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Research: The Complicated Effects of Pay Transparency

• Tomasz Obloj
• Todd Zenger

A wave of recent studies looks at the impact of new laws on equity, productivity, turnover, and more.

Companies are facing a crescendo of calls for greater pay transparency as local, regional, and national governments across the globe are enacting laws designed to increase the visibility of pay practices. These changes are already forcing companies to abandon unfair, discriminatory compensation policies, but beyond this important and clearly desirable result, pay transparency’s influence is more difficult to assess. Empirical studies suggest that pay transparency may lower compensation overall, even as it removes inequities. It may also in some circumstances compromise employee productivity and affect companies’ ability to attract and retain high performers. Perhaps more dangerously, it skews employees to favor a specific aspect of performance over others, weakening the organization’s performance overall. How transparency is enacted, therefore, is critical to ensuring that the organization and its employees all benefit from it.

Although pay secrecy remains the informal norm or formal policy for roughly half of all U.S. employees , companies are facing a crescendo of calls for greater pay transparency. Local, regional, and national governments across the globe are enacting laws designed to increase the visibility of pay practices.

• TO Tomasz Obloj is a professor at Indiana University’s Kelley School of Business in Bloomington, Indiana.
• Todd Zenger is the N. Eldon Tanner Professor of Strategy and Strategic Leadership and Presidential Professor at University of Utah’s Eccles School of Business. His recent book, Beyond Competitive Advantage: How to Solve the Puzzle of Sustaining Growth While Creating Value (Harvard Business Review Press, June 2016) explores how value creating corporations compose corporate theories that guide their ongoing growth, including acquisitions. You can download a free chapter at ToddZenger.com.

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Exposing Pay: Pay Transparency and What It Means for Employees, Employers, and Public Policy

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Should employees be allowed to discuss their pay with other employees? Should managers explain the logic underlying organizational pay structures and decisions to their employees? Should companies disclose the mean or median rates of pay for particular positions, or perhaps even individual employees’ actual pay? Concerns over gender and racial disparities are increasingly driving organizations to liberalize restrictions on pay communication. But the forces driving such moves have, to date, been based more on conjecture than science. Accordingly, the aim of this book is to offer evidence-based insights into how pay communication policies and practices impact outcomes at individual, organizational, and societal levels. For example, at the individual level, the book examines the impact of pay transparency on task performance, helping and collaboration, and counterproductive work behavior. At the organizational level, it examines how pay transparency impacts employee turnover rates, pay dispersion, and reliance on idiosyncratic deals. Finally, from a society level, the book explores pay transparency’s impact on gender pay disparities. Summarizing findings from the recent surge in pay transparency research, this book aims to help employees, managers, and policymakers better understand how pay communication policies and practices may be leveraged to enhance organizational performance and address social inequality, while at the same time highlighting for them why and when such practices can generate potentially harmful, unintended consequences.

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• Published: 10 February 2022

The influence of pay transparency on (gender) inequity, inequality and the performance basis of pay

• Tomasz Obloj   ORCID: orcid.org/0000-0003-2089-0074 1 &
• Todd Zenger   ORCID: orcid.org/0000-0002-9830-4066 2  

Nature Human Behaviour volume  6 ,  pages 646–655 ( 2022 ) Cite this article

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Recent decades have witnessed a growing focus on two distinct income patterns: persistent pay inequity, particularly a gender pay gap, and growing pay inequality. Pay transparency is widely advanced as a remedy for both. Yet we know little about the systemic influence of this policy on the evolution of pay practices within organizations. To address this void, we assemble a dataset combining detailed performance, demographic and salary data for approximately 100,000 US academics between 1997 and 2017. We then exploit staggered shocks to wage transparency to explore how this change reshapes pay practices. We find evidence that pay transparency causes significant increases in both the equity and equality of pay, and significant and sizeable reductions in the link between pay and individually measured performance.

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Data availability.

All data that support the findings of this study have been deposited in the Open Inter-university Consortium for Political and Social Research Repository under project number 155541 and are available at https://doi.org/10.3886/E155541V1 . The names of individual academics and institutions have been blinded and are represented in the data with author-generated unique identifiers.

Code availability

The statistical code generating all results reported in the manuscript has been deposited in the Open Inter-university Consortium for Political and Social Research Repository under project number 155541 and is available at https://doi.org/10.3886/E155541V1 .

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Acknowledgements

We thank O. Shelef, J. Snyder, Z. Cullen and M. Higgins for helpful comments and suggestions, as well as seminar participants at Brigham Young University, Carnegie Mellon University, Dartmouth College, Harvard University, LMU, Ohio State University, Purdue University, the University of Indiana, the University of Maryland, the University of Michigan, the University of Minnesota and the University of Utah. We particularly thank A. Olejniczak and his team at Academic Analytics; various data providers with government agencies and universities in the states of California, Connecticut, Florida, New York, Pennsylvania, Texas, Virginia and West Virginia; and A. Eichholtzer, J. Cox and H. Yang for research assistantship. This research has been partially funded by the French National Research Agency Grant No. ANR-16-TERC-0020-01 (T.O.). Academic Analytics and this funder had no role in study design, data collection and analysis, decision to publish or preparation of the manuscript.

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Extended data

Extended data fig. 1 the unconditional and conditional gender wage gap..

Notes: The figure presents OLS regression estimates explaining (ln) salaries. Plotted coefficients of year dummies interacted with Female indicator, with 95% confidence intervals. Levels are scaled by the value on un-interacted Female indicator. Unconditional gap is based on a model with year dummies only. Conditional gap is based on models with year, academic domain, and institution fixed effects as well as controls for academic tenure (ln), number of academic articles, number of published books, number of awards, number of grants, and number of patents. Regression results used to generate this plot are reported in Supplementary Table 3.1 .

Extended Data Fig. 2 Equity in organizations: The effect of pay transparency on gender wage gap.

Notes: The figure presents regression coefficients from an OLS regression model explaining (ln) wages. Reference category is 1 year prior to transparency shock. Plotted coefficients: dummy variable for Female interacted with years from (to) transparency shock with 95% CIs. Standard errors clustered on institution. Controls include academic tenure (ln), number of published academic articles, number of published books, number of awards, number of grants, and number of patents, and institution, individual, and year fixed effects. Regression results used to generate this plot are reported in Supplementary Table 3.3 .

Extended Data Fig. 3 Equity in organizations: The effect of pay transparency on gender wage gap: additional specifications.

Notes: The figure presents regression coefficients from an OLS regression model explaining (ln) wages. Reference category is 1 year prior to transparency shock (1 and 2 years for 2SLS results, panel C). Plotted coefficients: dummy variable for Female interacted with years from (to) transparency shock with 95% CIs. Standard errors clustered on institution. Controls include academic tenure (ln), number of published academic articles, number of published books, number of awards, number of grants, and number of patents, and institution, individual, and year fixed effects. Panel A – population restricted to 2004-2013 inclusive; Panel B – stacked difference in differences model (see text for more details). Panel C – 2SLS results, instrumented covariate: women’s mean earnings as a % of men’s in the private sector (see below for more details), excluded instrument: lead of transparency shock. Panel D and E – population restricted to CT, FL, PA, TX, VA (omitted states: California, New York, West Virginia). Panel F – full population. Regression results used to generate these plots are reported in Supplementary Tables 3.3 , 3.4 , and 3.5 .

Extended Data Fig. 4 Equity and equality in organizations: The effect of wage transparency on variance in market wage residuals and wage variance.

Notes: The figures present regression coefficients from an OLS regression model explaining variance in market wage residuals (Left panel) and variance in (ln) wages (Right panel). Reference category is 1 year prior to transparency shock. Both variables are calculated within Institution-Academic Field (11 categories). Plotted coefficients: years from (to) transparency shock with 95% CIs. Standard errors clustered on institution. Controls include reference group mean productivity levels and reference group productivity variances as well as year and academic field-institution fixed effects. Regression results used to generate these plots are reported in Supplementary Table 4.3 .

Extended Data Fig. 5 Equality in organizations: Distribution of market wage residuals, by transparency shock.

Notes: The figure presents kernel density estimates of wage regression residuals by transparency shocks. Controls include institution, academic domain, and year fixed effects. Means and standard deviations are calculated averaging across all time periods. Residuals trimmed at 1% and 99%. Two-sample combined Kolmogorov-Smirnov tests for equality of distribution functions: 0.041, p-value<0.001.

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Obloj, T., Zenger, T. The influence of pay transparency on (gender) inequity, inequality and the performance basis of pay. Nat Hum Behav 6 , 646–655 (2022). https://doi.org/10.1038/s41562-022-01288-9

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The Shift to Pay Transparency in the Workplace

Discover the reasons behind the shift to pay transparency in the workplace and learn how to implement a pay transparency program to attract and engage talent.

