In many workplaces around the world, discussing salaries is still considered taboo or even forbidden. But there’s a growing movement towards salary transparency, with more and more government bodies and regions implementing laws designed to increase the visibility of compensation practices.
Pay transparency is a way for employers to build trust with employees, boost engagement and productivity, and build a more inclusive work environment. It’s also seen as a vital step toward closing pay gaps.
But implementing this practice comes with challenges for companies, especially larger corporations. For example, handling potential backlash and dissatisfaction from existing employees.
That’s why, in this piece, we discuss the benefits and implications of pay transparency and look at four strategies to help you successfully implement it in your organization.
Table of contents
What is pay transparency?
Pay transparency is the practice of openly disclosing information about salaries and wages within an organization – both internally and to potential candidates. ga
The goal is to increase fairness and equity by ensuring that individuals are paid based on their skills and performance, rather than their gender, race, or other factors.
So far, several countries and regions have implemented or proposed policies and laws related to pay transparency. In the European Union, the Gender Pay Gap Transparency Directive requires companies to provide information about the initial pay level or range in job vacancy notices or before interviews. Current employees also have the right to request information from their employer on their pay, irrespective of the size of the company.
This transparency is also becoming increasingly expected by younger generations. For example, Gen Z is far less likely than its predecessors to accept a pay gap or a lack of transparency around pay as being “just how things are.”
In the United States, a number of states and cities have also implemented or proposed laws requiring employers to disclose salary information. For example, California’s Fair Pay Act makes it illegal for employers to pay employees less than those of different genders, races, and ethnicities for doing similar work.
In Canada, the federal government has introduced pay transparency legislation in the last decade. Other countries, such as Australia, Denmark, and the United Kingdom, have also implemented pay transparency measures or are considering doing so.
Where is the pay gap widest?
Compensation for similar positions can vary widely across demographic groups, industries, and job roles. But some of the widest pay gaps tend to exist between men and women and between White employees and their BIPOC (Black, Indigenous, People of Color) peers.
According to data from the Economic Policy Institute, in 2021 the gender pay gap in the US stood at a yawning 22.1%. This means on average, for every $1 men made, approximately $0.78 cents was paid to women in equivalent roles.
The pay gap is even wider for women of color, with Black and Latina women earning significantly less than White women and White men. Similarly, in the UK, the pay gap as of April 2022 was around 8.3%on average, but wider for women of color.
When it comes to the gender pay gap between industries, five sectors have the largest disparities:
- Finance and insurance (77 cents to $1)
- Agencies and consultancies (83 cents to $1)
- Health care (86 cents to $1)
- Transportation and warehousing (87 cents $1)
- Nonprofits (88 cents to $1)
This might be surprising since most of these industries, like healthcare and nonprofits, have a higher percentage of working women than men. But there are many factors that cause this, including fewer women in senior positions and bias against women in traditionally “masculine” occupations like construction and warehousing.
As for science, technology, engineering, and math (STEM) jobs, these typically offer higher salaries across the board. However, as Jo Webber, Ph.D., founder and chief executive officer of AtlasJobs notes, not only are not enough women entering those sectors, they hold very few of the top jobs. So even in these higher-paying industries, the pay gap for women and female-presenting people still exists.
But there is hope. The gender pay gap for marketing, creative, and design roles is slowly but surely closing – at least in the US. In 2022, men were paid almost 16% more than women doing the same job. In 2023, that difference was 2.7%, which is a pretty impressive jump. According to the same report, women in digital marketing jobs earned 19% more than men, and female SEO managers made about 14% more.
As more regions, countries, and states require salary transparency, and as the conversation continues, we should see the pay gap begin to close in other industries.
What does pay transparency mean for your company?
Pay transparency can include making salary ranges available to employees and job seekers, sharing the criteria used to determine wages, and disclosing the pay of individual workers.
Implementing this practice helps promote fairness, equity, and accountability within your company. But it can also be a complex process and requires careful consideration of legal, cultural, and logistical factors.
Let’s take a closer look at what that means.
The benefits of pay transparency
Pay transparency helps address pay gaps by highlighting disparities and encouraging employees to take action. When people have access to information about pay, they’re better equipped to negotiate their salaries and advocate for fair compensation. Knowledge really is power.
