A Guide to Pay Transparency

Pay transparency – also known as wage or salary transparency – is the practice of openly sharing information about employee compensation across an organization. It aims to promote fairness, equality, and accountability and is vital for closing the gender pay gap, an issue organizations are being prompted to address.

Pay transparency isn’t just a method for being open and honest with employees – it is already law in California with more US cities and states set to follow. As legislation differs by jurisdiction, it is important for organizations to keep on top of regulations in places where they operate, have employees or are looking to expand.

What is Pay Transparency?

Everyone wants to be fairly compensated for their work in line with their coworkers. Pay transparency empowers individuals to advocate for fair pay, plan their careers, and make informed choices about their financial futures. Openly disclosing compensation for current and prospective employees can improve communication within an organization, build trust in the workplace, and address pay inequality. There was a time when salary and compensation were rarely discussed in the workplace. Now, thanks to self-reported wage tools and online job postings, it has never been so easy to research pay levels.

In many countries, it is now illegal for employees to discourage or prohibit employees from discussing salary in the workplace. In the United States, for example, this protection is provided by the National Labor Relations Act and the Equal Pay Act. Similar laws and protections exist in various other countries including the United Kingdom. Employers are already embracing this new level of open communication around pay transparency. This could mean publicly sharing salary details or disclosing determining pay factors directly with employees. That way, employees will better understand salary ranges and their earning potential in a specific role.

The term ‘pay transparency’ can be interpreted in different ways. Some employers see it as simply communicating pay practices and how it is determined. For others, it means full and open transparency around salaries and salary ranges for every role within an organization or business.

Is Pay Transparency Important?

Pay transparency has the power to define an employee’s experience within an organization. It includes the level to which employers are open about why and how much employees are compensated and to what degree that information can be shared with colleagues. It also indicates how much a role is worth within that organization.

The concept of pay transparency not only covers base pay but also variable pay, other bonuses, and rewards such as performance, promotion, recognition, and development.

Around 23% of organizations say that pay transparency has had apositive effect in the following areas:

• Employee retention
• Employee engagement
• Employee satisfaction
• Employee motivation
• Employee attraction

Organizations who don’t actively embrace pay transparency face losing the trust of their employees, candidates, and customers which could have a negative impact on all business departments including sales. A number of employment review sites such as Glassdoor and Fishbowl allow employees to post salary information and reviews of employers so that access to this information is easier than ever for individuals.

Why is Pay Transparency Important?

Pay transparency covers the following three areas for businesses and organizations:

1. Legal compliance

An increasing number of states and cities in the US must reveal some level of pay transparency as a legal requirement. California, Colorado, Connecticut, Maryland, Nevada, New York, Rhode Island, and Washington have all introduced pay transparency laws in some way or another.

2. Pay equality

Transparency around pay can provide employers with vital analytics and data to achieve fairer pay equality for all employees.

3. Employee satisfaction

Better workplace outcomes can be achieved when a business develops a culture of transparency. This works to ensure employees feel supported and fairly compensated by their employers in line with fellow colleagues.

Is Pay Transparency a Legal Requirement?

Yes and no. In the United States, pay transparency is more often the law and not just a method for being open and honest with employees. A series of laws and regulations have already been introduced in some states and local governments with many more set to follow.

These laws could provide applicants with the right to more information about a job’s salary range than existing employees are entitled to. This could give rise to awkward scenarios where existing employees find out about pay ranges from external applicants they may know or are connected with on social media. Therefore, employers may want to think beyond meeting the minimum legal requirements for pay transparency if they are affected by such laws.

Additionally, employers should consider any privacy concerns and strike a balance between transparency and confidentiality. They should ensure that information around pay, and compensation, is communicated accurately, clearly, and in a manner that protects sensitive employee data.

Examples of pay transparency:

Pay transparency in California

A new pay transparency law became effective in California on January 1, 2023. This requires employers to provide details of pay ranges on every job advert and posting in addition to sharing pay ranges with current employees.

Pay transparency in New York

From September 2023, employers in New York will be required to disclose pay or pay range in all job adverts under new pay transparency laws. This will include transparency for promotions, and work transfer opportunities, available in the state.

Pay transparency in Cincinnati

Employers in Cincinnati must provide a pay range for all roles within the state once a conditional offer of employment has been made to a candidate.

Pay transparency in Maryland

Maryland employers must now be transparent about the pay range for a position of employment when requested by a job applicant.

What are the Benefits of Pay Transparency?

One of the most important benefits of pay transparency is pay equity. Organizations that are increasingly open about how they compensate employees are also more accountable for adopting fair pay practices. It is for this very reason that more governments around the world are following the lead of certain US states by introducing pay transparency legislation in order to close the gender wage gap.

Pay transparency, which offers a fair wage for a role, also delivers other benefits including:

Paying at industry standard

Organizations that support pay transparency actively help set compensation standards across an industry and in line with expectations. It allows them to price out a role correctly and offer the average or prevailing level of pay that is considered fair and competitive for a particular job or skill set.

