Why Is Everyone Talking About Pay Transparency?
We are in the middle of a huge cultural shift in the world of work, and pay transparency is on the cutting edge of that change.
Talking openly about salaries used to be taboo.
There were a few companies, like Buffer and Whole Foods, that were unusually transparent about their pay.
And there were a few more, like Netflix and Gravity Payments, that made a big media splash when they announced changes to their compensation strategy.
But these companies seemed like radical outliers in a world where the vast majority of companies rarely reveal anything about their compensation.
So, what changed?
Right now, calls for more pay transparency are everywhere.
According to LinkedIn, talking openly about compensation is one of the Big Ideas that will change the world in 2022.
But before we get into the reasons why everyone is talking about it, let’s acknowledge the elephant in the room: pay transparency can be scary.
Is pay transparency a good thing?
Pay transparency has many important social and business benefits, but radical transparency is not right for every organization.
For an established organization, suddenly revealing everyone’s salary data would come as a huge shock.
Compensation is an emotional topic. It can be deeply connected to a person’s sense of self-worth and having it revealed to your peers can be uncomfortable and off-putting.
Your company’s salary data might not be consistently structured or ready for public scrutiny. Your employees and managers may not be equipped to have difficult conversations about pay.
If you’re paying new hires much more than your current employees, then more transparency could backfire and lead to more dissatisfaction and turnover.
And if you have pay equity issues, transparency alone cannot solve them; you may need a pay gap remediation budget, and a full range of diversity, equity, and inclusive initiatives.
For most businesses, pay transparency is an intimidating and tricky prospect.
But the good news is that pay transparency does not mean you have to openly share every single employee’s salary.
It is not a static endpoint. It is a journey with a lot of small steps you can take to strengthen your organization and improve your results.
As a business, your goal is not necessarily to reach the extreme end of salary transparency.
Instead, you want to proactively choose a stop along the way that optimizes your ability to recruit amazing candidates, satisfy your existing employees, and compensate everyone fairly. You want to find the level that is right for you.
Why is more pay transparency important?
Pay transparency helps close the pay gap
One of the biggest reasons why companies are starting to think and talk about pay transparency is achieving pay equity. For women and people of color, openly sharing salaries and other compensation data can help close the wage gap.
There’s the famous story of Lilly Ledbetter, who received an anonymous letter one day revealing that she was making thousands less than her male colleagues. She filed a gender discrimination case in 1997 that eventually led to the Supreme Court and the Lilly Ledbetter Fair Pay Act.
But 25 years later, we keep hearing the same stories of women and people of color discovering through backchannels that they are being paid less than their white male coworkers.
Ignorance keeps people underpaid, so salary transparency might have the power to reduce the pay gap.
Everyone is changing jobs
The Great Resignation also plays a huge role in the pay transparency movement.
As people quit and switch jobs at an unprecedented rate, many HR professionals and leaders are laser-focused on better recruitment, retention, and employee engagement.
Research shows that employees and job-seekers prefer companies that are more transparent: 63% of U.S. workers would choose a company that discloses pay information over one that doesn’t.
Salary data is becoming public
Pay transparency has been accelerated by the growing trend towards crowd-sourced salary data.
With the rise of sites like Glassdoor and Levels.fyi, employees and candidates are sharing their compensation data with each other.
Salary survey spreadsheets are becoming more common in private networking groups and through movements like Black Code Collective and Art + Museum Transparency.
Whether you intend it or not, your compensation data might be becoming public anyway.
Legislation is coming
More transparency is also becoming necessary to comply with legislation.
California was the first state to enact a mandatory pay transparency statute and further requirements are on the way.
There are new laws in Colorado and New York, which require employers to include pay ranges in job postings.
Meanwhile, in Canada, Ontario and BC both have salary transparency legislation in the works.
The introduction of these laws in the biggest states and provinces could have a trickle-down effect that shifts how employers handle pay transparency throughout the USA and Canada.
Your competitors are doing it
Many companies are considering becoming more transparent because they see that their competitors are doing it, with positive results.
Employers are engaged in "a hypercompetitive environment for talent, and open platforms are increasing the level of pay information available to current employees and recruits. Employers that have yet to expand and become more transparent in their pay communication with employees will need to do so as top talent will demand it." - SHRM
For example, more and more companies are sharing salary ranges in job postings, regardless of whether it is legally required, because they find it attracts more applicants.
It builds trust with employees
Talking openly about pay can be a key pillar of a good relationship between employers and employees.
When employees believe that their company is transparent about how pay decisions are made, they are also much more likely to trust that their organization is working towards pay equity.
In a similar vein, job-seekers are 75% more likely to apply for a job if a company has a reputation for paying fairly.
Being transparent about pay can help your organization build trust and strengthen its relationship with your employees in a way that enhances your brand and, ultimately, your business success. Transparency also equips managers with the knowledge that helps them have more constructive career development conversations with their employees, a critical step in retaining top talent. If your organization is not taking proactive steps now to become more transparent about pay, you risk falling behind and having the message created for you.” - Mercer
Should my company be more transparent about pay?
It’s normal to struggle to talk openly about pay. The cultural taboo in society and in the workplace runs deep.
For many businesses, achieving the kind of radical pay transparency where everyone knows everyone else’s salaries is not desirable or realistic.
Luckily, there are many steps between being completely opaque about pay and completely transparent.
For example, you can start by sharing salary ranges with employees. The first step is to share the minimum and maximum salary for each individual’s role. Understanding where they sit within their salary range helps an employee to know whether they have room to grow within their current role or whether they should be targeting a promotion.
To increase transparency, you could then share the salary range for the position above theirs. This gives an employee more visibility into the next rung of their career ladder and the compensation that goes with it.
Many businesses will stop at this point. But some will continue on to share salary ranges for an entire department or even the whole company. This would be a very high level of pay transparency for an organization, but would still keep individual employees’ salaries confidential.
By taking small incremental steps, your business can increase your level of pay transparency and reap the benefits, while staying true to your culture and business goals.
Pay transparency is a journey and there’s no right or wrong place to end up. The goal is to make sure that every employee understands and feels confident about the decision-making process that guides compensation at your company.