As one navigator told us, “When I first started working at my current company, I was excited about the opportunities and the potential for growth. However, as time passed, I couldn’t shake the feeling that something was off. It wasn’t until I had a conversation with a coworker that I realized what was bothering me – the lack of pay transparency. My coworker told me that she had found out that a male coworker with the same job title was making significantly more money. This wasn’t an isolated incident, and it made me realize how important it is to have pay transparency in the workplace.”
What is pay transparency?
In simple terms, salary transparency (pay transparency) is the act of openly sharing compensation information with employees.
Salary transparency is one of the hottest topics in business today. Employers view it as an effective way to build trust and boost the morale and productivity of employees. It’s also one of the most effective ways to bridge the gender wage gap.
What is the gender wage gap?
The gender wage gap refers to the difference in the median hourly earning between men and women. According to the Pew Research Center, the wage gap hasn’t changed much in the last two decades. In 2022, women earned an average of 82% of what men made, similar to 2002 when women made 80%. The gap also varies significantly by race and ethnicity.
Many factors contribute to this difference in wages. One of the factors is parenthood. Most mothers, ages between 25 and 44 years, are less likely to be in the workforce
In contrast, fathers are more likely to be in the labor force and work more hours each week. As a result, earnings for women reduce, men’s increases.
Differential treatment, including gender stereotypes, discrimination, and segregation channeling women to lower wage sectors and occupations, are other contributing factors.
Consequences of the gender pay gap include increased poverty rates and less money saved for retirement. In the workplace, it can lead to decreased morale and productivity. It can also prevent companies from attracting and hiring the best talent.
One of the solutions to bridge the pay gap is salary transparency.
In terms of salaries, “transparency” is a spectrum.
There is no single level or degree definition of pay transparency. Instead, you can describe it as a spectrum on which employers choose varying degrees of transparency on pay based on state or local mandate or their compensation strategy.
For example, for some employers, pay transparency may mean communicating pay practices and explaining how employee compensation is determined. For some, it may mean full transparency around salary or salary ranges for every role.
According to federal law, salary transparency is the degree to which employers are willing to be open about salary and pay information. It’s the ease at which employees can find out the compensation of other employees in their workplace.
Pay transparency laws are taking the Equal Pay Act of 1963 further on state and local levels in the US. For example, the California labor code requires employers with 15 or more employees to list salary ranges on job postings. Meanwhile, cities like New York City are also requiring salary ranges for all job postings. Also, upon request, businesses must provide employees with their current pay scale.
Washington’s Equal Pay and Opportunities Act states that employers with 15 or more employees must share the pay range for jobs posted on any digital or printed ad. Or those posted on the company’s hiring board or listed on a third-party site.
The benefits of pay transparency
Some of the benefits of pay transparency include the following:
It can help bridge the gender pay gap: How can you negotiate better pay if you don’t know what your peers earn? By sharing pay information openly, organizations are far more likely to correct salary inequality and explore its reasons.
Creates a culture of openness: When a company embraces pay transparency, it is more likely to compensate its people competitively. And, since it clearly shows it has nothing to hide, it builds trust. It also encourages communication on other matters, which helps establish a culture of openness.
It helps avoid bias: Keeping salaries a secret will more likely enforce discrimination. Whether conscious or unconscious, salary transparency reduces gender, ethnicity, background, and many other demographic and characteristic-based biases that fuel wage gaps. A precise formula for determining pay and complete transparency gives less room for bias and more accountability for equal pay.
Increases job satisfaction: There is no comprehensive research on how salary transparency affects employees. However, evidence from a few companies, such as Whole Foods, SumAll, and Buffer, suggests that it makes employees more productive and satisfied. Logically, you will be more motivated and effective if you know you are fairly compensated for the work.
The downside of pay transparency
If a company on a tight budget offers lower rates, attracting and hiring talent may be challenging. Also, competitors can offer higher salaries to poach employees, which may lead to unfair business practices.
Transparency can also breed jealousy which can have a detrimental effect on employees. Comparing salaries can trigger a process of social comparison. This can pit employees against each other, eventually affecting team cohesion and overall company productivity.
Some companies tend to base pay on subjective determinants. Failure to communicate why other employees make more than others can have pay differences taken out of context. This can lead to controversies that damage an organization’s reputation.
Why men should care about pay transparency
Men tend to earn more than women in the same job roles, so engaging in conversations about fair compensation can help level the playing field and end gender pay disparities. Pay transparency helps create an environment of trust, leading to higher job satisfaction for everyone. It also encourages people to negotiate for fair wages, as they now understand a reasonable salary for their role and experience.
Furthermore, men should encourage pay transparency in their workplace because it helps to ensure that everyone is paid what they are worth. If men can negotiate for higher wages in a transparent system, women can too. Pay transparency also holds companies accountable, ensuring employees receive fair compensation and protecting them from discrimination.
Finally, pay transparency is vital in the corporate world because it encourages healthy competition. When employees can see the earnings of their peers, they can strive to achieve more and be rewarded accordingly. This creates a merit-based system where hard work is recognized, and advancement is achievable.
All in all, men should support pay transparency in the workplace because it helps create an equal playing field for women, holds companies accountable for fair compensation
How to introduce pay transparency at work for the employer
Posting what each employee makes may not be ideal for most companies. For example, while Whole Foods and SumAll gained public goodwill for pay transparency, Uber and Google faced controversies over alleged gender pay gaps. So what is the best way to go about introducing gender transparency?
Every company is unique, and the best way will depend on the individual company. However, steps you can take to implement pay transparency include the following:
Begin with the basics, such as giving employees a pay or salary slip detailing how much they earned plus the deductions made.
Determine your ideal level of pay transparency: Is it partial or complete openness? It may make sense for companies with significant disparities to start by ensuring employees understand the duties, responsibilities, and successes determining each pay level. Otherwise, employees can lose motivation and engagement if they believe their performance equals or exceeds a colleague who earns more.
Benchmark best practices and align your compensation philosophy to match
Update pay ranges: Using a formula that factors in job title, experience, and cost of living can help you determine competitive salary ranges. Don’t forget to also compare pay at your organization to typical salaries in your industry and location to ensure they are competitive.
Prepare your manager and other team leaders to answer any questions. Share the data, formula, or rationale used to calculate pay levels and any other factors the company uses to determine pay. Also, provide relevant training on answering expected questions and handling any other issues that may arise once you roll out the policy.
Roll out your transparency policy
Monitor and make adjustments as needed.
How to introduce pay transparency as an employee
Introducing pay transparency can help promote fairness and equity in the workplace. However, talking about salaries can be a sensitive topic. Here are some tips on how to approach the conversation with your coworkers:
Start by building trust with your coworkers. Make sure you have a good relationship with them before discussing salary.
Be clear about your intentions. Let your coworkers know that you want to have an open and honest conversation about salaries to promote fairness and transparency.
Share your own salary first. Leading by example can help encourage others to share their own salary information.
Respect other people’s privacy. Some people may not feel comfortable sharing their salary information, and that’s okay. Don’t pressure anyone into sharing if they don’t want to.
Focus on the bigger picture. The goal of the conversation should be to promote fairness and equity in the workplace, not to compare salaries or create tension.
Ultimately, transparency can improve employee trust and cultivate a culture of openness. It can also close pay gaps and eliminate unconscious or conscious bias in salary decisions.