like the same salary as her boss? “No, no, no. I would feel like an impostor taking money for skills I don’t have yet,” she said, visibly taken aback. She, however, backed the idea of capping salaries for
different roles. “These salary bands should vary from city to city, to factor in the cost of living. It should be higher in Bengaluru and lower in Mangaluru,” she said.

While that sounds intuitive, there is a flipside. For instance, access to medical care for people working in small towns is likely to be higher than people working in big cities. Or, as Aprajita Pandey of Haiyya, another company experimenting with fair pay, said different salaries for the same role across locations can worsen migration. "Then there is the embedded cost of things like transport, groceries and healthcare in rural places, because of weaker infrastructure," said the founder and CEO. The institutionalised disparities show up in such details. 

The CEO of a legacy company disapproved of the flattening of salaries. Monetary compensation is often the most direct measure of an employee’s value, which in turn is linked to experience, skills and the risks they are required to take, he argued. The solution should not be to limit the salary at the top but to raise base-level salaries, he proposed.

Shrinking the pay gap in sectors that employ blue-collar workers is unsustainable, said the head of a company that builds metro lines, canals and dams. “If salaries of thousands of our blue-collar workers go up even by 10%, it would affect our chances of winning government tenders. Losing the tender will impact the livelihood of engineers, workers and everybody,” he argued.

Making everybody’s salaries known within a company is potentially an HR’s worst nightmare. However, the 22-year-old favoured it. “It will benefit employees who are deserving but underpaid. I think it will also boost the productivity of employees overall,” she said.

She is not off the mark. Studies, including by the International Labour Organization, posit that pay transparency can close the wage gap for women, increase job applications from minorities and persons with disabilities, and improve productivity and retention. The opposite has also been reported — more resentment among employees, and escalation of staffing costs.

The complications with money are abundant. It is interwoven with the realities of supporting families, looking after ageing parents, paying EMIs, and social and peer pressure.

Why am I on this journey then? Because somebody needs to start somewhere. The hope is that our individual efforts will build a critical mass one day and set the stage for change.

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EXPERTS SPEAK

Avanindra Nath Thakur, associate professor at Jindal School of Government and Public Policy, Haryana, says
the Matthew effect and the poverty trap are well addressed in economics. He feels the trap can be broken with the help of the state, especially through quality education and healthcare. 

Mudassar Ahmed of Gipfel & Schnell Consultings says the flattening of salaries is feasible only within small companies that hire people with similar skill sets.

(With inputs by Barkha Kumari)