Employers increasingly recognize the importance of pay transparency as a pivotal element in building trust, attracting top talent, and advancing workplace  diversity, equity, and inclusion  (DEI). The move toward openly sharing compensation information marks a significant shift in employer attitudes toward salary disclosure. This trend seeks to rectify disparities and cultivate an environment of fairness and equity, ensuring a more transparent and inclusive workplace.

While transparency may vary from company to company, most employers are still figuring out the best ways to share information about pay transparency with their current and future workforce. Our research shows that  only 12% of organizations have developed and implemented a pay transparency strategy . Almost 75% are taking a wait-and-see approach or considering plans given current trends.

In this article, we'll explore what pay transparency is, review how the movement toward transparency has evolved, discuss pay transparency's benefits and potential drawbacks, and share how organizations can implement a transparency initiative.

What Is Pay Transparency?

Pay transparency is the practice of openly sharing information about employee compensation in an organization. Pay transparency can take various forms, from providing general guidelines on compensation practices to disclosing specific salary information for each position in the company. Some organizations share salary ranges, pay scales, and the criteria used to determine individual salaries.

The primary goal of pay transparency is to promote fairness, equity, and trust by ensuring that employees understand how their pay is determined and how it compares to that of their peers. It also helps to hold employers accountable for their compensation practices and allows them to identify and address pay inequities.

The Movement Toward Salary Disclosure

The movement toward salary disclosure has been influenced by changes in organizational norms, regulatory frameworks, and societal expectations. Its main goal is to enhance pay transparency and address wage disparities. Starting in the late 20th century, the push for transparency emerged from the efforts of policymakers, advocacy groups, and labor unions to combat pay inequities. Despite the existence of the Equal Pay Act of 1963, wage disparities against women and minority groups persists, and data from 2020 shows significant gaps.

In response, several U.S. states and the European Union have implemented laws to encourage or mandate salary disclosure in job listings and for current employees. The EU's Pay Transparency Directive is set to integrate into national laws by 2026. This legal shift aligns with broader societal demands for diversity, equity, and inclusion. Stakeholders advocate for pay transparency to level the playing field and ensure fair compensation across genders and races.

The digital era, marked by the rise of social media and information-sharing platforms, has further propelled this movement. Millennials and Gen Z in particular have challenged traditional salary secrecy, arguing that transparency promotes fairness and accountability. Platforms like Glassdoor, PayScale, and Salary.com facilitate the anonymous sharing of salary data, contributing to a more open and equitable labor market.

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The Benefits of Pay Transparency

As the pay transparency movement continues to gain momentum, organizations are recognizing the benefits of pay transparency, including greater trust, equity, and engagement in the workplace. Here are just a few.

• Promoting fairness and equity:  Visibility into pay scales and compensation policies ensures that employees are compensated fairly for their work. When employees have access to information about how pay decisions are made, they are less likely to perceive disparities as unfair or discriminatory.
• Building employee trust and engagement:  Transparent pay practices demonstrate organizational integrity and foster trust between employers and employees. When employees feel that their compensation is based on objective criteria and aligned with organizational values, they are more likely to feel valued, engaged, and committed to their work.
• Reducing pay gaps : Pay transparency is an effective way to identify and correct discrepancies in pay that may be based on factors such as gender, race, ethnicity, or other demographic characteristics. By addressing such inequities, organizations can take proactive measures to ensure all employees have equal opportunities.
• Improving employee productivity:  Pay transparency can boost employee morale and performance, encourage a merit-based system, and create a culture of trust and accountability.
• Attracting and retaining talent:  Organizations that embrace pay transparency may be viewed as more attractive, particularly by younger generations that prioritize openness and social responsibility. Employees who feel that their compensation is competitive and equitable will likely stay with the organization long-term.
• Enhancing the organization's reputation:  Organizations that prioritize pay transparency are often perceived as ethical, progressive, and socially responsible, leading to positive brand perception and increased competitiveness in the marketplace.

The Potential Drawbacks of Pay Transparency

Implementing pay transparency policies may also pose some challenges. Pay transparency may face resistance from leaders who are used to maintaining secrecy regarding compensation.  According to a survey conducted by people-analytics firm Visier , as many as 20% of workers would prefer to keep their salaries confidential. While younger employees are more open to this change, older generations may be uncomfortable with it and see it as an invasion of privacy. This could lead to anxiety and affect their psychological and physical well-being.

According to a recent Bankrate survey, around 42% of Gen Z workers and 40% of Millennials have shared their salary information with their colleagues or peers. Possible drawbacks of disclosing salary information may include:

• Unhealthy comparisons:  Public disclosure of salaries can lead to employees feeling demotivated or dissatisfied due to perceived pay disparities, even when differences are justified by experience or performance.
• Interpersonal conflicts:  Significant pay differences within teams can create resentment or jealousy, making coworker relationships difficult.
• Management challenges:  Managers may struggle to address perceived unfairness in compensation, which can affect team dynamics.
• Legal risks:  Pay transparency could increase the risk of legal challenges if compensation disparities are seen as unfair or discriminatory based on gender, race, or ethnicity.
• Market benchmarking:  Employees can easily compare their salaries with market rates, potentially feeling underpaid and prompting them to seek better offers elsewhere, leading to higher turnover.
• Competitive undercutting : Transparent pay practices allow competitors to undercut salary offers or poach top talent.
• Administrative complexity:  Establishing and maintaining transparent pay practices requires significant resources, especially without standardized pay structures.

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Best Practices for Implementing Pay Transparency

Organizations that want to prioritize transparency in their rewards programs should evaluate whether their program aligns with their business objectives and if employees clearly understand what it means for them. It's crucial to have leadership buy-in to the program's objectives, which are underpinned by a robust framework. This framework should encompass transparent compensation policies thorough benchmarking, defined job grades and titles, and mechanisms for recognizing individual achievements, fostering a culture of openness and fairness.

According to McMullen, a well-designed rewards program gives companies a good story to tell. Therefore, organizations must effectively and transparently communicate their rewards program's story. By taking careful planning, communication, and implementation steps, organizations can minimize the potential risks and maximize the benefits of pay transparency. To achieve this, companies should follow some essential steps.

1. Conduct a pay practice assessment

Review current pay structures, policies, and practices thoroughly. Identify any areas of disparity or inconsistency in compensation that may require attention.

2. Articulate a clear compensation philosophy

According to a WorldatWork survey, a staggering 80% of organizations acknowledge that their employees lack a comprehensive understanding of the compensation policy. It's imperative to transparently delineate the methodology behind pay determination, considering criteria such as performance, experience, skills, and market benchmarks. Instituting core principles like fairness, equity, and competitiveness in relation to market trends should steer the formulation of compensation strategies, ensuring clarity and coherence in pay-related decisions.

3. Leverage pay tools and resources

Use pay tools to ensure that compensation decisions are backed by accurate market data and align with the defined compensation philosophy of the business.

4. Implement standardized pay structures

Use objective benchmarks and market insights to formulate standardized salary bands for every position and tier across the organization. This strategy ensures consistent and transparent compensation practices, enhancing pay fairness.

5. Educate managers and employees

Empower managers and employees through effective communication and execution. Foster an understanding of the pay transparency initiative across the workforce and arm managers with the necessary tools to engage in open discussions about compensation and effectively respond to team questions. Ensure all employees are well-informed about new practices and policies and the reasoning behind compensation strategies, fostering a culture of transparency and inclusivity.

6. Create feedback channels

Set up dedicated channels for employees to voice their opinions and concerns regarding compensation. Encourage an environment of open dialogue, promptly address any issues raised, and be willing to refine policies accordingly. This approach will cultivate trust and reinforce the organization's credibility among its workforce.

7. Monitor and assess impact

Continuously measure the impact of pay transparency initiatives by monitoring key indicators like employee engagement, retention rates, and overall satisfaction. This will provide insights into the effectiveness of these efforts and guide necessary refinements, ensuring the initiative's success and alignment with organizational goals.

Ready to take the next steps toward pay transparency?

Adopting a pay transparency strategy that prioritizes trust, fairness, and motivation sets the stage for a better-informed and more actively engaged workforce.

If you are ready to implement pay transparency, explore our  Total Rewards  solutions to learn how we can support your journey toward a more transparent and equitable workplace.

Key takeaways

• The definition of pay transparency
• Benefits and drawbacks of promoting pay transparency in the workplace
• 7 best practices for implementing a culture around transparency of pay

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UC Berkeley’s Premier Undergraduate Economics Journal

Pay Transparency

HANNAH SHIOHARA – NOVEMBER 21ST, 2022

EDITOR:  KATHERINE MCKERNAN

Pay transparency, which refers to the degree of openness between a company and its employees about how much people are compensated, and the extent to which such information can be internally discussed, is garnering increased attention amongst organizations and scholars. Today, pay transparency laws have been implemented in 17 states , allowing employees to freely discuss their pay, and of these states, 8 require employers to provide salary ranges to job candidates. This movement can be seen as a commitment to narrow the gender pay gap and increase trust within the work environment, two critical factors to attract and retain top talent. However, the full effects of increased pay transparency often go unspoken. Increasing such communication can have unintended economic consequences, and can negatively impact workplace culture if not done correctly. Here are the benefits and drawbacks of increased pay transparency, and a take on how firms should go about disclosing their employees’ salaries. 

