What is pay transparency, and how do you implement it?

In 2022, New York Governor Kathy Hochul signed a bill requiring employers to list salary ranges for all advertised jobs and promotions. The law will take effect in September 2023, and it’s expected to reduce wage discrimination.[1]

It’s one of many new state laws mandating salary transparency.

Pay transparency is a hot topic, and as employees become more selective about their work environments, it’s an important subject for employers to understand.

There are many ways to introduce pay transparency, from publishing all salaries online to a skills-based approach to compensation. But if you decide to open up about your salary decisions, you need to understand the benefits, drawbacks, and best practices to get it right.

In this guide, we’ll look at existing pay transparency laws by state, along with the pros and cons of wage transparency. Then we’ll dig into the strategies to use to make sure you and your employees all benefit.

What is pay transparency?

Pay transparency is the act of communicating information about wages and compensation to candidates and employees. 

It can take many forms, including:

• Listing salaries or salary ranges, including additional benefits, for prospective applicants on job ads

• Explaining the formulae used to calculate pay for each role

• Publishing internal pay disparities based on race, gender, or other axes of oppression

• Publishing all salaries paid to all employees within the company

All of these approaches are designed to foster a culture of openness and honesty about pay, empowering employees to understand their rate of compensation in context.

Examples of companies using pay transparency

In 2020, almost one in five companies reported they had adopted a policy of pay transparency.[2]

But what does pay transparency look like in practice?

Read on to find out what these three companies are doing to ensure salary transparency.

TestGorilla

TestGorilla is proud to be upfront about pay and benefits. Acting with integrity is one of our company’s core values, and pay transparency is a way for us to live out that ethos.

Wherever possible, when we advertise jobs, we make sure to include all the following information:

• Salary ranges

• Benefits

• Remote work budget allocations

• Learning and development budget allocations

This gives candidates a clear sense of what to expect so they can make a more informed decision about applying. After all, the hiring process works best for everyone when all parties know each other’s expectations.

Buffer

Marketing firm Buffer doesn’t only share salary ranges on its job postings – it shares the salaries of everyone in the company online.[3]

The firm is also transparent about its formula-based approach to compensation. It uses the formula “Role x cost of living = salary” to calculate salaries, so factors like location and experience inform each employee’s rate of pay.

Salary transparency has been part of company policy since 2013, and it continues to shape the business’s approach to compensation today. It’s committed to providing fair, generous compensation and to offering transparency and clarity on what job applicants should expect.

Fastly

Fastly, which makes apps to facilitate web design and coding, advertises salary ranges with every job listing. Offering salary ranges is a good way for businesses to offer transparency without setting unrealistic expectations for new hires. 

The business is also transparent about the benefits the company offers, so candidates understand exactly what is available to them.[4]

This policy emerged from the company’s commitment to openness with its staff. It didn’t implement pay transparency because of gender-based wage gaps; it introduced the policy because it wanted to foster a culture of trust among its workers.

Salary transparency laws: By state and by country

Most laws on salary transparency are still new. In fact, the pay transparency law in New York state won’t go into effect until September 2023.

But six US states have already passed pay transparency legislation. Here they are at a glance:

Individual cities and regions, including three areas of New York state, have their own pay transparency laws:

• Jersey City, New Jersey

• Ithaca, New York

• New York, New York

• Westchester County, New York

• Cincinnati, Ohio

• Toledo, Ohio

But what about international employees? Let’s look at some pay transparency laws around the world.

As you can see, pay transparency initiatives around the world are usually more interested in mandating transparency around gender-driven pay gaps. The laws in the EU and in British Columbia, Canada, are rare in that they require employers to advertise salaries upfront.

Why is pay transparency important?

So why the global push toward pay transparency?

Its benefits for employees and candidates are obvious. Candidates who know what to expect for salary at the beginning of the hiring process are equipped to make more informed decisions about whether a role is right for them – and to negotiate wages later in the process.

Salary transparency also improves employee access to fairer pay. It’s harder for companies to have pay discrepancies along gender-based or racial lines when they have a policy of advertising salaries clearly, both internally and externally.

But wage transparency is helpful to companies, too.

Employees want pay transparency – in fact, 79% of employees want some form of transparency around wages. Offering openness is a great way to signal to employees that you share their values.

This doesn’t just mean candidates are more likely to consider applying for jobs at your company. It means they’re more likely to be satisfied and engaged when hired.

Most importantly, though, a policy on salary transparency relies on your company having a clear, fair process for determining pay. Moving toward salary transparency forces businesses to refine their approaches to compensation, which ensures greater fairness in the long term.

The benefits of pay transparency policies

Your company stands to gain a great deal from pay transparency. 

Let’s examine the benefits of pay transparency policies in more depth. 

The drawbacks of pay transparency policies

While pay transparency comes with major benefits, it is not without its risks. 

Here are the main drawbacks you need to watch out for when considering a pay transparency policy for your company.

