The Upsides (and Downsides) of Pay Transparency 

Pay transparency has long been considered a taboo subject in the workplace, but that may be changing. In fact, in a Glassdoor survey, 70% of employees (from seven different countries and several industries) agree that salary transparency is a good thing.

Glassdoor is a great example of what a powerful tool salary transparency can be. Their platform, which helps job seekers find compatible roles and allows employees to anonymously rate their workplace culture, also features a tool to anonymously report your current role and salary.

Identifying the principal driver toward salary transparency is a larger mission – employees want to close pay gaps between marginalized groups such as women, people of color. And other demographics who are chronically underemployed and underpaid. The first way to educate people on their value is to allow them to honestly assess if others of the same relative education and experience are in the same general pay range as they are.

However, this doesn’t mean salary transparency has no downsides. It can cause a huge divide between employees. Employees may resign in droves or demand an immediate raise if they find out their peer is making more than them. This is cause for concern for employers. Plus, sometimes more goes into someone’s salary than just their demographics and experience level. – For example, an employee hired in a time of high inflation may have a higher hourly pay which reflects that.

Overall, it seems society at large is heading toward a more salary-transparent future. What benefits, and detriments, could businesses experience as a result?

Recent Progress in Pay Transparency

Salary transparency is very relevant right now. In Q2 of 2022, both New York and Colorado instated legislature which forces all companies to publish their salary range alongside every job posting. 22 of the 50 states have laws against asking candidates for their previous salary in the interviewing process.

This is because if an employer knows how much the candidate was willing to accept at a previous job, they may offer the candidate more than they were making, but slightly less than what is usual for the role, with the knowledge that the candidate may see it as a win. If employers have no idea what a candidate’s previous salary was, they must assess the salary offer based on the candidate and the market rate for the role. This creates a fairer process for the employee.

You can’t talk about what you make with your colleagues, right? Wrong. The National Labor Relations Act protects the right of employees nationwide to talk about their salary at work. However, it doesn’t stop companies from trying to scare their employees out of disclosing their salaries to their colleagues.

Some companies take the stance that talking about salary at work is unprofessional, and therefore discouraged. Others may take a less ethical approach and tell employees conversations about what they make at work are off-limits, and hope employees aren’t aware of their rights under NLRA.

Companies do not like employees sharing salaries for many reasons, but the main reason is that many employers know there are disparities in salaries in their companies. When this gets revealed, it can cause rifts among colleagues, tense conversations about pay bumps, and even resignations.

The Benefits of Pay Transparency

Many companies have committed to a pay-transparent culture, which may positively impact their employee’s happiness as well as boost recruiting efforts. Buffer, a social media start-up, has a progressive culture including 4-day workweeks and a 100% pay transparency policy. Buffer even publicly posts their employee’s salaries for all to see. There are numerous benefits to models like Buffer’s that promote salary transparency.

Builds Trust Among Employees

Why would seeing your salary compared to your colleagues’ salary make you any happier? Well, assuming there are no large or inappropriate pay gaps, it helps employees build trust in their organizations. Without transparency, most employees assume the worst is going on behind the scenes.

They may distrust that they are getting paid their full value. In a company that doesn’t support a pay transparency culture, employees essentially have two options: talk about what they make with their colleagues (and in many cases risk being called out for “inappropriate” behavior) or wonder endlessly.

Pay gaps are still real – according to the Institute for Women’s Policy Research, in 2021, women working full-time jobs earned 88.3% of what men working full-time jobs earned. Pay gaps were even wider when it came to female minorities.  In a comparison of median weekly earnings of white men working full-time, a Hispanic woman’s full-time earnings were just 58.4 percent, and black woman’s 63.1 percent, as compared to the males’ salaries.

In a world where this information is readily available to us, without salary transparency from organizations, most women and minorities will assume they are underpaid, even if they are not.

Publishing this information, or at least being open about it internally, is a smart move for companies to keep their employee’s trust, therefore keeping them more engaged.

Provides an Opportunity to Close Pay Gaps

For companies that have big objections to becoming more salary transparent, there is usually a major driving force behind that hesitation: they know, to some extent, there are pay gaps within the organization.