The case for pay transparency

The most common case for pay transparency is that it will decrease the gender pay gap. When firms disclose salaries, they are forced to equally compensate men and women who are performing the same task as they cannot hide any information. This concept was backed up by a study conducted on Danish companies . After the 2006 Act on Gender Specific Pay Statistics was introduced, companies of 35-50 employees that were required to report gender-segregated salary data (called mandatory reporting firms) were compared to similarly sized companies that were not required to release such information (control group). Between 2003 and 2008, the gender pay gap in mandatory reporting firms shrank by 7% while there was relatively no change in the control group. The study also found that more female employees were promoted from the bottom of the corporate hierarchy in mandatory reporting firms, and that more women were being employed overall as well. 

Pay transparency also makes data easily accessible, thus making it easier to identify and address discriminatory practices within the corporate realm. Agencies such as the U.S. Equal Employment Opportunity Commission (EEOC) rely on specific data segregated by gender, race, and ethnicity to conduct effective investigations about discrimination charges. Data that is readily available also allows advocates to reference quantitative evidence when identifying and analyzing systemic discrimination and pay gaps. 

However, while these issues are critical and urgent, there is research that suggests that increasing pay transparency is not a good strategy to address and solve them. Economists have advocated against a fully transparent labor market, and case studies in real corporations have also shown negative results when communication about pay was increased. 

Equilibrium effects of pay transparency 

In a transparent organization, an employee can discuss their salary with their colleagues. Therefore, the rational decision for an individual to make would be to find the highest salary that is being offered to a comparable individual, and then demand that same wage. Firms now become less willing to pay for labor as they will be forced to offer the maximum wage to all employees, and thus will lower their starting wages. Since the increased chance of information spillovers compresses wages and hurts all employees, pay transparency causes an information externality.

This phenomenon is what economists call the demand effect of pay transparency : in a fully transparent market, a firm will set a maximum wage that potential laborers will either accept or reject, but in a fully secret market, a firm would be willing to give any amount of compensation asked for, as long as it is below the value of labor. The demand effect also changes how laborers approach initial wage negotiations. All laborers in a fully transparent market will ask for initial wages lower than what they would ask for if they were in a secretive market. However, those with low outside job options will lower their desired wage more than workers with high outside options, as they want to seem more attractive than other workers that would be “too expensive.” This is called the supply effect of pay transparency . Thus, in the short run period before any information spillovers occur, there will be a greater wage gap between employed workers that had high versus low external job options in a transparent company. These effects also show how increased transparency decreases an individual’s bargaining power and transfers it to the firm. In both the demand and supply effect phenomena, the firm can effectively set salaries that are “once and for all” to its workers. 

Overall, examining the equilibrium effects leads to two conclusions. First, that increasing pay transparency will lower average wages, and two, that full pay transparency will minimize employment. These theories have supporting evidence, as states that have implemented the “right of worker to talk” law, which protects employees’ right to discuss their wages amongst each other, saw a 2% reduction in wages. 

Dissatisfaction in Silicon Valley

Another objective of increasing pay transparency is to foster a positive work environment that is built upon trust and credibility. However, a case study conducted in two large Silicon Valley companies concluded that publicizing salaries and other pay related data may result in elevated negative emotions and employee turnover. 

Take a group of 700 engineers working at Google. A large portion of their work is done in groups, and any finished products are a result of joint talent and effort. So, when each engineer is asked to assess themselves, most of them tend to overestimate their individual contributions and performance. Of the 700 surveyed, nearly 40% of them said that their performance is in the top 5% relative to their peers, and 92% of them would respond that they are in the top quarter. Based on these statistics, we can infer what would happen if everyone’s salaries were made visible to all workers.  If an engineer who thought they contributed equally, if not more than another engineer sees that they weren’t earning as much, they’d think they aren’t being compensated fairly, triggering frustration and dissatisfaction. As these negative emotions heighten, the workplace would turn into a competitive space where employees begin obsessing over comparison. 

These case studies illustrate how pay transparency can cultivate a negative culture of competition and comparison among employees, going against the original objective of pay transparency.

Allocatively inefficient results 

Salary disclosures may also lead to lowered efficiency within a firm. Employees that discover they are being underpaid will not put in less effort but will reallocate their effort such that they get compensated more, resulting in allocative inefficiency. This phenomenon was observed in January of 1990, when the salary of every National Hockey League player was suddenly disclosed. Underpaid players started scoring more goals but allowed their team to get scored on by more than the additional goals they provided. On the other hand, overpaid athletes played the same (they did not increase their defense), leading to an overall worse team. After the mass disclosure of salaries, players started shifting their attention from defense to offense, because those that were better at offense were receiving higher salaries in contract negotiations. 

An analogous result is not hard to imagine in other business settings. For example, a teacher that is paid based on their students’ test scores may only teach students how to take tests, instead of actually teaching them important content or inspiring them. A salesperson that is paid based on commissions may focus on short-term deals and neglect building long-term relationships. 

Increasing the effectiveness of pay transparency 

As depicted in Figure 1, a firm that has an intermediate level of transparency is the most optimal in terms of maximizing employment. In this type of firm, though workers will learn about others’ wages stochastically after joining the firm, it is not publicized or talked about in a completely open manner. This is the point where the supply and demand effect are balanced out, such that workers still have adequate bargaining power and are not forced to accept lower average wages. An intermediate level of pay transparency seems desirable, as it would not result in negative workplace culture as observed in the two case studies and may prevent the firm from becoming allocatively inefficient. 

However, pay transparency is gaining traction because the gender wage gaps and pay discrimination are urgent issues that must be addressed. There is growing consensus that the benefits of increasing transparency past the “optimal” point outweigh the costs, because it may result in a more equitable society. In such a case, there are two steps that a firm should take in order to maximize the effectiveness of pay transparency and decrease the negative results. First, along with pay information, the method that is being used to evaluate employees’ performance must also be clearly communicated. For example, implementing objectives and key results (OKRs) will provide a set of metrics that every individual can refer to assess their own work. These OKRs should be specific enough such that even employees working on highly collaborative projects—such as the 700 engineers mentioned in the Silicon Valley case study—know exactly what they did and the extent to which they contributed. By creating these metrics, employees are less likely to feel that they are being undercompensated, as they would be aware of exactly how their work and salary are correlated. Second, providing tools for professional development and supporting the growth of employees will become more crucial than ever. While employee turnover rates increase for those earning below the median salary with increased transparency, skills training programs can become the incentive they stay. In the long run, their performance will improve, and they will be compensated accordingly, benefiting them personally as well as the firm by retaining top talent. 

At the end of the day, people simply want to be valued properly. Pay transparency models should be revised such that firms can uplift groups of people that have been historically underrepresented or unfairly compensated, while also maximizing their efficiency and productivity. 

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Should You Share Your Salary With Co-Workers? Here’s What Experts Say

W ith more attention on gender and racial wage gaps in the workplace, some companies are left wondering whether pay transparency will help them achieve pay equality or cause more divides in the workplace.

Women’s rights advocates have urged companies to adopt full pay transparency policies — meaning that employees know what each of their colleagues make — as a tool to close pay gap, which is even worse for women of color . While white women in the U.S. on average earn 79% of what white men make, black women earn 63% of what white men make, Native American women bring in 57%, and Hispanic women — 54%, according to a 2018 report from the American Association of University Women.

But others fear pay transparency could spark jealousy among employees and reduce the number of staffers a company can hire. Pay transparency is still relatively rare in the private sector, according to Stephanie Penner, a senior partner at consulting firm Mercer, which works with companies on these issues. About 17% of private companies practice pay transparency, while 41% discourage and 25% explicitly prohibit discussion of salary information, according to a December 2017 report from the Institute for Women’s Policy Research.

But is pay transparency actually beneficial to employees and employers? Here’s what the experts say.

What are the benefits of pay transparency?

Employees might be happier.

Companies like Whole Foods and New-York based analytics firm SumAll have adopted salary transparency policies. Buffer, a social media startup, took transparency a step further by publishing all employee salaries publicly on their website.

There isn’t comprehensive research on how pay transparency affects employees because so few companies have these policies, according to Todd Zenger, presidential professor of strategy and strategic leadership at the University of Utah’s David Eccles School of Business. But anecdotal evidence from Buffer and SumAll suggests it can make workers more productive and satisfied.

Hailley Griffis, Buffer’s public relations manager, says job applications to work at Buffer significantly increased after the company made its compensation data public. SumAll CEO Dane Atkinson told Business Insider in 2017 that transparency made employees more productive and collaborative. And a 2016 study published in the Journal of Business and Psychology found that employees were more likely to ask for help from the right people when they knew what their colleagues make.

