Transparency in pay: Why it matters

Personnel Matters

Historically, one’s pay has been a taboo subject in the workplace. Many companies established policies prohibiting employees from discussing their pay. While some companies still “discourage” the sharing of pay information, the National Labor Relations Board has made it clear that employees have the right under the National Labor Relations Act to communicate with other employees at their workplace about wages. Company policies and actions aimed at prohibiting the discussion of wages are unlawful. 

Today, for a variety of reasons, there is a greater push for transparency in all matters related to pay. And some businesses have reported these efforts to be highly beneficial. A recent survey conducted jointly by WorldatWork and Mercer has suggested that increasing pay transparency can drive better workforce outcomes and support better pay equity outcomes. Also, a nationwide survey of 1,500 employees conducted earlier this year by the recruiting firm Indeed found that 80 percent of workers say that being paid fairly is a top consideration when accepting a new job. 

Pay transparency practices — like including salary ranges in job listings and providing information about how salaries are determined — gives prospective employees the information they need to decide early on whether they believe the listed pay is fair for the tasks expected of them. Posting a job’s pay range in recruiting ads ensures that neither the employer nor the job seeker wastes each other’s time in the hiring process. 

What are the benefits of pay transparency?

According to Indeed’s findings, pay transparency can result in the following benefits:

A larger and more compatible pool of applicants: Individuals report that they are more likely to apply for a job if the salary range is listed in the posting.

More sustainable hires: When employees believe they are being paid fairly relative to co-workers and the jobs they are asked to perform, they are more likely to remain with the company.

Greater pay equity: Increased transparency can help women, people of color and other historically marginalized groups better understand the value of their labor and enable them to seek equal wages.

Many companies with staffing shortages are finding this strategy useful in attracting workers. Smaller companies have taken the lead in this area; however, some larger companies, including Whole Foods (Amazon), DISH, and most recently Microsoft have committed to publicly sharing salary ranges for open roles — a move that will likely set the tone for other companies.

How widespread is the practice?

This trend is not yet widespread. Other survey evidence indicates that less than 20 percent of all job listings disclose pay ranges, and less than 25 percent of employees say their employer is transparent about how people are paid in their organization and that it is okay to ask questions about pay. These companies are likely to experience the disadvantages that arise from pay secrecy. 

When employees feel they aren’t paid fairly, the companies they work for will suffer. Employees are more likely to (1) be less motivated and engaged at work; (2) lose trust in company management; and (3) begin a new job search within six months to a year after hire. 

What are the legal requirements?

While many companies have been slow to adopt changes favoring pay transparency, some states and localities have not. There are currently 17 states that have passed legislation related to pay transparency. In the 10 states that require employers to provide salary ranges, the timing and content of the disclosure may vary. In some states, employers must provide the pay range to job applicants only upon an applicant’s request. In other states, disclosure may be required when placing a job advertisement, when an offer is being extended to the applicant or upon hire. Some states also require the disclosure of benefits information.

But not all of these states require employers to provide salary ranges. In Virginia, for example, the only legislative requirement is one that prohibits employers from discharging or taking any other retaliatory action against an employee for discussing wages or compensation with another employee. 

How important is pay transparency? 

The year of 2022 has been called “The Year of Pay Transparency” by Inc. magazine, and LinkedIn has listed pay transparency among its “Ideas that will change the world in 2022.” It is clear that pay transparency is a growing trend in the U.S. The companies at the forefront of this trend are likely to be those who benefit the most. 

About Dr. W. J. Heisler 12 Articles
Dr. W. J. Heisler is professor of human resource management and director of the MSHRM program at Troy University. He operates out of TROY’s site based in Chesapeake, Va. He holds Ph.D. and M.B.A. degrees from Syracuse University and worked for more than 20 years in management and executive positions in human resources at Newport News Shipbuilding. Contact: wheisler@troy.edu.