Organizations can offer industry-standard compensation by following procedures including:

• Research and data collection: Organizations may collect information on salary rates and compensation practices through surveys, market data, and other sources to establish benchmarks for specific roles.
• Job evaluation and classification: Factors such as job responsibilities, required skills, experience, and qualifications are often used to classify job positions and help achieve the relative value and importance of each role within an organization and industry as a whole.
• Pay scale and range: These may include a minimum, midpoint, and maximum salary level depending on market rates, experience, performance, and internal equity.
• Market dynamics and competition: These influence industry standards pay according to talent supply, economic conditions, industry growth, and other factors, forcing some employers to adjust their compensation practices to attract and retain the best employees.
• Compliance and regulations: Organizations must comply with applicable pay transparency laws where required relating to compensation, including minimum wage, overtime pay, and equal pay. These regulations ensure employees receive fair compensation and protection against discriminatory practices.

Recruiting more talent

Given the time it takes to complete job applications and interviews, candidates demand to know their pay expectations fall in line with company pay ranges early in the recruitment process. Research has shown that 85% of job seekers are more likely to apply for a position or role that provides a salary range.

Enhanced candidate experience

Openness around salaries can boost a candidate’s interview experience by 30% when they are told pay scales without requesting it. Letting candidates know their earning potential will keep job seekers engaged in the recruitment process and have a positive effect on a company’s brand and reputation.

Higher recruitment success

Pay transparency early in the recruitment process can help recruiters pick out those applicants likely to reject an offer over salary and focus on the most viable candidates instead. Given pay scale is the biggest reason for candidates declining a job offer, transparency allows recruitment teams to be more productive and efficient in the workplace.

Build employee trust

Over 90% of employees who believe their organization is transparent over pay also trust their company to pay workers equally regardless of gender, race, and ethnicity. Employees who perceive their pay scale to be on a par with co-workers are more likely to remain in their role and be more engaged in the workplace.

What are the Downsides of Pay Transparency?

There are many benefits to pay transparency, yet almost one in three North American organizations are not ready to adopt it, citing administration issues, lack of clear job hierarchy, and potential negative employee reaction as reasons for their uncertainty.

Other negative aspects of pay transparency include:

Smaller candidate pool

A company that posts a job with a lower pay scale than that of its competitors could receive less interest from prospective candidates, fewer applications, and a slower response rate. This could hold up the recruitment process while a company searches for the right candidate.

Business disruption

Increased visibility over pay scale can result in workforce envy. Employees who learn they are paid less than their co-workers for performing a similar role could invoke jealously or resentment and destabilize a department.

Pay disputes

Around 66% of job seekers would expect a salary at the top of a pay range if they knew what it was, and a similar percentage would demand equivalent pay if they knew a co-worker was being paid more for a similar role. This can cause pay compression where there is minimal difference between pay levels despite experience, tenure, and other factors.

Headhunting

Organizations that practice pay transparency and share salary ranges and details when advertising for positions could be alerting rival companies so they, in turn, price competitive job offers in a bid to poach employees.

Companies with Full Pay Transparency

Some US businesses are disclosing full pay transparency for 100% of their paid roles to create an equal pay environment among the workforce. The following three businesses have all adopted pay transparency policies:

Buffer

The social media management tool company began publishing salary information in 2013, stating: “Transparency breeds trust, and trust is the foundation of great teamwork.” Buffer goes even further by informing workers what colleagues earn through its ‘Open Salaries’ tool and releasing analysis comparing male and female pay ranges.

Whole Foods Market

Way back in 1996, Whole Food Markets became the first American company to adopt a full pay transparency policy aimed at improving employee performance and encouraging development and promotion. The company hoped that by displaying details of higher pay opportunities it would motivate employees to develop their skills and careers to maximize their earning potential.

SumAll

The New York-based marketing analytics company had full pay transparency when it launched in 2011. Pay ranges are based on merit and employees are encouraged to voice concerns over perceived pay equality which has produced a high staff retention rate and low turnover.

How to Adopt Pay Transparency

Pay transparency is becoming increasingly common across the United States and beyond, and organizations can take important steps now to ensure they and ready and prepared for the change.

Businesses can make significant progress over pay transparency by doing the following:

Identify a pay transparency level

A uniform approach to pay transparency doesn’t exist. Organizations and businesses should consider their culture and the relevant legislation before forming a suitable pay transparency policy. Decisions over how much information to share with employees regarding market pay data and pay scales will have to be made, while a communication strategy will also need to be formed.

Determine pay ranges

Changes in pay ranges are a regular occurrence. Organizations should update their pay ranges to continue to attract and retain the best talent. It may also be beneficial to analyze current pay structures for existing employees and compare them with any updated pay ranges to provide fairer compensation across teams and departments.

Inform and prepare leaders

Leaders and managers may need to address more compensation queries from team members under pay transparency. Leaders and managers should be given the tools and information to help them understand the nuances of pay ranges and how to communicate this with co-workers.

Launch your pay transparency policy

Once your pay transparency policy has been signed off by business leaders it can be announced to all team members before it comes into effect. Any employee concerns can be addressed at this stage before the transition takes place.

Continuous monitoring

Your pay transparency policy can be tweaked and fine-tuned to include movements and adjustments in the market. It is much easier to increase transparency over pay than it is to reduce it over time.

Need Help with Pay Transparency?

At IRIS FMP we help global organizations with a US presence prepare for pay transparency legislation. Contact us today.