Making this part of your company practice also makes your organization more attractive to candidates. In fact, 98% of job seekers in England want to know the salary before applying for an open position, and 74% believe that pay transparency creates a fairer environment for everyone involved.
Additionally, revealing the salary for a position saves time for both hiring managers and candidates. That’s because it sets expectations from the start and means neither have to go through the entire recruitment process only to find out the pay isn’t sufficient or within budget.
And finally, pay transparency establishes a culture of trust. This encourages both employees and candidates to communicate openly about compensation, current market conditions, and your organization’s commitment to diversity and inclusion.
The implications of pay transparency
One of the main challenges of implementing wage transparency for HR departments is dealing with potential employee dissatisfaction or even backlash. In fact, 46% of North American employees cite their people’s reactions as the reason for holding back on implementing it.
“You’ve got the people internally who’ve been paid a certain way,” says Dr Jo Webber, “and have probably been quite happy with what they’re doing. And then all of a sudden, they see a salary that is higher than theirs… There’s the emotional impact of that… I think it’s critical that we train the HR departments in our companies to be able to handle this.”
This makes it even more crucial to clearly communicate the rationale behind compensation decisions and encourage your people to come to you with any questions or concerns.
Administrative complexities can also delay implementation, says Kelly Robinson, founder and chief executive officer at PK Recruiting. For example, transparency around pay ranges in job postings may also force you to review your existing staff’s compensation, which can have major implications for budgeting.
Finally, despite the many positive effects of pay transparency, some are concerned that it could lead to companies adopting “workarounds” that result in less accurate information and higher quit rates. For example, one in 20 employees will quit if they find out their peers are getting paid more for doing the same job.
As both experts note, there may also be implications for remote hiring. Specifically, some organizations may actively avoid hiring people living in certain states to bypass publishing salary ranges.
And then, of course, there are those companies that will try to find ways around laws by publishing huge salary ranges that still don’t give candidates an accurate idea of what to expect.
How to successfully implement pay transparency in your organization
Implementing pay transparency can have a positive impact on employee satisfaction and retention, as well as helping create a more diverse, inclusive workplace. However, it’s important to approach this process thoughtfully and strategically to make it practical, feasible, and get the best outcome.
Here are some best practices to help you successfully adopt wage transparency in your company.
1. Be specific about roles
Some one in four employers cite a lack of clear job architecture as the main reason why they’re not implementing pay transparency at their organization. To avoid this, you need to clearly document responsibilities, requirements, career paths, and (realistic) compensation range for each role.
But this can be easier said than done. In some organizations, roles can have a broad definition. This not only impacts the way your current employees work, but it also attracts a wide range of candidates during recruitment, increasing the risk of mis-hires.
A well-established job architecture helps you define the different positions and levels within your company more uniformly. Then, you can use those definitions to drive strategic compensation decisions. It also takes the guesswork out of setting compensation.
Once you have this clear, you can be transparent about pay ranges in your job descriptions. Jo Webber explains how Walmart does this by publishing pay ranges for all positions in a central database, along with projected future salaries. That way, candidates know what they’re likely to make both now and a few years down the line.
2. Use skills-based hiring
Skills-based hiring involves assessing candidates based on quantifiable skills rather than traditional, bias-prone methods like resumes or connections. Our 2022 State of Skills-Based Hiring report found that this approach creates a fairer, more objective candidate experience. Employers also report a 91% increase in workplace diversity and a 91.2% increase in employee retention.
This approach can be a helpful tool in implementing pay transparency because it allows for a more data-driven approach to compensation. When hiring based on skills, knowledge, and experience, employers can better determine the market value of a position and establish more standardized pay scales.
This helps ensure that employees with similar skills and qualifications are compensated fairly, regardless of factors like gender, race, or age.
By establishing clear, objective criteria for determining pay, and clearly communicating this information to your people, you can create a more transparent and equitable pay structure.
Getting the buy-in of team members and stakeholders across your organization is essential to implementing skills-based hiring since it involves a mindset shift and a new hiring strategy. Check out our guide to Making the case for skills-based hiring: how to get buy-in from stakeholders to learn more.
3. Use skills-based compensation
Skills-based pay is a compensation model that rewards employees based on their skills, knowledge, and experience. For example, an experienced editor at a content marketing agency might earn more compared to a less-experienced candidate applying for the same role. At TestGorilla, we use compensation bands linked to skills and the ability to complete key tasks and hit key performance indicators.