“If I don’t know my co-worker’s pay, I assume that I might not be getting paid as much, and I decrease my performance,” says Elena Belogolovsky, who authored the 2016 study when she worked as an assistant professor of human resources studies at Cornell. “When people don’t know each other’s pay, they assume they are underpaid.”

But when employees are able to compare, they might realize they’re being paid market rate and spend a lot less time being dissatisfied, says Chandra Childers, a senior research scientist at the Institute for Women’s Policy Research.

Companies can close pay gaps

Of course, employees will only be happy if they’re being paid fairly — and knowing colleagues’ salaries allows workers to fight to close the gap. Childers points to the case of Lilly Ledbetter , who famously sued her company for discrimination after a co-worker anonymously informed her that she made less than two male colleagues in the same job.

“She didn’t know she was being paid less so she couldn’t negotiate for higher pay — and that’s more common than we might think,” Childers says.

However, there isn’t enough research to definitively link pay transparency to pay equality. At U.S. government agencies, most of which are required to publicly release pay information , women make 81% of what men make, according to the 2017 report from the Institute for Women’s Policy Research . In the private sector, where the majority of companies don’t have pay transparency policies, women earn 79% of what their male counterparts make.

Griffis says Buffer, which uses a formula that factors in job title, experience and cost of living to determine staff salaries, doesn’t have a pay gap among men and women in the same roles. But she notes there is a pay gap when women and men’s salaries across the company are compared: women make 9.25% less than men on average. As of April 2018, the company employed 48 men and 21 women in total.

“We don’t think the gap is because of our salary formula, but a lack of diversity. And that’s something we’re working on and taking very seriously,” Griffis says. “As a woman, I know a man doing the same job as me would not make more money.”

Companies can control the narrative

While pay transparency policies brought Whole Foods and SumAll public goodwill, Uber , BBC and Google became ensnared in controversies over alleged gender pay gaps. Penner says companies could benefit by getting ahead of the narrative since public pressure will only continue to mount.

Several states — including California, Delaware and Colorado — have recently passed laws banning employers from penalizing workers for discussing their salary or inquiring about colleagues’ compensation . Websites like GlassDoor and PayScale allow employees to share salaries anonymously and determine the market rate for their job.

“Employees want more information,” Penner says. “There’s more information that’s available in the marketplace that’s accessible to employees and job candidates. If an organization doesn’t form its own pay method on transparency, someone else will — and it probably won’t be a complete message.”

What are the downsides of pay transparency?

Companies may hire or retain fewer people.

Companies may be reluctant to make their pay transparent, because that can render it more difficult to hire talented staffers at lower rates, Belogovsky says. That means that companies will be able to hire fewer people on tight budgets.

“If no one knows, you can pay people whatever you want,” she says. “Companies want to keep the ability to hire more stars and pay them less. If they can hire a woman and pay her less, why wouldn’t they do that?”

Before Buffer began publicizing its internal pay data, company leaders feared it might be easier for competitors to poach employees, Griffis says.

“Competitors would just need to offer an employee another $20,000, and soon they can take our whole engineering team,” she says. “That was definitely a fear, but to my knowledge that didn’t happen.”

Transparency could pit employees against each other

While some have argued pay transparency can increase employee performance, others say full transparency can have a detrimental effect on employees. Zenger says it could cause tension.

“In environments where performance is difficult to precisely measure and isn’t observable to everyone, everyone believes they’re above average in terms of their contributions or performance,” Zenger says. “Broadcasting everyone’s individual pay triggers a process of social comparison.”

Belogovsky says there’s also a chance transparency could stoke envy among the company’s lowest earners.

“When you see everyone’s performance, some people might not be motivated because they feel jealous,” she says. “You can argue when everyone knows each other’s pay, people who earn less will be more likely to quit.”

Pay differences could be taken out of context

Many companies base pay on subjective determinations. Not clearly communicating the reasons why certain employees are paid more or less may exacerbate employee frustration, Penner says.

“There is definitely a tipping point at which too much information is harmful because it will be taken out of context… There’s a lot more that goes into how someone is paid than what meets the eye to employees,” she says. “It’s important to give more information about why the pay is different for different jobs. If you don’t, it’s up for interpretation by each employee about why that’s fair.”

Zenger suggests it might be more beneficial for companies to explain exactly how pay is determined — without revealing specific figures.

“In a university setting, we have strict rules about publicizing students’ grades on exams. But we try to be transparent about how performance is determined,” Zenger says. “It’s really a question about whether you broadcast [salaries] or be transparent about the process to which pay is determined.”

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Understanding pay transparency and its importance

In today's modern workforce, pay transparency has become an increasingly important topic. Employees want to know how much they are being paid, how their compensation compares to others in similar roles, and if there are any disparities in pay based on gender or ethnicity. 

Likewise, employers are recognizing the value of being transparent about pay to build trust, promote fairness, and attract and retain top talent. In this comprehensive guide, we will explore the concept of pay transparency, its benefits and drawbacks, the current legislation surrounding it, and how organizations can embrace it effectively.

What is pay transparency?

Pay transparency, also known as salary transparency or wage transparency, refers to the practice of openly sharing information about compensation with employees and job candidates. 

According to federal law, pay transparency is the degree to which employers are open about salary and pay information. Salary transparency can also mean the ease at which employees can find out the compensation of other employees in their workplace. 

It involves providing details about how salaries are determined, disclosing salary ranges, and sometimes even sharing individual employee salaries. The level of transparency can vary from organization to organization, but the overall goal is to foster openness and trust regarding pay practices.

Why is pay transparency important?  

We know pay inequities exist. These inequities disproportionately impact women, especially those who are Black, Indigenous, and people of color (BIPOC).  According to US Census 2020 data, women earned 83 cents to every dollar a white man made. 

But not all women are equitably paid, either. On average, Black women are only paid 63 cents for every dollar paid to a white man. Further, Latinx women earn 57 cents for every dollar paid to a white man. 

Studies show that pay transparency can help close the gender pay gap . And when coupled with laws that prevent a company from asking a candidate about their current or previous pay, the gender gap narrows. 

Beyond pay equity, pay transparency brings plenty of benefits to an organization. From increased job performance and satisfaction to retention and trust, pay transparency pays off. After all, how you compensate your employees speaks to how much you value them. When employees feel valued by their organization, it increases employee engagement . 

The Evolution of Pay Transparency

Over the years, pay transparency has evolved significantly. In the past, companies often discouraged employees from discussing their compensation and salary ranges , and many even implemented pay secrecy policies . However, with the rise of online job postings and self-reported wage tools, employees now have greater access to information about pay, leading to increased discussions about compensation in the workplace. In response to the demand for more transparency, several jurisdictions have enacted laws to promote pay transparency and address pay inequality.

Current Legislation and Pay Transparency Laws

Pay transparency is not only a strategic choice but also a legal requirement in many jurisdictions. Governments around the world have recognized the importance of pay transparency in promoting fairness and reducing wage disparities. 

Pay transparency laws 

Now, 17 states in the US have some sort of pay transparency law in place. 

The below states have led the way in making it legally required for employers to disclose salary ranges on their job descriptions:

• California 
• Colorado 
• Connecticut 
• Maryland 
• Rhode Island 
• Washington 

As of November 2022, New York City also requires employers to post salary ranges for every job posting. And more and more employees are asking for salary ranges as part of the hiring process . 

While it’s picking up momentum, these transparency policies and laws are still fairly new. It’s not the norm for pay data to be transparently disclosed to employees and candidates. But with these states leading the way, we can likely expect other states to follow suit soon. 

Let's take a closer look at some notable pay transparency laws in each state:

1. California

California implemented a pay transparency law that came into effect on January 1, 2023. The law requires employers to include pay ranges on every job posting and share pay ranges with employees for their current positions. Employers with 15 or more employees must also provide the pay scale to applicants and third-party job posting platforms. 

2. New York

New York will introduce a pay transparency law in September 2023. The law will require employers to disclose pay or pay ranges for all jobs, promotions, and transfer opportunities within the state. This law aims to provide candidates and employees with greater visibility into compensation practices.

3. Maryland

In Maryland, employers must provide wage range information to job applicants upon request. This requirement ensures that candidates have access to relevant compensation information during the hiring process.

4. European Union

The European Union has proposed the Pay Transparency Act , which would require employers to include salary ranges in job postings and provide employees with information about their individual pay levels and the average pay levels for colleagues in similar roles. This legislation aims to address pay disparities and promote transparency across member states.

It is essential for organizations to stay up-to-date with the legislation in the jurisdictions where they operate to ensure compliance and promote fair pay practices.

Benefits of pay transparency 

Now that we understand the concept of pay transparency let’s understand the impact. What are some pros and cons of adopting pay transparency practices? What impact can it have on your employees? Does it impact performance management ? 

First, let’s talk about the pros. Here are five advantages to adopting pay transparency in the workplace.

Promotes pay wquity

Builds trust and engagement, attracts top talent, increases employee retention, encourages productivity and performance, reduces pay secrecy and rumors, drawbacks of pay transparency.

