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Why pay transparency needs to get bumped up on your business’s agenda

Posted by Shivali Anand

March 31, 2022    |     3-minute read (587 words)

Pay transparency, which is when businesses make employees' remuneration information available to others, whether internal, external or both in a bid to close the gender pay gap, is picking up steam. The EU will soon decide whether to make everybody’s salaries public. Many legislatures and companies around the U.S. have either enacted or are considering pay transparency measures.

For example, both Netflix and Whole Foods have implemented open salary practices. At the time of publication, salary disclosure laws were in place or about to be enacted in eight states: California, Colorado, Connecticut, Maryland, Nevada, Ohio (Cincinnati and Toledo), Rhode Island and Washington. Massachusetts and New York are considering similar measures.

Meanwhile, in December 2021, the New York City Council joined these states by approving its own pay transparency bill. Employers with at least four workers in New York City will be obliged to provide wage ranges on job postings starting May 15, 2022.

Putting it into perspective

Depending on the business or jurisdiction, pay transparency gives employees access to compensation figures for their colleagues and superiors. It might also require candor with job candidates regarding wage ranges, either in job postings or when an applicant specifically requests the information.

What difference does it make? The advantages of pay transparency include:

It can help bridge racial and gender divides: In the U.S., research shows women earn around 80 cents for every dollar earned by men. And for many women of color, this figure is much lower: Black women earn only 61 cents on the dollar compared to males, while Latina women earn only 53 cents. Economists say that willingly sharing wage information could help close the long-standing gender pay gap and increase workplace diversity and fairness.

It can increase productivity: According to research published in the Academy of Management Journal, employees who are aware of their co-workers’ compensation perform better. Employees who believe they are being paid fairly work harder to achieve their objectives and to justify their salary to themselves, co-workers and superiors.

It can help attract/retain employees: Companies with pay transparency are more likely to find and retain staff throughout the Great Resignation and beyond. According to Diane Domeyer, managing vice president of global HR consultancy Robert Half, the practice helps firms demonstrate to workers that they are serious about diversity and inclusion, which offers these organizations an edge.

Employees favor pay transparency: People prefer to work for firms with more open and inclusive pay policies, according to the 2021 Compensation and Culture Report by compensation management software supplier Beqom, which polled 1,000 employed individuals in the U.S. Nearly two-thirds of respondents indicated they would like to work for a company that reveals its gender pay gap measurements.

Pay transparency is at a crossroads

In light of today's economic recovery and hiring struggles, salary transparency has become increasingly important. During the pandemic, employees' views on labor and pay shifted, with the consequences playing out in the Great Resignation. People of color, women and low-wage workers have also been disproportionately driven out of the workforce since the pandemic set in. At the same time, more states are enacting salary history bans.

Refusing pay transparency could cost you

Given the presumed connection between pay transparency and employee retention, the risks of refusing to implement a pay transparency policy and clinging to one-sided practices are considerable. As pay transparency expectations continue to spread, it is likely to put your company at a competitive disadvantage to ignore the changing tide, particularly among younger employees

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