When you use skills-based compensation, the specific skills and knowledge required for a job are clearly defined and measured. This allows for more accurate comparisons between positions and can help ensure that employees with similar skills and qualifications are compensated fairly. In this way, you can reduce disparities in pay and promote a more equitable and transparent pay structure.
This helps attract and retain individuals with more experience while promoting a culture of continuous learning and development. It also encourages people to gain new skills and qualifications that can lead to career advancement and higher compensation. And when people learn on the job, it positively impacts motivation, productivity, innovation, and overall performance.
This approach can help with implementing pay transparency by providing a clear and objective framework for determining an employee’s compensation.
4. Encourage open conversations about pay
Talking about salary and compensation is never easy. But encouraging your people to have open and honest conversations about it can help break this taboo. Additionally, this can help make the transition to transparent compensation easier for your front-line managers and supervisors. That’s because having frequent, candid conversations about pay can positively influence how your people feel about your company and compensation strategies.
Whenever possible, make information about how people’s pay is determined available throughout your organization. This provides clarity and helps them understand the reasoning behind compensation decisions and promotions.
For your people to comfortably discuss compensation, you need to first create a psychologically safe environment. Check out our guide to Psychological safety: 10 ways to empower your employees to learn more.
Pay transparency: A must for modern, people-first organizations
The issue of pay discrepancy touches several areas, from ethnicity and religion to physical ability and neurodiversity. However, some of the widest pay gaps exist between men and women, and between White employees and their BIPOC counterparts.
But as companies and governments implement pay transparency legislation and policies, we should see the gap begin to close.
Practicing pay transparency requires you to openly disclose compensation information within your organization – both internally and to potential candidates through job postings. And it’s something you need to get comfortable doing as it’s fast becoming the norm in countries and regions such as the EU, some US states, Canada, Denmark, the UK, and Australia implementing pay transparency laws. These policies work to create more inclusive and equitable working conditions, as well as address pay gaps between genders, ethnicities, races, and industries.
Implementing pay transparency in your organization helps promote a culture of fairness and trust, improves retention rates, and attracts top talent. However, it comes with challenges that need to be handled sensitively to avoid employee dissatisfaction, administrative and budget complexities, and high quit rates.
To apply pay transparency, you need to adopt a holistic approach to compensation practices, moving beyond just granting access to pay information. This approach should focus on developing clear job architecture, using skills-based hiring and skills-based compensation models, and encouraging open conversations about pay.
As Tara Furiani notes, “Pay transparency isn’t just a tick-box compliance item, but it’s a culture and mindset that should be embedded in the company’s DNA. It’s also not a one-time event, but a continuous journey.”
Want a fairer way to hire and compensate diverse talent? Find out how skills-based hiring can help you implement pay transparency and create a happier, more productive workforce. Download the 2022 State of Skills-Based Hiring report to learn more.
- “California Equal Pay Act.” State of California Department of Industrial Relations. Accessed February 15, 2023. https://www.dir.ca.gov/dlse/california_equal_pay_act.htm
- “Employment Equity Act.” Justice Laws Website, Government of Canada. Accessed February 15, 2023. https://laws-lois.justice.gc.ca/eng/acts/E-5.401/page-1.html#h-215132
- “Gender Pay Gap in the UK: 2022.” Office for National Statistics. Accessed February 15, 2023. https://www.ons.gov.uk/employmentandlabourmarket/peopleinwork/earningsandworkinghours/bulletins/genderpaygapintheuk/2022
- “2022 State of the Gender Pay Gap Report.” Payscale. Accessed February 15, 2023. https://www.payscale.com/research-and-insights/gender-pay-gap/#module-13
- “2022 Pay Clarity Pulse Survey Report.” WTW. Accessed February 15, 2023. https://www.wtwco.com/en-GB/Insights/2022/08/2022-pay-clarity-pulse-survey-report#:~:text=The%202022%20Pay%20Clarity%20Pulse,and%20coming%20to%20the%20EU
- “1 in 20 workers will quit if transparency laws reveal they are paid less than co-workers.” ResumeBuilder. Accessed February 15, 2023. https://www.resumebuilder.com/1-in-20-workers-will-quit-if-transparency-laws-reveal-they-are-paid-less-than-co-workers/