While pay transparency offers numerous benefits, it is essential to consider the potential drawbacks and challenges that organizations may face. Here are some of the key considerations:

Exposing your pay problems may have ripple effects across the business 

Well, this one should be fairly obvious. If you have pay equity problems, pay transparency will bring them to light.

Potential candidate pool reduction

Workforce envy.

Pay transparency without a policy can cause tension between colleagues. The increased visibility into colleagues' salaries can sometimes lead to feelings of jealousy or resentment among employees . Pay transparency may highlight pay disparities, causing dissatisfaction and tension within the workforce. It is crucial for organizations to address these concerns and ensure that pay practices are fair and transparent to mitigate these negative effects.

Pay negotiation challenges

Potential employee poaching, steps to maximize the positive impacts of pay transparency .

If your organization is ready to roll out pay transparency, here are four ways to maximize the positive impacts. 

1. Create a clear pay transparency policy 

The first step to reaping the benefits of pay transparency is to create a policy. First, check with your HR and legal teams on state laws that might apply to your workforce. 

Then, work to create a clear, easy-to-understand policy. There’s nothing worse than having a complicated, jargon-filled policy about an already touchy subject. Make sure the policy includes an FAQ for employees and has a way for employees to ask and receive answers to any questions they may have, too. 

2. Communicate the pay transparency practice — and do it well 

Communication is the buffer against internal conflict in the workplace . If your employees understand the policy well, it can help deter and prevent some of those cons from happening in the first place. 

Work with your internal communication team to make sure the policy is well-communicated to your workforce. Consider hosting office hours or a Q&A session with your HR team for more hands-on support. For example, think about how well-educated your HR team is on the practice of pay transparency. Do they understand the purpose behind it? Do your employees understand the importance of communicating this message? Are there key messages or talking points you can provide to your frontline HR managers? Are your employees getting a clear and authentic lens into what your total rewards strategy looks like? Are you receptive to feedback about your total rewards strategy and how it's communicated, too? You want to make sure you’re reiterating the “why” behind pay transparency. Without understanding the purpose, employees risk missing important information. How does pay transparency align with your company's core values ? In what ways do you hope pay transparency can build trust with your employees? How will pay transparency benefit your employees? 

3. Be honest about your pay analysis 

If you’re doing a pay transparency audit for the first time, it might feel daunting. And let’s face it: we know that pay equity isn’t the norm. Your compensation analysis might uncover some problems that you’ll need to address. 

Make sure you handle your analysis with integrity . Look at this as an opportunity to build trust and promote fairness with your employees. By doing so, you’ll be better positioned to retain your top talent. 

4. Commit to growth 

Companies, like humans, are constantly evolving. And bettering ourselves often translates into bettering our company, too. 

Commit to growth. Pay equity isn’t going to be solved with pay transparency alone. But showing your commitment to equity in salary shows a commitment to your people. And in order to do so, you need to show your investment in continuous growth and transformation. 

Sometimes, these conversations are tough ones to have. Let’s say you conduct a pay parity analysis and uncover some problems. Lean on your support resources — like your coach — to help navigate how to best address these growth opportunities. We all have room to better ourselves. And that leads us to our next step in the pay transparency process… 

5. Make meaningful change 

Pay transparency is the start to making change. It’s the launchpad to a workforce where employees are compensated and valued for their contributions equitably. 

Make an action plan for how you’ll address pay parity in your organization. Create changes in how you communicate about salary to your employees. Commit to ongoing communication and transparency about pay. And gather (and listen to) feedback . 

Your employees are your best assets. How are you showing them that you value their work? In what ways are you keeping your core values front and center in everything you do? 

More tips for embracing pay transparency

Implementing pay transparency effectively requires careful planning and consideration. Here are some best practices to guide organizations in embracing pay transparency:

1. Assess your organization's readiness

Before implementing a pay transparency policy, assess your organization's readiness for change. Consider factors such as company culture, employee sentiment, and potential administrative complexities. It is crucial to ensure that the organization is prepared to address any challenges that may arise during the transition.

2. Determine the level of transparency

Decide on the appropriate level of transparency for your organization. This may involve sharing salary ranges, providing information about pay practices, or disclosing individual employee salaries. Consider what will work best for your company culture and industry norms.

3. Communicate clearly and transparently

Communication is key when implementing pay transparency. Clearly explain the reasons for adopting a transparent pay policy and the benefits it will bring to employees and the organization as a whole. Be open to receiving feedback and addressing any concerns that may arise.

4. Ensure fair pay practices

When embracing pay transparency, it is crucial to review and ensure that your pay practices are fair and equitable. Conduct regular pay audits to identify any pay disparities based on gender, ethnicity, or other factors. Address these disparities promptly and make necessary adjustments to promote pay equity.

5. Train managers and HR professionals

Provide training and support to managers and HR professionals to help them navigate conversations about pay transparency. Equip them with the knowledge and skills to address employee questions and concerns effectively. This will promote consistency and fairness in pay discussions throughout the organization.

6. Monitor and adjust

Pay transparency is an ongoing process that requires monitoring and adjustment. Regularly review the impact of your pay transparency policy on employee morale, retention, and recruitment efforts. Make adjustments as needed to ensure that the policy continues to align with the organization's goals and objectives.

Start talking about money 

We know that talking about compensation and salaries can be uncomfortable. But when it comes down to it, discomfort is just the beginning of a growth journey. It’s the first step to learning and growing. This means admitting when systems are broken and committing to bettering ourselves and our organizations. 

While there may be challenges and considerations to navigate, the benefits of pay transparency far outweigh the drawbacks. By following best practices and staying informed about relevant legislation, organizations can successfully implement pay transparency policies that benefit both employees and the organization as a whole. Embrace pay transparency and pave the way for a more equitable future of work.

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Madeline Miles

Madeline is a writer, communicator, and storyteller who is passionate about using words to help drive positive change. She holds a bachelor's in English Creative Writing and Communication Studies and lives in Denver, Colorado. In her spare time, she's usually somewhere outside (preferably in the mountains) — and enjoys poetry and fiction.

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Pay transparency: the pros, the cons, and best practices

Pay transparency enhances fairness, boosts employee satisfaction, and improves recruitment. Learn about the types, benefits, challenges, and best practices of open salary policies.

Passionate about human resources, employment, and business management, and an expert at sharing that expertise.

Pay transparency – or salary transparency – is a setup in a company (or industry) where companies provide information on pay and compensation to employees.

There are three different types of salary transparency according to Harvard Business Review :

Process transparency refers to openly communicating the methodology and criteria used by an organization to determine salaries, including how compensation levels are set, how raises and bonuses are awarded, and how performance is evaluated in relation to pay adjustments.

Outcome transparency involves disclosing the actual compensation figures, such as specific salary ranges or benchmarks for different roles and levels within the organization, allowing employees and candidates to see where their pay stands relative to those benchmarks.

Communications transparency refers to the openness and ease with which employees can discuss and share information about their own salaries with each other, without fear of retribution or policy violations, fostering an environment of open dialogue about compensation. It is illegal to prohibit conversations about salary in the workplace (in the US, especially) – here, it’s the explicit openness that’s emphasized in communications transparency.

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The pros and cons of salary transparency

What are the pros and cons of pay transparency? There are many – while holistically it makes sense to be transparent about the compensation that one may receive if they were to get a specific job, or the pay that your colleague receives for the same job that you do, it does get more complicated than that.

In other words – it makes perfect sense in theory; in practice, it’s more nuanced.

Let’s first have a look at the main reasons why salary transparency is a good thing.

Arguments for pay transparency

1. fairness and equity.

This is probably one of the most resounding arguments in support of pay transparency – the assurance of equal pay across gender, race, and other demographics.

As ZipJob career consultant Amanda Augustine told us:

“We know that salary transparency […] shines a spotlight on any major wage gaps that may occur across various sectors of your population, of your workforce, whether that’s ethnicity or race, whether that’s gender,” she says.

“Those things tend to be more apparent and there’s a greater need to then address them.”

Related: Can’t afford to pay more? Be radically transparent with candidates

Economist AnnElizabeth McMahon  of Indeed Hiring Lab also highlighted this benefit of pay transparency in an interview with Bankrate :

“Salary transparency does help eliminate those asymmetric information problems that can contribute to the gender wage gap, racial wage issues and the labor market,” says AnnElizabeth.

Linkage’s Chief Product Officer Kristen Howe agrees.

“Women can leverage this pay transparency to negotiate better salaries and start to level the playing field toward pay parity,” she told SHRM .

“Women can leverage this pay transparency to negotiate better salaries and start to level the playing field toward pay parity.”

2. Employee satisfaction

Employees will appreciate knowing exactly how much their peers are making – and being allowed and even encouraged to talk openly about it at work.

According to Bankrate, more than two out of five Gen Z workers (42%) and two out of five millennials (40%) have shared their salary with a colleague or another person in their network. According to ZipJob, 65% are all for salary transparency .