8 best practices for implementing pay transparency at your company

Don’t be put off by the potential drawbacks of pay transparency; use these best practices to avoid or mitigate the problems that come with salary transparency, while still enjoying all the benefits of this approach.

Implementing pay transparency at a glance

1. Commit to a level of transparency

Pay is a touchy subject in the workplace. Employees want to feel like they are being treated fairly and told the whole truth about their wages. If they don’t feel that way, it could impact their level of engagement at work.

Sending mixed messages about salary risks undermining your pay transparency initiative and alienating your workers. Your company’s leaders need to decide ahead of time how transparent they want to be about employee pay.

When you follow a transparency plan, your messaging on the subject stays consistent, and your employees don’t get confused or upset.

It’s up to you to decide the approach that works best for your business. Not all companies are in a position to adopt an approach like Buffer’s, where all employee salaries are listed publicly online.

But whether you adopt the legal minimum level of pay transparency, a policy of total honesty, or something in between, it’s important to apply it consistently.

2. Adopt a clear approach to compensation

If your company intends to be open about how employees are compensated, it’s important to have a clear and objective approach to deciding pay.

You need to have that approach in place before you adopt a policy of salary transparency. If you don’t, you risk your employees learning your pay practices aren’t fair – or, even worse, that you don’t have clear pay practices at all.

That could damage employee trust in your leadership, undermining morale and engagement.

Earlier, we looked at Buffer’s approach to deciding employee salaries, which takes into account the staff member’s role and their local cost of living. It relies on objective data, making it a great way to be fair to your workers and limit the risk of employee jealousy.

Identify the data that makes the most sense for your organization and use it to guide your salary decisions – and explain them to your employees.

3. Communicate simply and clearly

Any major policy change in your workplace needs effective top-down communication to work as intended. Pay transparency is no exception.

Employee misunderstandings about pay transparency can have serious fallout. If they don’t understand your approach to compensation, your level of openness, or the information you present to them, they may become unhappy and push back against leadership.

That’s why it’s important to keep your messaging on the subject of pay transparency clear, simple, and consistent. Follow these steps to build a communication strategy that supports your transparency initiative, not undermine it:

1. Announce the policy to all employees at once, providing an implementation timeline and a summary of what it will involve

2. Give employees the opportunity to ask questions about the policy

3. Respond to those questions in future communications, so your staff members feel heard

4. Increase the frequency of communications right before, during, and right after the policy is implemented

5. Continue engaging with employee queries and feedback during the implementation process

4. Build a culture of trust

If your employees don’t trust you or each other, your pay transparency initiative is much less likely to succeed. A lack of trust in your workplace risks fostering employee jealousy and conflict around the sensitive subject of pay.

A culture of trust is worthwhile in its own right, too. Trust in the workplace bolsters employee collaboration, retention, and performance, making a shift toward a more trusting culture a valuable long-term investment.

But research shows only 15% of companies succeed when they try to implement cultural change.[10]

To improve your chances of success, here are the steps you need to take when planning cultural change at work:

1. Assess your organizational culture and decide what needs to change

2. Set benchmarks for success – how will you measure whether your new culture is working?

3. Identify employees who can act as influencers and energizers to help change take root

4. Use change management frameworks to guide the change process

Remember, good workplace culture is critical to attracting top talent – 77% of workers would consider a company’s culture before deciding whether to apply for a job there.[11] 

Building a culture of trust is likely to make your company more appealing to your employees, and it helps limit the risk of competitor companies poaching your staff.

5. Be prepared to address issues

As we saw earlier, many pay transparency laws require companies to disclose any gender-based pay gaps. A salary transparency policy may reveal those gaps to your employees – along with other similar gaps along the lines of race or disability.

Pay transparency may also lead to more personal questions about employee pay. If one worker is being paid less than a colleague doing the same job, expect them to have questions about why.

To stay accountable to your clients and your employees, you need to address those issues when they arise.

Train your line and people managers on how to answer any questions that arise, whether from your employees or your customers. As we’ve already discussed, you need to keep communications clear and consistent, so make sure your leaders know what to say.

Most importantly, be as honest as you can about the nature of the issues and how you plan to resolve them. That’s an important element of a culture of trust.

6. Monitor KPIs carefully

How do you know if your pay transparency policy is working as intended? 

To keep track of its impact on your workforce, you need to monitor key performance indicators (KPIs) closely after introducing salary transparency to your company.

KPIs don’t only enable you to monitor employee performance. By gathering the right information, you can monitor employee sentiment around your new policy and track how widely pay transparency is accepted in the workplace.

Monitor these indicators by sending out pulse surveys about pay transparency to your employees or by incorporating questions about wage transparency in your quarterly staff surveys. There are plenty of ways to listen to employee voice, so use the methods that work best for your company.

You should also monitor pay equity between genders, races, ability levels, and other axes of oppression within your organization. Paying attention to these data points helps you prevent friction around pay gaps or inequities.

