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California, the first U.S. state to pass a mandatory pay transparency law, now requires employers with more than 15 employees to disclose salary ranges on job listings. Since California’s enactment of the pay transparency law, a number of other states have followed suit. The laws vary by state. Some require disclosure in job postings, while others require full salary transparency upon request.
The shift towards pay transparency may seem to have come suddenly, but the idea isn’t new. In fact, pay transparency has been a hot topic for years. Most people would agree that reducing biased pay gaps and removing some of the job search guesswork is important, but others suggest states are just creating a fresh set of issues with pay transparency as the law stands today.
Despite the variety of thoughts on the subject, 79% of employees seem to want some form of pay transparency, according to a recent Visier Pay Transparency Report. In the same report, 68% of respondents said they would change employers for pay transparency, even if the pay was the same.
As employers seek to break down invisible barriers affecting the candidate and employee experience, embracing pay transparency could certainly help. Unfortunately, pay transparency is not always straightforward.
In this article, we’ll take a look at both sides of the ongoing pay transparency debate.
Potential advantages of pay transparency
Adopting complete transparency in pay requires careful research, planning, communication, and implementation. Still, many employees and HR professionals believe that the benefits far outweigh the upfront work required. Here are some of the advantages employers see when they make the change.
Transparency ensures every employee is paid fairly
Pay gap discrepancies have been, and continue to be, a big issue for employers. To this day, women still only make 83 cents for every dollar earned by men. Pay transparency is forcing employers to take a hard look at their numbers and address inequities.
For Trey Ditto, CEO of Ditto PR, this is exactly what happened. Even though he’s always championed diversity and fairness in the workplace, he said revealing his company salaries helped him realize his own bias in compensation. He had been making compensation decisions based on individual circumstances and was shocked to learn that the lowest salaries in his firm went to women.
Pay transparency keeps employers accountable and gives all employees a fair chance at equal compensation.
Revealing salaries upfront helps streamline negotiations
Pay negotiations, although not inherently bad, have allowed bias to seep in.
How so? Unlike their male counterparts who are generally confident in negotiating, women are much less likely to do so. A Glassdoor survey showed that even though 85% of women believe they deserve a pay increase, 34% of them do not negotiate pay mainly because they fear being denied.
Pay transparency has granted many employees, no matter who they are, a more informed and equitable playing field for negotiations. This is especially helpful for those who are less experienced or confident in negotiation techniques. They know the salary range upfront at companies practicing pay transparency, which helps them know where they can negotiate. Similarly, pay transparency helps employers stay within a range for each and every candidate.
Disclosing pay builds trust and productivity
It makes sense. When people feel that their employers are open and honest about pay, they are much more likely to trust that the employer is making fair and unbiased decisions. This, in turn, creates greater job satisfaction.
And greater job satisfaction and productivity almost always go hand-in-hand. According to an Oxford study, when employees are happy, they are 13% more productive. When employers set clear expectations and keep communication lines open, employees feel valued and committed to the work they do.
Transparency filters out candidates who can’t accept the salary range
While some candidates place greater emphasis on salary offers than others, compensation will always matter to some degree. Many candidates have expectations for their paycheck, and when an offer doesn’t meet their needs, they decline the job.
Why then, have companies traditionally wasted weeks of interview time just to “hide” the salary offer until the very end? By including a salary range in the job description upfront, companies can put an end to guessing games or uncomfortable conversations about pay.
Additionally, candidates who can’t accept the salary range likely won’t click the job posting, saving companies money. How so? When companies post jobs, they often pay per click. And according to a study by Appcast, job listings that included a salary range cost about 67 cents less per click.
Potential disadvantages of pay transparency
On the flip side of the coin are the arguments against pay transparency. Many employers are concerned that this policy could end up being a double-edged sword for employees. Here are some of the prevailing concerns surrounding salary compensation.
Transparency may cause discomfort among employees
A WTW survey showed that 31% of employers say they’re just not ready to disclose salaries, and 46% said they’re not rushing in because they fear employee fallout.
Few topics are as emotionally intense as salaries, especially since compensation can be a direct reflection of how much an employee is valued. When employees discover that their salaries are lower than expected or lower than their peers, jealousy and resentment can arise. A variety of factors influence salaries (education, certifications, years of experience, location, etc.) which may not always be understood by employees.
Salary transparency may also lead to privacy concerns. Work compensation has typically been a taboo topic amongst U.S. co-workers — as little as 16% of employees share payment details with their co-workers, according to a LinkedIn survey. Making personal data public can feel invasive, if not handled correctly.
Salary disclosure can increase pressure on management
Another big concern is that pay transparency will lead to overpaid employees. With a clear list of co-worker salaries at their fingertips, employees could demand the same amount as their counterparts — even if skill sets and experience vary.
Employers also may end up increasing salaries simply to remain competitive. When other companies are offering better pay, there’s a lot of pressure to offer the same amount in order to retain top talent.
Revealing pay may impact hiring decisions
In a competitive hiring market, employers will often increase salary offers to snag the perfect candidate. However, this can put employers between a rock and a hard place.
If they increase the salary offer and land the candidate, current employees may feel resentment. But if they don’t increase the salary offer, they may lose out on a great candidate — which could lead to a talent drain.
How pay transparency can boost the employee experience
With this new transparency territory comes lots of questions and concerns on how to properly navigate it. So how can your organization cultivate trust around pay transparency while building fairness, engaging employees, and improving productivity?
- Establish clear policies and guidelines. Salary formulas allow you to calculate pay based on objective metrics, not subjective opinions.
- Communicate your decisions. To attract and retain the right employees, it’s essential to empathetically communicate your strategies around pay. Then, listen to employee concerns and properly address them.
- Regularly review and assess for effectiveness. A transparent compensation strategy requires the employer to look back and see what’s working, and what’s not. Once you conduct an assessment, implement any necessary changes that will benefit the overall employee experience.
When you set clear expectations and create healthy conversations around pay, employees feel heard and valued. And when employees have a positive experience at work, organizations thrive.
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