Employers would do well to support that openness.

Also, when salaries are demystified, this not only helps in setting realistic expectations but also empowers employees to navigate their career progression within the organization more effectively.

It’s not just about the pay itself. Workers feel respected when employers are transparent about salary strategy.

A PayScale study finds workers are five times as likely to be satisfied with their employer when they understand the reasoning behind their salary versus getting the compensation they want and need from a job. That speaks loudly to the value of openness and communication about pay structures in your company.

Moreover, the knowledge that their compensation is in line with market rates and organizational standards can motivate employees to enhance their performance, knowing that their efforts and contributions are recognized and rewarded appropriately.

This trend towards openness not only boosts individual morale but also cultivates a culture of accountability and fairness within organizations. Everyone wins.

3. Candidate motivation

There’s a huge benefit at the entry point into a company as well. SHRM finds that 70% of organizations saw more applicants as a result of listing pay ranges in their job descriptions.

“These results highlight that many organizations who provide salary ranges in job postings find doing so helpful to applicant quality and quantity,” says Derrick Scheetz , a senior researcher with SHRM.

“These results highlight that many organizations who provide salary ranges in job postings find doing so helpful to applicant quality and quantity.”

Interestingly, it’s not just about pay. Transparency in compensation can even lead to a richer applicant pool; SHRM’s research also highlights that 66% of employers found the inclusion of pay ranges in job postings increased the quality of applicants.

A broader pool of applicants, and higher quality at that. Employers get more of what they’re looking for when hiring for an open role – that’s a huge benefit.

4. Improved business outcomes

It’s not just a good thing in the eyes of employees and candidates. There are positive business outcomes for businesses as well.

For instance, a NBER study authored by Harvard Business School assistant professor Zoë Cullen finds a link between clear and understandable compensation structures and improved hiring processes and employee retention. Hiring can be an expensive business, so any way you can improve that process – and couple it with decreased need for backfill – it will reflect on the bottom line.

Also, openness about the salary range for a job ensures that those applying are better aligned with the role’s compensation expectations. Your candidates know right away what they stand to make if they get the job – and less time is wasted on evaluating job applicants only to find out later in the recruitment process that you’re not aligned at all on compensation expectations.

Salary transparency can also significantly impact employee retention rates at the onset – organizations who are transparent about pay can mitigate common causes of employee turnover related to pay dissatisfaction or perceived inequities.

Arguments against pay transparency

OK, it’s not all roses and cream. There are some drawbacks to pay transparency to consider.

1. Increased competition and envy

One undesirable consequence of opening up about salary across a company is increased turnover as a result of angst and disillusion when employees realize they should be making more for what they do.

Envy and competition can also be stirred up – not always a healthy thing for company culture, especially when others are making more than you do for the same job in the same company.

The good news is that this is only when you manage it poorly. It can be preempted if you go about it the right way.

Zoë in her NBER paper discusses how transparency can lead comparisons with peers in a counterproductive way – if Jer learns that he’s making $10K less per year for the exact same role as Maria, he’s naturally not going to be happy.

Transparency can have that complex impact on overall workplace dynamics.

2. Demotivation and turnover

Just as full transparency of salaries give employees a boost knowing their real worth and what they can do to move up the next salary band, it also can have a negative impact on engagement and motivation. Following on the point above, your employees can become more disengaged and turnover will spike as they hit the bricks looking for new, better-paying roles.

The aforementioned ZipJob survey found that 34% of professionals left their jobs in 2023 for better pay – and Workable’s Great Discontent 2023 survey found that 68.9% of workers say they’ll move jobs for a higher salary , up from 62.2% in 2021.

And 58.5% of those currently open to new work say money is a huge driver of that.

So be careful when you open things up like that. If you haven’t established fair and equitable pay in your organization, you might want to do that before opening up the coffers.

3. Challenges with implementation

Introducing pay transparency into your company isn’t a cut-and-dried process. There are numerous standards, variables, and even intangibles that go into the determination of one’s salary (or the salary band of an open position) – that reality is more so for companies with a complex range of roles and responsibilities.

Also what we discussed at the top about the different kinds of transparency – process, outcome, and communications. Which one do you establish (first)?

You can avoid these challenges by first sitting down and looking at the structure as it is, and ensuring that there’s a full structure, plan, playbook, set of rules, career pathing strategy, and so on before you open the information vault.

Skillsoft Chief People Officer Ciara Harrington discussed this with SHRM .

“The challenge this presents for companies is that many are simply not ready for this level of transparency.”

4. Loss of employer bargaining power

Pay transparency will bring a more standardized structure – ultimately eliminating a crucial negotiation point in the job offer and acceptance dance. And leverage usually rests with the employer since they’re the ones with the money – if you don’t accept their offer, they can bring in the next candidate who will agree to that arrangement.

Then again, there’s leverage on the side of employees as well. They can point to the market’s standards for similar roles to their own – and employers will have to adapt accordingly.

Another nuanced drawback is pointed out by Harvard Business Review : pay compression .

In other words, when performance-laden incentives (and base pay, in general) are made public, a common denominator is determined. That often leads to lower compensation across the board.

This isn’t theory. HBR described a study where when the government of California made city managers’ pay transparent in 2010, average compensation actually dropped by about 7% in 2012.

Pay transparency best practices

So, do you want to implement pay transparency in your business? If yes, then there are clear best practices. Here are a few to get you started:

1. Define your goals

Start with clear objectives. Do you want to address pay gaps? Improve employee confidence in compensation? Attract and retain top talent? Defining your goals helps tailor your approach.

2. Consider the scope

Will you disclose individual salaries, ranges for specific roles, or a combination? Align this with your goals and organizational culture.

3. Establish clear guidelines and policies

Be clear about what information will be disclosed, how, and to whom. Ensure it complies with relevant laws and regulations.

4. Define fair comparisons

Outline factors used to determine pay, such as experience, qualifications, and performance, to avoid confusion and potential inequities.

5. Communicate the policy effectively

Explain the rationale, goals, and expectations to employees clearly and transparently through multiple channels.

6. Address employee concerns proactively

Anticipate questions and concerns. Prepare for how you’ll address worries about unfairness, competition, or potential discrimination.

7. Offer training and support

Equip managers and employees with resources to understand the policy, answer questions, and navigate discussions constructively.

8. Establish open communication channels

Create safe spaces for employees to voice concerns and seek clarification without fear of retaliation.

9. Implement gradually

Start with a pilot program. Implement transparency in a smaller department or group first to test its effectiveness and address any initial challenges that come up.

10. Gather feedback and iterate

Conduct surveys, focus groups, and discussions to gauge employee sentiment and refine your approach based on their feedback.

11. Monitor and evaluate

Track key metrics like employee satisfaction, turnover, and recruitment success to assess the impact of transparency and make adjustments as needed.

Pay transparency: decide what’s right for you

The debate on pay transparency remains nuanced, with potential benefits and drawbacks to consider. While the ZipJob study highlights employee openness to discussing salaries and the desire for higher pay as a motivator for job changes, concerns about competition, demotivation, and implementation challenges persist.

Careful implementation, addressing employee concerns, and clear communication are crucial for success in pay transparency in your organization.

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One Benefit of Pay Transparency? More Productive Workers

​As pay transparency becomes more common, the relatively new practice has been fraught with questions and concerns: Will it be too much of an administrative burden for employers? How much will it affect candidate attraction ? How will employees react to knowing colleagues' salaries—or having colleagues know their own?

New research offers an answer to the last question, indicating a new, and perhaps surprising, benefit to the practice: Disclosing salaries may motivate employees to work harder.

A pair of new studies suggests that if employees are aware of how their salary compares to that of their colleagues, it may compel them to work harder to prove their worth.

One study , from researchers Cédric Gutierrez of Bocconi University in Milan, Italy; Tomasz Obloj of Indiana University; and Todd Zenger of the University of Utah, specifically looked at how wage information affected U.S. academics and found that those who were overcompensated increased their efforts when salary information was disclosed. Once pay transparency revealed how academics were paid compared with their peers, the study found, higher-paid academics published roughly 7 percent more articles, on average.

Meanwhile, another study examining the effect of pay transparency on a little more than 2,000 bank workers found that once workers learned their managers earned more than they expected, they worked harder because they then saw a pathway toward career advancement.

Pay transparency can result in boosted employee outcomes in the form of greater productivity, employee engagement and an enhanced employee experience, said Muriel Taing, senior compensation consultant at consulting firm Mercer.

"When employees have more visibility into what they can potentially earn, coupled with an understanding of how they can progress in their salary range, they will be motivated to work harder and understand the tools to use to put in the effort to achieve it," she said.

The new findings come as pay transparency gains an increasing foothold in the workplace. Heightened employee expectations around salary disclosures and new laws requiring disclosure in some parts of the country mean more employers are adding salary information to their job postings. Recent data from jobs site Indeed found that more than 40 percent of U.S. job postings on the platform now include employer-provided salary information, an increase of 137 percent in the past three years.

