A strong labor force means more power for the average worker and the ability to walk away from offers or companies that aren’t transparent. Pay transparency is becoming a talking point across industries, from Hollywood to Silicon Valley.
Now, however, workers are demanding that transparency around pay become a standard hiring practice, and recent legislation in specific U.S. states is requiring employers to add pay ranges to job postings.
This is a positive for diversity, and can significantly increase employee satisfaction and loyalty. However, some smaller businesses are pushing back against the requirements, saying there is not enough data and that their companies are changing too quickly to have completely standardized roles in place.
The majority of workers also prefer not to disclose their salaries. A survey by LinkedIn’s Workforce Confidence found that only 16% of respondents share pay details with co-workers. Less than a third shared this information with their friends, and only 56% told family members.
Several U.S. states and cities are working to remove the guesswork and secrecy around pay through salary transparency laws requiring employers to add salary ranges to job postings.
Understanding Pay Transparency
Pay transparency is a spectrum along which a range of disclosures may be made about salaries within a company structure. Pay transparency is often the first step towards pay equity, which helps ensure all workers are being paid fairly.
There are varying levels of pay transparency, from complete openness where employees are allowed and even encouraged to talk freely about their compensation, to complete non-transparency, where employees are basically gagged when it comes to discussing their pay, possibly under threat of dismissal.
The result of complete non-transparency was about what you’d expect: women and people of color were routinely paid less, while their white, male counterparts made more, regardless of whether the latter was actually a better hire.
Slowly, however, discussions about salaries have become more common, as workers fight to be valued for what they are worth. Simultaneously, legislation is being passed to encourage and even enforce pay transparency.
The Pros and Cons of Pay Transparency
Pay transparency can promote fairness, trust, and employee satisfaction.
Better Candidate Experience
Applying for roles only to find out after jumping through multiple hoops that the compensation is far from enough for a particular candidate can be frustrating for everyone.
Gender pay gap data shows women make 82 cents on the dollar compared to men. The gap is even bigger for Black, Hispanic, Pacific Islander and Indigenous women. Pay transparency gives marginalized groups a starting point for negotiations, and promotes fairness.
Women make 82 cents on the dollar compared to men.
Building a naturally diverse workforce is also made easier with pay transparency. One study noted that in comparison to job posts that don't include salary information, job posts that include salary use 83% more language that engages women job applicants, and are 50% more likely to use language that appeals to all ages.
Disadvantages are also a concern.
Rivalry and De-Motivation
Employers worry that salary transparency can cause envy, rivalry, workplace conflict, and even privacy concerns. One study even showed that people who knew they were being paid less were less productive as a result. Concerns like these have led some companies to exclude candidates from states with transparency laws in place.
So, should your company strive for better pay transparency?
More (and More Salary-Educated) Applicants
The stats say you should: according to LinkedIn, 91% of U.S.-based respondents to one survey said their decision to apply to a job was affected by seeing salary postings.
Additionally, "salary ranges" came in second (at 89%) when job-seekers were asked about which elements of a job description were most helpful in deciding whether to apply for a position, just under "responsibilities of the role" (90%) outperformed salary ranges (89%).
Positive Brand Impact
Respondents to another LI survey revealed that 82% of respondents said they would have a more positive impression of a company after seeing a salary range in their job postings.
Crafting a Pay Transparency Strategy
Simply exposing all salary data might not be the best way to approach pay transparency. A strategic approach is best, using data about your employees and their compensation to inform your next steps.
Assessing Your Organizational Readiness
The first step to launching pay transparency throughout your company is assessing your organizational readiness. Can your company withstand the potential blowback that could result from revealing salary amounts?
If you aren’t paying employees based on their performance (driven by their skills and competencies), you could end up creating a workplace full of hostility and resentment. Before committing to pay transparency, assess your readiness using the following simple checklist:
1. Are people in the same role with the same responsibilities getting paid the same?
2. Have you been making offers to new hires for more than your loyal employees make?
3. Can you afford to replace any talent that might quit after making pay comparisons?
4. Are you ready to work towards pay equity to avoid losing high-performing employees?
Pay transparency can increase retention by up to 30% or more.
Considering the Spectrum of Transparency
Where are you on the pay transparency spectrum? You have to start somewhere. The most basic level of pay transparency is deciding what you’re willing to pay a new hire for a role and using that figure or range when creating job postings.
On the other end of the spectrum is an approach made famous by Buffer, the company that started sharing salaries for every single employee in 2013. The radical approach to pay transparency has evolved over time and resulted in many companies following Buffer’s model for calculating appropriate compensation.
