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Why the time for pay transparency is right now

Posted by Kanika Sinha

February 8, 2022    |     4-minute read (808 words)

Pay transparency — the practice of making your business’s employee compensation figures visible to other people, either internal, external or both — is picking up momentum and flexing power beyond that of a fleeting trend. And it is not only businesses but also lawmakers who are embracing pay transparency.

For example, Netflix and supermarket chain Whole Foods have adopted open salary policies. At the time of publication, salary range disclosure requirements were either on the books or soon to be implemented in at least eight states: California, Colorado, Connecticut, Maryland, Nevada, Ohio (Cincinnati and Toledo), Rhode Island and Washington. Similar legislation is under consideration in Massachusetts and South Carolina.

Meanwhile, the New York City Council recently joined these states by passing its own pay transparency law in December 2021. Effective May 2022, employers with at least four employees in New York City will be required to post salary ranges on job listings. 

Breaking it down

What is pay transparency? It is the act of letting employees know what others in their workplace earn by giving them access to the compensation figures for their peers, bosses and even their CEO, depending on the organization or jurisdiction. It also may include being forthright with prospective employees about salaries, that is affirmatively stating the salary ranges, either in job listings or when an applicant requests it.

Why does it matter? Disclosing salaries helps level the playing field in hiring negotiations, making it easier on everyone. But pay transparency has other major benefits for employees and employers, such as:

It can help employers help close racial and gender gaps: A study finds that women in the U.S. make about 80 cents for every dollar men earn. And this number is lower for many women of color — Black women make about 61 cents on the dollar compared with men, while Latina women make only 53 cents. Economists suggest that openly sharing salary information could help shrink the long-standing gender pay gap and lead to greater diversity as well as equity in the workplace.

It can lead to higher work productivity: A study by the Academy of Management Journal finds that employees who know their co-workers’ pay perform better than those who don’t. When employees know they’re compensated fairly, they tend to work harder to achieve their goals and justify their pay to themselves, their colleagues and their managers.

It can help attract and retain talent: Organizations with greater pay transparency are likely to have an easier time finding and retaining employees amid the Great Resignation and beyond. The practice helps employers demonstrate to employees they're serious about equity and inclusion, which gives these businesses an advantage, says Diane Domeyer, managing vice president of global HR consultancy firm Robert Half. 

Employees tend to favor pay transparency: The 2021 Compensation and Culture Report by compensation management software provider Beqom, which surveyed 1,000 actively employed adults in the U. S., suggests that employees prefer organizations with more transparent and inclusive pay practices. A vast majority — nearly two-thirds of polled employees — said they were more willing to work at a firm that discloses its gender pay gap metrics. 

Pay transparency has reached a tipping point

In light of today’s pandemic economic recovery and the ongoing hiring crunch, transparency surrounding salaries has become more urgent. 

Employees’ attitudes and values about work and compensation have changed during the pandemic, the effects of which have played out during the Great Resignation. With women, employees of color and low-wage workers disproportionately forced out of work since the pandemic set in, it is important that they are brought back in with the right support and equitable pay.

As employers look to attract talent and create more equitable workplaces where people in comparable roles are paid similar wages, pay transparency could soon become the norm at organizations big and small. 

Also, the momentum behind fighting gender and racial inequities is expected to grow in 2022, according to Domeyer. With an increase in legislation prohibiting employers from discussing pay history with job applicants, broader adoption of pay transparency strategy is likely to follow.

Refuting pay transparency now could put you under fire

No matter your feelings on the subject, now's the time to start weighing your options and consider putting a pay transparency strategy in place.

The risk of refusing to adopt the pay transparency policy or holding too tightly to inflexible systems, like one-sided pay data — especially during the Great Resignation— is enormous, given the relationship between pay transparency and employee retention. It is likely to put your organization at a competitive disadvantage and possibly at risk of breaching compliance as laws around pay transparency continue to evolve across the U.S.

The bottom line: If a pay transparency policy is not on your 2022 road map, make sure it is. It will serve you in the long run.

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