'How an Employee Perceives Their Pay Matters'

Despite the potential benefit of pay transparency on employee outcomes, there is an important caveat: That positive outcome will be the case only if the employee sees their pay as fair.

The bank study, for instance, found that workers who discovered they were being underpaid relative to their colleagues grew less satisfied with their jobs and were more likely to look for a new one. 

"How an employee perceives their pay matters," Taing said. "If an employee perceives their pay to be unfair, it can reduce employee morale, and they will be more likely to look at opportunities outside of their company where they feel they can achieve more fair pay and where they perceive it will be a more equitable exchange of the contributions they are making to the company."

To make pay transparency work, employers need to be open about pay practices and how pay is determined at the company, she said. If employers don't share "this context, employees may be confused about how they are being paid and question why their colleagues' pay is similar or different," Taing said. "If an employer decides to share colleagues' pay across the organization, they will especially need to be clear about explaining what their company defines as the 'market,' since it's unique to each company, and be clear about the factors that are considered at their company to differentiate pay, like performance ratings and experience."

Lack of a common understanding of these two areas between employer and employee may "lead to inadvertent employee perceptions about how pay actually works at their company that companies will find themselves needing to address," she said. She added that it's important to realize that what matters to employees is understanding where they are paid relative to their salary range and why.

"Pay transparency isn't only about sharing pay information," Taing said. "It's a broader exercise for employers to build trust and strengthen their relationship with employees by helping employees understand their salary in the context of market and business realities."

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How to Actually Close the Gender Pay Gap

More from our inbox:, it’s not a ‘broken home’, no more moviegoing for me.

To the Editor:

“ Salary Transparency Fails to Fix the Gender Pay Gap ” (Business, July 4) contains numerous examples and anecdotes about the benefits of taking actions to close the gender pay gap.

We agree that transparency is an important component to building inclusive cultures — but it goes beyond knowing what your co-worker earns.

The gender pay gap is a result of pay inequity and unequal representation at all pay levels throughout an organization. Therefore, instituting a pay transparency policy without taking other actions — such as regularly conducting pay equity analyses; banning salary history requests by employers; and evaluating recruitment, promotion, and talent development systems for bias — would still leave an organization with a pay gap.

There is no “one and done” action that will close a company’s gender pay gap. Instituting salary transparency is an “ and” — a policy that should be put in place in addition to taking steps to ensure an equal playing field.

Serena Fong Andrew Grissom New York Ms. Fong is vice president, strategic engagement, and Mr. Grissom is senior associate librarian at Catalyst, a nonprofit promoting gender equity in the workplace.

Re “ A ‘Broken Home’ Didn’t Break Me, or My Kids ” (Opinion guest essay, nytmes.com, July 5):

I am grateful for Joyce Maynard’s tender essay on the long view of divorce. As a child of divorced parents, I, too, wish that my parents hadn’t lined us up on the living room couch and told us that they were getting a divorce. But as the oldest, I felt the burden of their unhappiness on us, and that, too, was too much for children to bear.

Now 40 years later, in a loving marriage of my own and with children and grandchildren, I have one thing to ask of a society so sensitive about language. It’s time to drop the expression “broken home.” Each time I hear the expression, it breaks my heart a little. I want to shout back: “I am not broken. I am strong. And I am loved.”

Erica Brown Silver Spring, Md.

Re “ Sorry, We Aren’t Going Back to the Movies ” (Sunday Review, July 11):

Kara Swisher certainly has it right. Why would anyone want to go back to the movies? To breathe in stale, recirculated air? To eat overpriced, lousy popcorn? To sit near rude people who can’t shut their mouths or turn their phones off? Fuhgedaboutit!

I’m perfectly content to watch movies on my big screen and enjoy all the comforts of home.

An additional plus has been this: By wearing a mask for the last year and a half whenever I ventured out, I not only didn’t get the virus, but also for the first time I can remember I didn’t catch a cold or anything else during this entire period.

So why would I go back to an uncomfortable germ factory when I can enjoy my entertainment with family and friends and open my own bottle of wine or stir (not shake) my own martini?

Steven Morris Mount Pleasant, S.C.

Compliance With District of Columbia’s Comprehensive Pay Transparency Law Begins June 30, 2024

The District of Columbia successfully amended its wage transparency laws, bringing employers a June 30, 2024, compliance date for the new pay and benefit transparency obligations.

The District of Columbia passed the Wage Transparency Omnibus Amendment Act of 2023 , changing its 2014 wage transparency laws to provide applicants and employees expanded pay protections while being screened in a hiring, promotion, or transfer process.

Becoming Law

The District of Columbia Council voted to enact the new law on Dec. 19, 2023. After passing both Mayoral and Congressional review, the law became effective on March 5, 2024.

The law applies to any employer with at least one employee in the District of Columbia. Thus, employers must be vigilant as to the location of any prospective job, promotion, or transfer opportunities (including remote positions or workers) to understand what is required.

Legal Requirements for Employers

District of Columbia employers must:

• Provide the minimum and maximum projected salary or hourly rate in all job listings and position descriptions;   
• Disclose to applicants before the first interview the healthcare benefits an employee may receive;   
• Refrain from seeking the prospective employee’s wage history, including from a person who previously employed the individual; and  
• Post a notice in a “conspicuous” place informing employees of their rights under the Wage Transparency Omnibus Amendment Act of 2023.

Keep in mind that these requirements would also affect postings for PERM green card cases.

While the District of Columbia Office of Human Rights may create a sample notice at some point, at the time of this writing, none has been provided. Employers can create their own or use our sample notice to meet the posting requirements.

Please contact the authors or any Jackson Lewis attorney if you have any questions.

(Summer Associate Nina Bundy contributed to this article.)

© 2024 Jackson Lewis P.C. This material is provided for informational purposes only. It is not intended to constitute legal advice nor does it create a client-lawyer relationship between Jackson Lewis and any recipient. Recipients should consult with counsel before taking any actions based on the information contained within this material. This material may be considered attorney advertising in some jurisdictions. Prior results do not guarantee a similar outcome. 

Focused on labor and employment law since 1958, Jackson Lewis P.C.'s 950+ attorneys located in major cities nationwide consistently identify and respond to new ways workplace law intersects business. We help employers develop proactive strategies, strong policies and business-oriented solutions to cultivate high-functioning workforces that are engaged, stable and diverse, and share our clients' goals to emphasize inclusivity and respect for the contribution of every employee. For more information, visit https://www.jacksonlewis.com .

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Roundup: Employee social media; VT pay transparency; Pride and discrimination; Employee feedback; CT paid sick leave

Newsletter volume 2.24.

June 17, 2024

Salary.com Compensation and Pay Equity Law Review

Our editor, employment lawyer Heather Bussing, is tracking legislation, cases, and analysis to give you the latest critical HR topics.

This week we are questioning reality, but the employment law questions we cover include:

• Why are employers still trying to control employees' personal social media?
• What is a good faith pay range and why is this so hard?
• Which is more important: religious freedom or human rights?
• What are the laws that protect against discrimination of LGBTQ+ employees?
• What if employee feedback was helpful?
• What does Connecticut's new paid sick leave law require?

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Pay Transparency and Its Shortcomings

Introduction

Encourages employee dissatisfaction, encourages turnover, reduces employee productivity, it is against employees’ right to privacy, lack of a positive attitude toward competition, counter-argument.

Every organization desires to possess a compensation scheme that allows its employees to earn pay that is commensurate with the level of their dedication and performance. In recent times, the concept of pay transparency has been lauded as one way of eliminating disbursement discrimination. The rationale is that if workers know what every other person in a company is earning, patterns of pay discrimination will become evident. Hence, the pressure to address them will increase eventually, thus paving the way to pay equity. However, pay transparency causes more harm than benefit in an organizational situation because most employees already feel that they are performing better relative to their peers. This feeling emerges from the need as humans to exaggerate their performance. Sadly, realizing that any employee who workers feel is perhaps less dedicated earns more will be demoralizing. Hence, as the paper argues, while pay transparency encourages pay equity, it often results in the undesired effect of causing employees to feel underpaid and underappreciated to the extent of further leading to unintended negative outcomes in an organization.

When designing a compensation scheme, most employers do not factor in employees’ perception of their performance. Incidentally, employees perceive their performance to be better relative to that of their peers. Pay intelligibility avails an expansive autonomy for workers to amplify their performance and input to the company (‘The case against pay transparency’, 2016). As such, it is clear that a company’s management and its employees differ regarding their measure of performance. A sizeable number of employees then will feel underpaid based on what they perceive to be their performance level. Hence, publicizing pay will leave the majority of employees (most of whom possess exaggerated views of their performance) unsatisfied with their current pay. Consequently, such employees will develop negative emotions that will affect their productivity.