Buffer wasn’t even the first to give whole-hearted pay transparency a try. In 2011, SumAll implemented pay transparency from its conception, and enjoyed low turnover as a result. According to PayScale, pay transparency can increase retention by up to 30% or more.
Communicating Your Pay Transparency Strategy
Communicating your strategy correctly and in a timely manner is critical. You must have a game plan followed by crystal clear communication when rolling out a pay transparency strategy. By laying out a road map for how you will present your new strategy to employees, you can reduce the risk of blowback.
Evaluating and Adjusting Your Strategy
Your implementation of a pay transparency strategy may not be without bumps in the road. You’ll need to be ready to regularly evaluate the effectiveness and impact of your strategy., and make changes when and where needed.
Continually asking your employees and new hires for feedback on how your company is doing in regard to pay transparency can give you lots of data. Ask questions like:
- Did the salary offered match what you expected after reading the job description?
- Do you feel you are being compensated fairly for your efforts and skill level?
- How likely are you to leave if offered more money to work somewhere else?
Armed with resulting data, you can identify whether or not your employees think they are fairly compensated, and assess risk of turnover in a competitive market.
Legal and Ethical Considerations
Considering the legal and ethical implications of pay transparency is important before you finalize your strategy. Here are some things to consider.
Recent legislation regarding pay transparency
In Colorado, Part 2 of the Equal Pay for Equal Work Act took effect on January 1, 2021. It requires employers to “include compensation in job postings, notify employees of promotional opportunities, and keep job description and wage rate records.” Violating this Act can cost noncompliant companies $500 to $10,000 per violation.
In California, SB 1162 took effect Jan. 1, 2023. This law requires employers with more than 15 employees to add a salary range to job postings, a ruling that is anticipated to affect nearly 200,000 California companies. Violating this law can result in fines ranging from $100 to $10,000 per violation, depending on the circumstances, including whether or not the company has had previous violations.
Other states including Nevada, Connecticut and Washington, as well as New York City, are now also requiring employers to disclose pay ranges when offering the job and/or when employees ask. Failing to comply with these laws is expensive, leading companies to comply in letter if not in spirit.
Backlash against those who try to use loopholes (such as companies posting pay ranges from $1000 to $1M, for example) has resulted in companies being more transparent about pay across the country. Platforms like LinkedIn also strongly urge companies to include compensation information on job postings.
The ethical implications of pay transparency
Various ethical concerns have been raised about pay transparency. Many companies have cited employee discomfort at the idea of their salary being viewable by anyone. Of course, this isn’t a legal concern; the laws that safeguard employee’s rights to discuss their salaries by dismissing the idea that the information is “confidential” means there is no assumption of privacy.
Ethically, however, do you want Buffer-like levels of transparency, or will this cripple your workforce? If you have a smaller business, simply ensuring you follow best practice for posting good faith salary ranges in job descriptions may be as far as you want to go.
In startups, when roles are constantly in flux and many people wear several hats, salary ranges may also be diverse and other compensation (stock options, bonuses) may be in play. Most companies with a benefits package can also consider those as part of a role’s compensation.
Salary ranges can be different industry by industry as well. A job at a tech giant could pay considerably more than the same “job title” at a smaller, private business. Even C-suite executives have extreme pay disparity between industries, and between private and public sectors.
What about “geographic pay”? Google, Facebook, and Twitter received enormous blowback in mid 2021, when they cut pay for remote workers or for employees who moved to a less expensive area but commuted.
Addressing these factors internally in advance of rolling out your pay transparency strategy can help you defend your choices coherently if questioned. Committing to pay equity above all is even more important than pay transparency, so consider transparency the first step towards an equitable and fair workplace for all of your employees.
Moving Forward With Pay Transparency
Pay transparency is here to stay. It’s likely that even if your company isn’t currently in a region that legally demands it, it soon will be. Additionally, failing to establish pay transparency at bare minimum in your job descriptions can seriously narrow your candidate pool.
Evaluate your organization's readiness for pay transparency, consider the pros and cons, and craft a strategy that aligns with your company culture and legal framework. Look at your strategy from every possible angle, and play out scenarios of your employees’ reactions in order to properly respond.
Employee and candidate surveys are your best friend when working toward pay transparency and unbiased hiring. The Crosschq platform can help you gather real-time, actionable data on your candidates and new hires, gathering information on skills and competencies early in the game, and helping you measure and track Quality of Hire later in the employee lifecycle so that you can accurately tie compensation to performance. Contact our team for a free demonstration today.
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