Not only is pay transparency a growing trend in today's workplace, but it's also the law in many states and localities. Colorado was the first state to institute pay transparency laws, but other states followed suit, like California, Maryland, and Nevada, among others. Cities and counties, such as Toledo, Ohio, and Westchester County in New York, also instituted pay transparency laws at the local level.
Mandates aside, business leaders have pay transparency concerns whether or not they are subject to these laws. Pay transparency mandates and voluntary pay disclosure in job ads when the organization is not subject to such laws aim to close gender and racial pay gaps. It's also meant to provide prospective employees with more context as to what constitutes fair pay for that particular job. Subsequently, pay transparency concerns include decreased employee morale and heightened workplace conflicts that lead to lower productivity and higher turnover.
However, there are several benefits of pay transparency, regardless of whether your organization is subject to pay transparency laws. Strategic initiatives and clear communication are key to addressing concerns about pay transparency.
The Growing Importance of Pay Transparency
Colorado led the charge by instituting the first state-wide pay transparency law in 2019. Other states followed suit, but many organizations now engage in transparent pay practices out of cultural expectations.
Job seekers are increasingly frustrated with applying to numerous jobs only to find out they took time off of work to interview for a job that pays less than their current position. Gender, race, age, and other biases also play a role in the rise of pay transparency demands and legal mandates: pay transparency is supposed to make the hiring process fairer if candidates have a reasonable idea of what their pay will be.
While there are salary transparency challenges, SHRM reports that about 40% of US job postings on Indeed now have salary information. While some of those figures are the result of pay transparency laws at the state and local levels, voluntary pay transparency is more widespread since it offers several benefits. Employees have deeper trust in organizations that engage in transparent pay practices, employee satisfaction is higher, and transparent employers gain a competitive advantage when it comes to recruiting top talent.
Common Concerns About Pay Transparency
Decreased Employee Morale
Fear: "If we disclose salaries upfront in job ads and internally, our current employees will feel undervalued. They could unfairly compare their pay to their coworkers, and we all suffer the consequences of lower morale."
Solution: This is an opportunity to open up communications. Clearly outline to employees the rationale behind salaries, such as specialized experience, licenses, and certifications, and what the role demands. Employees should have clarification, not resent.
Increased Workplace Conflict
Fear: "If every employee and new hire knows how much everyone else makes, it could sow discord."
Solution: As an employer, you won't be able to completely halt all disagreements employees have among one another. However, you can mitigate the fallout that may occur by fostering a culture of open and honest communication with mediation policies that address employees' concerns so they can resolve conflicts peacefully.
Decreased Productivity
Fear: "If we are legally obligated to disclose all employees' pay, or voluntarily do so out of social pressure, chaos could ensue, and discussing each others' pay could distract employees from getting their work done."
Solution: Punishing or terminating employees for discussing their pay can be legally contentious for employers, even if it does result in a temporary lapse in productivity. If distractions are a concern, create a policy that places firm, but legally permissible, boundaries around discussing their pay to the point it interferes with their work. Encourage them to see transparent pay disclosures as an opportunity for growth.
Increased Turnover
Fear: "If employees don't think they're being paid what they're worth, or that it isn't worth advancing their careers with us, they'll leave for more competitive pay."
Solution: Conduct regular benchmarking sessions for your market and employer brand. Examine how much your competition pays, their compensation structure, recruitment tactics, and other criteria to determine how competitive your salaries are and overall attractiveness as an employer.
Strategies to Overcome Pay Transparency Concerns
Form clear pay policies and make them easily accessible to employees. This accessibility should be both figurative and literal: put your pay transparency policy in the employee handbook, onboarding documentation, self-service portals, and any other places where employees search and reference internal documents. The policy should be clear, concise, easy to understand, and include mediation procedures for employee conflicts.
Train managers on how to discuss employee pay. Managers should be able to discuss pay honestly but empathetically with employees and address their concerns before they become serious conflicts.
Stay on top of industry standards and pay data to ensure pay is fair. Industries evolve, and supply and demand for types of talent rise and fall. Use data and benchmarking tools to determine how your payscales align with what comparable employers pay.
Routinely review and update pay structures and workplace culture to stay competitive. At the end of the day, employees will seek out higher pay, a more fulfilling workplace, or both. If you don't address shortfalls in both payscale and culture, you will lose any competitive edge.
Steps to Begin Implementing Pay Transparency
- Start by researching your competition's transparent pay practices and the successes and failures of these policies. If you are in an area with pay transparency laws, how much do these policies go beyond the minimum compliance obligations?
- Before opening up internal pay data, include realistic salary ranges in job ads that are close to what the jobs will actually pay.
- Educate managers and employees about the benefits of pay transparency. Discuss any new pay transparency policies and encourage open communication.
- Use payroll tools like Workforce PayHub's suite of payroll management solutions to facilitate the process.
Pay transparency concerns are to be expected if your organization is now mandated or socially expected to have such policies. While these concerns are not unfounded, there are many actionable ways to address them. There are even several benefits to transparent pay practices that will give you a competitive advantage.
Learn how Workforce PayHub’s payroll and HR solutions can help you implement pay transparency policies smoothly. Contact us for a consultation.
