Pay Transparency: What HR Should Know & Why it’s More Important Now Than Ever

What it is and why you should practice it if you can

by Elle Mason - November 23, 2021

Not too long ago, it become illegal in several states to demand a candidate’s salary history. For many people, those mandates were their first or earliest introduction into the topic of pay transparency. And while pay transparency was much less common a few years ago, today’s workers are demanding more from their HR teams and employers more broadly. Beyond the impact on hiring and recruitment, given how transparency in pay can shed light onto the DEI efforts at an organization, employers should pay attention. This article will cover what pay transparency is, why it’s important now more than ever, and why you should practice it if you can.

Where did the concept of pay transparency come from and what are the benefits?

Pay inconsistencies (like the gender wage gap) are well-documented. For example, research from Payscale finds that women earn 98 cents for ever $1 that men earn – even when performing the same job at the same location and other shared factors. Further, this gap is even more pronounced when you compare women of color’s earnings to men.

Over time, this gap grows and becomes more significant and pronounced – consider all of the bonuses and raises that are based on a percentage of your salary, for example. Two people who start off with a $5,000 or $10,000 salary differential will have compounded a much more significant gap a decade later. And that doesn’t even include the fact that women are more likely to take time away from work for maternity leave or other caregiving responsibilities – which can last well over a year, equating to an even deeper loss in earnings compounding for women specifically. Pay transparency is designed to bridge that gap. It’s also designed to avoid pay differences that we see on the basis of race and ethnicity. By making it illegal to consider salary history, for example, people of color will no longer experience a lifetime of reduced offers solely because they started their career in a role that paid 20% under the market-rate.

Ultimately, pay transparency is an ethical approach that promotes greater diversity. But beyond that, compensation is a critical component that impacts how valued employees feel; earning less than their peers is a certain way to cause demotivation and reduce organizational commitment. On the other side, working in an equitable and diverse environment will promote performance, productivity, cohesion, and commitment. And with the Great Resignation looming, businesses need engagement now more than ever.

Are there any cons or drawbacks to pay transparency?

If it’s not executed properly, there certainly can be. Imagine, for example, two employees performing the same role for the same length of time, but one brings an additional 15 years of experience to the table that strengthens their performance in the role. Understandably, that employee may receive a higher salary. But if this isn’t communicated directly, it can (also understandably) breed anger, confusion or resentment for the employee earning less.

Ultimately, there are a number of factors that go into determining someone’s salary – and many times, employees may negotiate a lower or higher salary in exchange for adjusting some of the other compensation components (like PTO or flex time) in a way that works for them. But these other factors may not be visible or apparent if we’re solely posting names and salaries on a spreadsheet. In other words: salary doesn’t always tell the whole story, and employers should be careful to discuss these elements when rolling out pay transparency initiatives.

How can employers get started with practicing pay transparency?

Gather Buy-In: It often isn’t just up to HR, so first, try talking through the feasibility and logistics for creating it with other members of the leadership team. Collectively, you can decide what’s the best approach for the size and scope of your organization. While it may work well for some companies to list direct salary information, for others a range is ideal, and for extremely large corporations another approach entirely may be best. But before doing this, revisit your pay model to make sure it’s fair in the first place, and identify any areas of interest that may require further inspection.

Make It Up Front: Pay transparency starts with recruitment. Many of us are familiar with government job listings that include salary bands or ranges. One of the benefits to this approach is that it allows candidates to opt out if the range isn’t suitable for them, and it allows candidates who may otherwise under-sell their desired compensation (whether that’s because their current offer is under-market or whether that’s because they’re from a historically marginalized identity group) to receive a more equitable pay band. It can also help potential candidates determine if they can even afford to leave their current role for the new one, and it can help ensure that what’s listed matches what current employees are earning. One caveat is that for a particularly wide range, it’s often best to describe what skills or talents equate to the highest end of the range, so that all candidates who have two years of experience aren’t necessarily coming in expecting the salary that you had reserved for someone with 20 years of experience.

Conduct Audits: Make it an annual practice to conduct a comprehensive review of policies, procedures, hiring and compensation data, and also hold discussions with managers and team leads about potential wage gaps. You can also use this to go beyond pay transparency, and also discuss and work on elements like career transparency and opportunities for growth, development, promotion and advancement – as determining a starting salary is really only the first in ensuring long-term pay equity.

HR technology can help, for example with Performance Reviews — Having a modern HRIS helps you streamline and regulate performance reviews, feedback, salary discussions, and more so that your employees are kept in the loop on where they stand and what their milestones are. Additionally, employees can provide feedback or anonymous feedback to help you gauge their happiness and understand if you are compensating fairly.

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