Summary: Pay transparency is being open and honest about what people are paid for their positions at your organization. Full transparency is making workers’ salaries public across the company – and even to the public at large. But you can also have partial transparency, which gives a salary range or the salaries for a department.
The idea of pay transparency has been gaining traction of late, with several different states passing legislation mandating some form of it. The primary driving force behind it is to prevent pay discrimination, particularly towards women.
Key Takeaways:
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Pay transparency is making the salaries of your employees publicly available.
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Being transparent about pay has the benefits of fostering trust, preventing pay discrimination, letting employees know they’re paid a fair wage, and giving you some control over the narrative.
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However, transparency can have the negative effects of limiting the hiring manager’s ability to negotiate salaries and, in some circumstances, leading to unhealthy competition.
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There are different levels of pay transparency, ranging from no pay transparency to partial pay transparency, all the way to full pay transparency. Currently, partial transparency is the most common.
What Is Pay Transparency?
Pay transparency is the practice of being open about how much money each person is paid in their position. There are different facets of pay transparency, such as personal transparency, meaning that you would be honest about how much money you personally make, and then there’s organizational pay transparency, where the organization lists pay.
The idea behind pay transparency is to limit businesses’ ability to pay different people different wages for the same work. If the pay is available for all to see, then discrepancies are noted and questioned. For businesses, it’s a way to show that they pay fair wages to their employees, as well as foster trust and communication.
Pros and Cons of Pay Transparency
There are several states that are passing laws requiring employers to be more transparent about their pay practices, which means that moving toward universal pay transparency is well on its way. Due to this, it’s likely best to consider drawing up your own policy, even if you don’t plan to implement it right away.
Pay transparency, as with almost everything, has positive and negative aspects about it. Here are some things to consider.
Pros:
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Helps prevent pay discrimination. If salaries are public information (at least in the office), then it’s glaringly obvious if people are getting paid different wages for the same position.
Depending on how much leeway hiring managers are given in terms of offering salaries, it can even stave off problems that higher management may not be aware of.
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Fosters trust. Pay can be a touchy topic. If you’re willing to have open and honest conversations about it, then it fosters honesty in return. And that all leads to a more open and trusting environment in general. It’ll also have the benefit of your employees knowing that you aren’t paying people different amounts for the same positions.
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Lessens employees’ pay dissatisfaction. While this isn’t a guarantee, employees knowing what the average pay is for others in the same or similar positions can make it clear to them that they’re being paid fairly. It can be hard to get accurate pay information in other ways, and without that, employees may feel underappreciated.
This can even help in cases where you can’t offer the most competitive salaries. Your employees will then at least know that you’re being fair to your employees, even if you can’t afford to pay the highest rates.
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Gives you control of the narrative. If you’re the one who opens the dialog about pay, then that gives you the ability to guide the discussion. It also prevents employees from accusing you of pay discrimination, as different salaries will be available.
If your business has been operating for a while under a limited to no transparency policy, then opening it up may force you to deal with some pay discrepancies that already exist. If that’s the case, you should get out in front of it and have a potential solution to the problem.
Cons:
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Can constrain hiring. Having pay disclosed to all employees can make it much harder to offer a higher salary to a star candidate. That can mean that they’ll accept a job elsewhere, from another organization that isn’t so constrained. It can also prevent you from being able to hire someone cheaply, as they’ll know they’re being underpaid.
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May foster competition between employees. If your pay scale is entirely merit or achievement based, then showcasing the differences in salary can end up leading to resentment or tension between employees. This will doubly be the case if they feel that the policy is unfairly enforced, whether or not there’s any truth to the claim.
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Salary differences can be misinterpreted. If you’re shifting to transparency or just hired someone new, there can be issues with explaining why different people deserve different salaries.
This problem can be exacerbated if the person who earns more is white and male, while other lower earners aren’t. Discrimination then seems the obvious explanation, even if it’s a matter of performance, seniority, or other factors.
Levels of Pay Transparency
While pay transparency generally refers to complete transparency – disclosing salaries to other employees and even the public – that’s not its only definition. When talking about pay transparency, it doesn’t inherently mean that there is transparency. In that vein, there are three different levels of transparency.
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No transparency. Zero pay transparency is pretty uncommon nowadays. In this model, employers would actively keep pay information hidden, both from their workers and the public. This can give you the benefits of not worrying about keeping pay even, allowing you to pay workers what you believe they’re worth.
However, this is largely impractical in modern times, as there are a lot of ways for employees to check what a fair wage for their position is – or one similar to it. That means that if you underpay for a position, in terms of the average, the employee will be able to find out.
In addition, clamping down on speaking about pay is likely to make your employees distrustful. Pay transparency is gaining legal ground as well as popularity, meaning that your employees will inherently assume that you’re hiding something if you choose no transparency.
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Partial transparency. This level of transparency is the most common in American businesses. That’s likely because this is also level with the most range. Partial transparency can range from being mostly open to being most closed.
This model has the same benefits of being able to shift pay ranges depending on experience, education, or performance without worry. The fact that employees won’t be limited in how much of a raise they can get due to transparency may also motivate them to work harder to get a raise.
Again, though, it has some of the same issues as no transparency. It can allow for wage discrimination, as workers won’t know one another’s salaries. And it can also lead to mistrust, depending on your level of transparency and honesty about salary information.
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Full transparency. Transparency at this level is uncommon in American business. However, there are a few notable exceptions to this rule, such as Trader Joe’s. In this case, employers would typically post salary information via spreadsheets and make it accessible to all employees and potentially even the public.
Pay has long been regarded as private, which means that employees may be wary of this level of openness. However, many employees will likely warm up to this model, as it prevents pay gaps between people performing the same job and makes salary negotiation unnecessary, as they know what they’ll be paid for each job.
Pay Transparency FAQ
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Is pay transparency a good thing?
Whether or not pay transparency is a good thing is debated; however, the majority of workers are very much for it. Many unions fought for both pay transparency and a standard pay for each position in order to assure fairness and prevent pay discrimination.
Pay transparency does have a few drawbacks, such as limiting the ability of individuals to get raises or higher pay; however, overall, it makes the working environment fairer and open and helps prevent dissatisfaction and resentment.
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Which states require pay transparency?
Colorado, Nevada, Washington, Connecticut, Marland, Rhode Island, and California have all passed laws that require some level of pay transparency. How much varies from state to state, as well as the position. Government positions are typically much more affected by laws of this sort than private jobs.
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What’s the difference between pay transparency and pay equity?
The difference between pay transparency and pay equity is that one is about sharing pay information, while the other is about making sure that people are paid the same for the same responsibilities. The two are often mentioned together, as pay transparency has been proven as an effective way to work towards pay equity.
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Author
Kristin Kizer
Kristin Kizer is an award-winning writer, television and documentary producer, and content specialist who has worked on a wide variety of written, broadcast, and electronic publications. A former writer/producer for The Discovery Channel, she is now a freelance writer and delighted to be sharing her talents and time with the wonderful Zippia audience.