7. Remember to advertise benefits

One of the potential drawbacks of pay transparency is that it risks undermining companies that can’t pay competitive salaries. Being unable to match the wages offered by competitors could limit your access to top talent.

But competitive compensation isn’t only about salary. The benefits your firm offers have value, too. 

According to a Glassdoor survey, 63% of employees found benefits to be a top factor in considering whether to apply for a job – very close to the 67% of employees who valued salary.[9]

Forbes Advisor found the most in-demand benefits are:[12]

1. Healthcare coverage

2. Life insurance

3. Pension and retirement schemes

4. Mandatory PTO

5. Mental health support

You should also consider offering non-traditional benefits to bolster your employees’ quality of life at work.

A good benefits package can make up for lower pay and keep your company competitive, so don’t forget to factor benefits into the information you offer about pay and compensation.

8. Consider skills-based compensation

When implementing pay transparency, fairness is everything. And what’s fairer than paying employees based on their skills and competencies?

That’s skills-based compensation – a data-driven approach to deciding salaries that fosters a culture of continuous learning. In a system of skills-based compensation, employees can expect pay bumps to reward upskilling and professional development.

This offers a neat solution to the problem of pay compression, which we discussed earlier. Paying based on skills means your most skilled and motivated employees are rewarded highly, regardless of factors like gender, race, or boldness in negotiating salary.

Skills-based hiring is the ideal way to back up your pay transparency policy. Using our skills tests, you can determine candidates’ skills and abilities early in the hiring process, then apply that knowledge when negotiating salaries.

It establishes fair, inarguable criteria for deciding wages, creating a more equitable pay structure.

For more information on how skills-based hiring improves pay transparency, read our in-depth guide on the benefits of pay transparency.

Use skills testing to implement pay transparency fairly

Discussing salary doesn’t have to be taboo. 

With a strong, consistent pay transparency policy, your company benefits from increased employee trust, collaboration, and engagement.

Pay transparency also helps you attract the best candidates – and if you take a skills-based approach to compensation, you stand a better chance of putting candidates into the right roles.

Plan your policy implementation carefully, be ready to address any unexpected consequences, and communicate clearly at every step of the process. That way, you can stay on the right side of any new pay transparency laws passed in your area.

Ready to move toward skills-based compensation? 

Learn how to secure stakeholder buy-in when introducing skills-based hiring – and use tests like our Leadership and People Management test to make fair, informed salary decisions during hiring.

Sources

1. “Governor Hochul Signs Legislation Establishing Statewide Pay Transparency Law”. (December 21, 2022). New York State. Retrieved May 17, 2023.https://www.governor.ny.gov/news/governor-hochul-signs-legislation-establishing-statewide-pay-transparency-law 

2. “The case for pay transparency”. (2022). Mercer. Retrieved May 17, 2023. https://www.mercer.us/content/dam/mercer/attachments/north-america/us/us-2020-the-case-for-pay-transparency.pdf

3. “Transparent Salaries”. Buffer. Retrieved May 17, 2023. https://buffer.com/salaries

4. “Jobs at Fastly”. Fastly. Retrieved May 17, 2023. https://www.fastly.com/about/careers

5. Wilson, Jim. (March 9, 2023). “Province rolls out legislation for pay transparency in jobs ads”. Human Resources Director. Retrieved May 17, 2023. https://www.hcamag.com/ca/specialization/employment-law/province-rolls-out-legislation-for-pay-transparency-in-jobs-ads/438977

6. “Government launches pay transparency pilot to break down barriers for women”. (March 8, 2022). Government Equalities Office. Retrieved May 17, 2023. https://www.gov.uk/government/news/government-launches-pay-transparency-pilot-to-break-down-barriers-for-women

7. “Commission welcomes the political agreement on new EU rules for pay transparency”. (December 15, 2022). European Commission. Retrieved May 17, 2023. 

https://ec.europa.eu/commission/presscorner/detail/en/ip\_22\_7739

1. Midorikawa, Yoshie. (August 4, 2022). “New Rules Require Japanese Companies to Disclose Their Gender Wage Gap”. SHRM. Retrieved May 17, 2023. https://www.shrm.org/resourcesandtools/hr-topics/global-hr/pages/japan-gender-wage-gap.aspx

2. “Glassdoor Study Reveals What Job Seekers Are Looking For”. (July 25, 2018). Glassdoor. Retrieved 17 May, 2023.https://www.glassdoor.com/employers/blog/salary-benefits-survey/ 

3. Goodridge, Niki. (March 21, 2019). “Only 15% of Organizations Succeed in Transforming Their Cultures”. I4CP. Retrieved May 17, 2023.

1. “Culture Over Cash? Glassdoor Multi-Country Survey Finds More Than Half of Employees Prioritize Workplace Culture Over Salary”. (July 10, 2019). Glassdoor. Retrieved 17 May, 2023.

1. Miranda, Dana. (February 6, 2023). “Best Employee Benefits In 2023”. Forbes. Retrieved 17 May, 2023.