Salary Transparency: Pros, Cons, and Best Practices

Employers face numerous HR issues right now—and salary transparency ranks high on the list. After all, a number of states have already enacted pay transparency laws, and more are in line to do so. Even if it’s not (yet!) mandated in your jurisdiction, is it the smart thing to do?

That’s an excellent question. In order to answer it, let’s consider its pros and cons, the legislative landscape—and, of course, best practices for moving forward.

What Is Salary Transparency—and its Compliance Status?    

Salary transparency—aka “wage transparency” and “pay transparency”—is when an employer shares its compensation structure with the goal of improving workforce pay equity. Often, this means specifying salary ranges in job posts and sharing wage information with employees.

Currently, eight states have enacted pay transparency laws, including New York and California. So have a handful of cities.

In addition, more than a dozen states are considering pay transparency legislation. Meanwhile, on the federal level, the Salary Transparency Act was introduced in Congress earlier this year. It’s currently under review in the House committee.

In other words, it may take some time, but pay transparency laws are likely coming your way.

Pros of Salary Transparency

One key benefit of salary transparency is that it helps eliminate pay disparities, making it easier for employers to identify and rectify wage gaps based on factors like gender and race. In addition, practicing salary transparency helps to:

Build Trust - Employees want their employers to operate openly. When employees see that they’re salaries are based on objective criteria, they’re more likely to feel that they are compensated fairly, leading to increased job satisfaction and loyalty.

Enhance Recruiting - Companies that embrace salary transparency often find it easier to attract top talent. (In one survey of Gen Z workers, 85% of participants said they’re less likely to respond to a job post that doesn’t specify salary range.)

Motivate Employees - When employees see the link between performance and compensation, it can incentivize them to work harder—particularly when they believe they’re well-paid. Admittedly, this can backfire, too (which we’ll cover shortly).

Invite Communication - Salary transparency can serve as a springboard to more open communication between employees and their managers with regards to responsibilities and career advancement—and that’s a good thing.

Cons of Salary Transparency

On the flip side, pay transparency can create challenges for employers, including:

Administrative Complexity - Maintaining a transparent salary structure can be complex and time-consuming. Employers must set clear guidelines and evaluation criteria, conduct ongoing research, and communicate consistently with employees.

Potential for Unhappy Workers - If employees spot what they think are pay disparities, it can lead to resentment, plummeting morale, and widespread calls for salary increases, creating headaches and straining budgets.

A Competitive Disadvantage: When companies share their compensation structure, they may give competitors a hiring edge, because now they have information that they can use to lure talent away.

Best Practices for Implementing Salary Transparency

When implementing a pay transparency initiative, it’s key to do so strategically. Specifically:

Establish Clear Guidelines – Use measurable, well-defined criteria for setting salary ranges. Research wage standards in your industry and market, and establish a consistent pay philosophy across your organization.

Conduct an Internal Audit – Before you go public, you’ll want to ensure pay equity in your current workforce, making adjustments if needed to address disparities.

Educate and Communicate – Help employees understand your compensation structure; encourage them to share salary-related concerns. (You may need to train your managers how to best handle these delicate conversations.)

Keep Salary Ranges Specific – Establishing salary ranges gives you leeway to account for factors like experience and performance. However, if your salary ranges are too wide, employees will likely call you on it.  

Regularly Review and Adjust - Periodically review your salary structures to ensure fairness and competitiveness. Otherwise, salary transparency can be used against you.

Leverage Payroll Technology – Advanced HR and payroll technology—particularly with strong analytics—can simplify the complexities of salary transparency. Analytics makes it easier to monitor compensation through various filters, identify disparities, and make data-driven adjustments when needed.

If your business uses Namely’s payroll and analytics solutions, you have a built-in advantage for implementing salary transparency. Ask your Namely representative for support with this initiative, or for more information about our systems, take a quick video tour.

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