The Positive Impacts of Pay Transparency

Do you know how much your colleagues earn? Do you know how much your boss earns? Are you curious? Talking about salaries in the workplace has commonly been viewed as taboo. Pay is very personal to many people. Employees can even have an emotional attachment to their specific rate of pay. It symbolizes an individual’s achievements on their way up the corporate chain, and for some, it is no one’s business but the employee’s how much they make. But should it be others’ business too?

What if I told you that openly talking about pay in your organization could help attract top talent and retain key employees all while improving your reputation as a business? This concept may go against everything you were taught about human resources, but pay transparency just might be the change you need to create the business you want.

Below are just some of the ways that pay transparency can have a positive impact on your company.

Reduced Wage Disparity: Salary transparency helps uncover pay gaps between similar individuals and is frequently proposed as the best remedy to address pay discrimination issues in the workplace. Research indicates that in states that outlaw pay secrecy, wages are higher for women, even when accounting for standard human capital controls as well as state-specific factors. In fact, gender disparity is lower in the public sector where there is a common requirement to publish rates of pay.

Effectively Attract New Talent: Employees are looking to work for a company that offers not only competitive but also “fair” wages. A company that has a strong philosophy of establishing pay equity may be seen as more progressive to many talented job seekers, therefore making it a more desirable company to many potential applicants. Pay transparency can also help streamline the recruiting process. For example, a salary posted on a job advertisement can help weed out applicants that would normally go through the recruiting process to find out the salary is below their expectations.

Increased Retention: Pay equity can also play a critical role in retaining your top talent. In fact, more companies are looking to pay transparency to address retention issues in their workplace. An employee who feels they are being treated equitably is far less likely to leave an organization because of pay, even if they are paid below market.

Increased Diversity: Diverse candidates are more likely to join a company when they are sure they are being treated fairly. Making salaries common knowledge can be a first step in showing employees that pay discrimination is not a company practice.

Increased Productivity: Pay transparency has also been shown to increase productivity. In fact, studies have found that individuals work harder and more productively when they receive information about peer earnings. Oftentimes, when employees don’t know what their coworkers are earning, they tend to overestimate what their peers might be earning by guessing, in turn leading to increased levels of job dissatisfaction and decreased productivity.

Improved Business Reputation: How you pay employees can be viewed as a way of communicating externally to customers and shareholders what you value as an organization. Companies may also be seen as a great place to do business when they structure pay programs in a manner that employees view as creating a great work environment. Pay transparency practices can send the message that your employees are your most valued asset, thereby helping the company to attract new clients and customers.

Your Next Steps

How do you become more transparent as a company? Remember that you don’t have to go to “full pay transparency” right away. In fact, moving from no transparency to full transparency can cause chaos. There is a pay transparency spectrum that ranges from only knowing your specific rate of pay to knowing everyone’s pay, and partial transparency can still have a positive impact.

You can start by having an open discussion about pay. Talking about pay should not be an isolated event. Instead, create an environment where it’s acceptable and encouraged to ask questions about pay. Create and communicate a formal compensation strategy and philosophy and be open about the data the company uses to determine pay rates. Share information on pay ranges and positions in those ranges. This is the best way to ensure your employees know the reasons why they receive a certain rate of pay.

For more information on pay transparency, come join us at this year’s Employers Summit where there will be a breakout session on pay equity specifically addressing:

  • The recent wave of state and local laws that have been enacted enforcing pay equity, and what proposals are on the horizon;
  • How to conduct a proactive pay equity analysis that will both give employers a window into their current vulnerabilities as well as a path forward to compliance;
  • Options for employee’s pay if there are any discrepancies uncovered during the analysis process, as well as making and communicating any recommended changes to the compensation practice; and
  • The emerging trend of pay transparency among organizations and how a company’s commitment to equal pay in the workplace can build a stronger employer brand by which to attract and retain key talent.