Pay transparency is gaining momentum as more states require employers to disclose pay ranges. On the one hand, transparency can promote fairness, trust, and equity in the workplace. It can also lead to tension and reduced productivity if employees feel they are being compensated unfairly. Employers must understand both the positive and negative implications of pay transparency as they determine the right approach for their workplace.
In recent years, there has been a growing focus on pay transparency as states and cities across the country try to eliminate longstanding pay disparities in the workplace.
States such as California, Colorado, Washington, and New York now require employers to include pay ranges in job listings, while other states, including Connecticut, Nevada, and Rhode Island, require employers to disclose pay ranges during the hiring process. Cities such as Jersey City, NJ; Cincinnati, OH; Ithaca, NY; and others have also begun to introduce pay transparency rules.
In addition to requiring transparency around pay ranges for specific jobs, many states and cities across the country are also addressing pay discrimination by prohibiting employers from inquiring about salary history during the hiring process, which can affect the salary negotiation process and level the playing field for candidates.
Even in those states that do not require transparency, more and more employers are implementing or considering pay transparency practices in response to the competitive labor market, rising salaries, and increased focus on pay equity. Recently, the U.S. House of Representatives proposed new legislation that would require all employers nationwide, regardless of size or employee count, to include salary ranges in job postings.
Below, we explore the impact of pay transparency on recruitment and retention and provide insights for HR managers and business owners on the benefits and pitfalls of transparent pay policies in the workplace.
What is Pay Transparency?
Pay transparency refers to the practice of openly sharing information about the compensation being offered for a specific job, including salary, bonus opportunity, and benefits.
This can include posting salary ranges within job descriptions, providing salary ranges when requested by employees, or simply providing insight into how pay is determined on a broader scale across the organization.
Regardless of how the information is shared, the goal of pay transparency is to promote fairness, equity, and trust in the workplace by ensuring that employees have a better understanding of how their pay is determined and how their pay fits in the salary range for their job.
Whether complying with legal requirements or adopting a pay transparency approach, it is important for organizations and managers to be prepared and understand both the positive and negative implications of pay transparency.
Making the Case for Pay Transparency
Pay transparency can have transformative effects on the hiring process and within the workplace itself.
Employers who post salary ranges within their job descriptions can expect to spend less time filtering through otherwise qualified candidates who are looking for higher pay than the company is prepared to offer. This can save organizations valuable time, money, and resources during the hiring and onboarding process.
What’s more, job seekers, especially the younger generations, tend to favor employers who are openly committed to fairness and equity. By offering a transparent pay range upfront, employers can differentiate themselves (where transparency laws are not already in place) from their competitors and position themselves as an employer of choice in today’s competitive market. Being transparent about pay can also improve the candidate experience and shorten, or possibly eliminate, the salary negotiation process.
Being open and honest about pay practices within the workplace can bring significant benefits as well. Not only does pay transparency help to eliminate wage disparities and foster pay equity, but it can also build trust between employers and employees.
XpanseHR Compensation Practice Director David Birnbaum, who has worked with various organizations to build and implement transparent pay practices, offers insights on the benefits of pay transparency:
“Pay transparency plays a vital role in building a culture of trust in the workplace,” says Birnbaum. “When employees understand how their compensation is determined and are provided with a clear and fair compensation structure, they are more likely to feel valued and respected by their employer. This, in turn, can help foster a more positive and productive work environment, which can help improve recruitment and retention.”
The Drawbacks of Pay Transparency
While pay transparency can have a beneficial impact on recruitment and retention in the workplace, it also comes with challenges.
Employers that lack consistent pay strategies may find it difficult to post pay ranges within job descriptions, especially if the current job market is driving salaries higher for new hires. This disparity can create tension and reduce productivity in the workplace if existing employees feel they are being compensated unfairly compared to their new peers.
“Compensation situations like this,” says Birnbaum, “over the long term can potentially lead to wage compression, which can lower workplace morale and increase the risk of employee turnover.”
Openly sharing compensation information within an organization can also put undue focus on pay, which can increase the risk that employees become too focused on compensation while not accounting for other benefits and total rewards that comprise the overall employee package.
Implementing Pay Transparency Within Your Organization
Implementing a pay transparency policy can be a complex process that requires careful planning and communication.
Employers should start by assessing their current compensation structure to ensure there are no existing pay disparities that need to be addressed and to establish clear pay grades or ranges that are aligned with the current market.
Once a comprehensive pay strategy has been developed and put into place, employers can decide what level of information to share and how to share it, whether externally in the job market, internally amongst employees, or both. Regardless of what pay information is being shared and how, being clear and consistent about how pay decisions are made is critical.
Employers should also provide training and support to managers and HR staff so they are well prepared to address questions and concerns that may arise from employees or job candidates.
Finally, employers should be prepared to continually review and adjust compensation policies and practices as needed to ensure they remain competitive in the market and fair and equitable amongst their workforce.
Determining the Right Fit for Your Business
In today’s competitive job market, pay transparency can be a powerful tool for attracting and retaining top talent. However, pay transparency may not be the right approach for every organization and employers should be careful to consider the unique needs and values of their workforce when deciding on the best approach to compensation. It is important for organizations to determine their readiness before jumping into a full-blown approach to pay transparency.
Regardless of whether your organization is transparent about its pay practices, it is still critical to make sure that you have competitive pay strategies that are aligned with the market and strong performance management programs that include clear measurables. Doing so will help create a stronger, more productive, and more engaged workforce.
XpanseHR is Your Trusted Compensation Partner
XpanseHR is committed to helping organizations develop and implement compensation solutions that align with your organization’s pay philosophy and help you find and retain the best people for your business. Learn more about our Compensation Practice or contact us to learn how we can help you build a high-performing workforce.