This can have big consequences for employers. For example, look at the case of Carrie Gracie. Gracie was an extremely successful member of the BBC team. She was the Chinese editor for BBC, and one of the most senior journalists on the team.

Gracie has been told she would make around the same salary as the male North American editor at BBC during her initial onboarding. He made around 243,000 dollars per year at BBC. After accepting the job, Gracie was surprised to see her salary was closer to 164,000 dollars per year, a nearly hundred-thousand-dollar difference from the expected estimate she was given.

Gracie was no entry-level novice either – she had been at BBC in numerous roles for 30 years. Still, she was underpaid. To add insult to injury, she only uncovered she was being underpaid when in 2017 the British government mandated BBC (which it funds), to disclose the salaries of their top talent.

Had the government not stepped in and forced BBC to disclose their employees’ salaries, it’s fair to say Gracie might have been still employed there, and getting grossly underpaid, to this day.

Implementing a plan to disclose salaries and become a salary transparency-friendly organization allows employers to take control of the narrative. The BBC scenario wouldn’t have happened if the company released its own internal report on employees’ salaries and welcomed open discussions around pay gaps among employees. If they had committed to disclosing and fixing their pay gaps on their own, they could have avoided a lot of bad press, and in the end, a costly lawsuit.

After all, whether it’s a leak, government-mandated disclosure, or a late-night conversation between colleagues after happy hour – salaries will be shared. If employers get ahead of this, they can close pay gaps before they become points of contention.

Boost Recruiting Efforts

Companies operate as if they are writing an online dating profile when advertising open roles. They entice applicants with the promise of free beer, expensed travel, wellness benefits, and more. However, what if a company could add a “salary transparent culture” to this list?

Young employees already take pay transparency into their own hands. According to a survey from Bankrate, 42% of Gen Z employees (age 18-25) and 40% of Millennial employees (age 26-41) reported they had shared their salary with a colleague or professional contact. This is stark compared to the mere 19% of Baby Boomers (age 58-76) who reported they’d done the same.

As Baby Boomers retire, younger generations will increasingly rule the workplace, and so will their beliefs. Younger employees gravitate towards a culture of salary transparency. So, if you’re trying to attract top talent for your organization. It can be a powerful message to display your pay transparency initiatives and secure more accepted job offers.

The Downsides of Pay Transparency

There are clear benefits to a salary-transparent culture. However, there are also numerous downsides, which continue to force many companies to hesitate when it comes to disclosing salaries.

Missing Context

Perhaps one of the biggest downsides of pay transparency is the context it may be missing when it gets released to the eyes of current employees. A typical report of salaries within a company provides little background, usually listing the role, years of experience (sometimes), and the current salary.

However, an employee’s salary is more nuanced than their title and their years of experience. For example, take two salespeople who have the same title in different territories. For whichever reason, one territory may be more profitable than the other for that year.

On paper, it looks like the person in the profitable territory is getting paid more. However, this is a consequence of location and assignments, not a company trying to purposefully discriminate.

There are plenty of other examples of such nuances – mechanical engineers who do more general work may be paid less than the mechanical engineer who focuses on a highly-specialized subject, however, on paper they are perceived as having the same role with a big pay gap.

Before releasing a report on company-wide salaries, organizations need to give their staff a clear understanding of what nuances go into their unique salary decisions.

Issues with Rewarding Individual Performance

Sometimes, an especially proficient employee can enjoy a salary bump or exclusive bonuses for their hard work. Again, going back to how this looks on paper, an employee who is especially talented receiving a higher salary than an employee who is just proficient. With the same job title, can raise eyebrows and cause major tensions within the organization.

However, this is a good time to talk about the benefits of a job well done. Your reward structure for highly efficient performance should be made very clear to the entire organization. (Regardless of whether you plan to engage in pay transparency or not).

Because it motivates employees to work harder to earn more rewards. Sometimes, underperforming employees do not know they are underachieving because of poor management or lack of communication regarding expectations. It’s best to clear this up before diving into a salary-transparency initiative.

Bottom Line

Pay transparency is a hot topic in today’s equality-driven world. Companies should weigh both the pros and cons of salary transparency for their unique company and proceed in the way that makes the most sense for their unique organization and workforce.