Human resource officers in charge of compensation in most organizations have not received proper training on compensation. As such, they cannot be trusted to come up with effective strategies to match pay and performance. At the same time, employees who are suddenly made aware of the existence of pay disparity will approach these managers for an explanation regarding the metrics used to arrive at the various pay grades (Jha, 2013). Such employees get less than satisfactory responses, thus causing them to become frustrated. This frustration is understandable since employees realize that people who understand little about them are determining their salaries. It is common knowledge then that employee dissatisfaction immediately follows. For this reason, pay transparency should be the reserve of organizations that have invested in the proper training of their human resources regarding pay and compensation matching.

Pay transparency encourages a high rate of employee turnover because of the workers’ feeling of being underappreciated based on their current pay. Such turnover may also arise because employees use their salary to determine whether a company values their contribution. Employees who earn less compared to their peers will feel undervalued. As such, they are likely to leave the organization. Card, Mas, Moretti, and Saez (2012) conducted an online survey regarding how employees of the University of California perceived the institution’s decision to make all employees’ pay public. The findings showed how workers were “more likely to leave their job than to ask for a raise in response to learning that they are underpaid” (Card et al., 2012, p. 2996). Consequently, after experiencing a high employee turnover, an organization has to recruit other employees to replace those that have quit their positions. This situation causes the operational costs to rise above the normal budget.

Pay transparency may expose an organization to various disadvantages associated with employee turnover. Particularly, employees who leave an organization due to pay dissatisfaction may end up being hired by competitor firms. In their new positions, they may be forced or even willingly disclose the trading secrets of their former employer (Almeling, 2012). Armed with the secrets, the new employer may proceed to gain an edge in the market to the disadvantage of the former employer. Most organizations strive to protect their secrets from being accessed by competitors. Thus, a high employee turnover due to dissatisfaction caused by pay transparency may thwart such efforts. Additionally, if a company discloses its pay schemes while the competitor firms have not done the same, it opens itself to increased competition because the rivals will not experience the negative outcomes of pay transparency, particularly employee turnover.

Pay transparency causes reduced productivity among employees who feel underpaid. Employees’ dedication to the position is directly influenced by how they perceive their compensation. It emerges that employees who discover they are underpaid may become less dedicated to their work. Using a sports tournament, Obloj and Zenger (2015) examined the motivation of participants based on the level of reward involved for each level of the tournament. Unsurprisingly, participants were far more motivated to the extent of posting better results where the level of reward was more valuable (Obloj & Zenger, 2015). Thus, in a business scenario, pay transparency only makes some employees realize they are working for much less compared to their peers. As a result, they will be tempted to take their work less seriously since they feel the pay is not commensurate to their input. Thus, rather than being a source of motivation, pay transparency ends up discouraging employee dedication.

Employees who suddenly discover they receive less relative their colleagues will be tempted to lobby for better pay. Arguably, the less paid employees will not feel obliged to complain if they are unaware of what their peers take home. However, realizing one is underpaid causes the urge to demand improved pay through worker strikes (McGill, 2016). As a result, workflow in the organization will become disrupted, thus resulting in enormous losses. At the same time, companies may avoid such losses by maintaining confidential pay records. Up to the early 2000s, Harvard University had a cadre of highly paid managers whose hard work earned the institutions billions of dollars annually (‘The case against pay transparency’, 2016). Because this scheme remained largely unknown to the rest of the workforce, it never raised much concern. However, upon making its pay scheme public, students, alumni, and other employees opposed this pay, a situation that led the university to scrap it. Consequently, most of these highly valuable managers left the organization to escape low salaries.

Pay transparency diminishes the employer’s flexibility to use pay as a competitive tool. As seen in the case of Harvard’s managers, an employer could use a high salary as an incentive to attract and retain some high-quality employees (Jha, 2013). Because of their specialized skills, such employees may demand more pay than the company offers for their cadre. Naturally, an organization would be willing to honor such demands, but for the transparent pay scheme. In other words, other employees may protest the decision to overpay a peer, regardless that he or she is more qualified compared to them. In this case, the company has no choice but to let go of a highly-skilled potential employee. Similarly, organizations are willing to pay disproportionally high salaries to the top executives based on their contribution to the business. This reimbursement approach can only be suitable if the other employees are unaware of the huge pay gap between the top management professionals and themselves.

Many employees are not ready to have their pay disclosed to the public because what one earns is regarded as a top-secret. The Fourth Amendment to the US Constitution guarantees people, including workers, the right not to have information about them disclosed without their consent. Employees are not interested in knowing what their co-workers are earning nor do they wish to have their pay disclosed. Numerous reasons have been established as to why employees want their pay to remain a secret between themselves and their employer. Whether these reasons are valid or not is a non-issue because the right to privacy is paramount. Given this awareness, organizations must only disclose salaries where all employees are comfortable with such a decision. Disclosure of pay favors the highly paid employees in an organization. As such, it is unnecessary for the majority of employees.

Most organizations do not possess the right environment to support or reap the benefits of pay transparency. Pay transparency works best in organizations that have proper mechanisms for monitoring individual performance (Lytle, 2014). Conversely, most companies do not have these mechanisms nor do they possess comprehensive performance records of employees. As a result, the metrics used to set employees’ pay are wanting right from the onset. Similarly, employees and employers view performance appraisal differently. As such, it is difficult to agree on the scale that should be used to achieve fairness. Given this situation, pay transparency cannot result in the desired outcomes unless an organization has taken the necessary steps to address the mechanisms for measuring performance in the first place. It follows then that transparency cannot work effectively in organizations that rely on pay for performance approach to compensation because employees are likely to question the metrics that the organization uses to arrive at a certain pay.

Many organizations are simply not prepared to adjust their performance management systems to handle the pressure accompanying pay disclosure. In the past days, employers were under no pressure to discuss how they arrived at a certain pay for each employee. As shown in Figure 1 in the appendix section, with the recent amendment to Executive Order 11246 by former US President Barack Obama requiring all employers with more than 100 employees to disclose their compensation breakdowns, many organizations realize they are unprepared for the task. This unpreparedness creates disparities between the desired outcomes of the pay disclosure policies and the actual results. For instance, the management departments of most companies find themselves unable to demonstrate why some employees earn more relative to others. This inconvenience affects both the confidence of the management and the morale of employees who suddenly discover they are underpaid. At the same time, being unable to justify their performance metrics does not necessarily imply they are unjustified because some metrics used are simply subjective. As such, they should not be judged using the objective threshold established in laws such as the president’s executive order.

The effectiveness of pay transparency is subject to the existence of a positive competitive culture in an organization whereby employees are likely to view high salaries for some peers as a motivation to work harder. However, this situation is hardly ever the case because employees in most organizations do not possess a positive attitude toward competition. Similarly, paying some employees more than others is treated as favoritism. Hence, it is frowned upon. From this observation, it emerges that a positive culture towards competition is more important compared to pay transparency. As such, rather than investing in pay transparency, organizations should strive to develop a culture of competitiveness among their employees.

Pay transparency discourages aggressiveness by employees by promoting flattened pay. Organizations that embrace pay transparency are forced to flatten their reimbursement schemes after realizing that employees are dissatisfied with the metrics of performance appraisal. The practice works best where performance pay is not utilized. Instead, companies adopt more subjective metrics for setting salary, for example, seniority and position. While such a move prevents dissatisfaction by employees, it results in laziness since no incentives are availed to reward hard work. In other words, employees’ motivation to work hard reduces. As a result, the most capable employees will leave the organization for more challenging and rewarding environments. Thus, instead of promoting competitiveness, pay transparency results in the exact opposite outcome.

Pay transparency may force an organization to take drastic measures that inadvertently limit the overall intelligibility in the organization. In diminishing the instances where the less paid employees complain about pay discrimination, an organization may be tempted to physically separate groups of employees (Card et al., 2012). This move would mean reduced contact between the less paid employees and their highly paid counterparts. While such a move causes the complaints about pay inequity to subside, it will cause a breakdown in communication and workflow. Effective communication and workflow are necessary for driving organizational success. In their absence, the overall performance of the organization will decline. This outcome is undesired since pay transparency is performed primarily to boost productivity.

Notwithstanding, proponents such as Saari (2013) argue that pay transparency discourages negative corporate practices, including gender discrimination. For a long time, companies have treated women differently compared to men based on their sex rather than their capabilities. Similarly, McGill (2016) asserts, “companies that promoted pay transparency reduced gender wage gaps and various other forms of salary discrimination” (p. 23). Today, feminists recognize the need for organizations to post their salary metrics publicly as a major approach to eliminating gender discrimination. According to Saari (2013), pay transparency forces companies to treat their female employees the same as the male employees. However, effective methods of dealing with gender discrimination in the workplace are available, for instance, an effective strategy for a promotion that relies on merit without undue regard to the employees’ sex. Such an approach would be more effective compared to simply setting a flat salary for every employee with the hope to eliminate gender disparity in pay.

Pay transparency is not an effective approach to addressing gender discrimination in the workplace because worse forms of gender discrimination (than pay inequality), which exist in the workplace, cannot be rectified simply through eliminating pay secrecy. For instance, sexual harassment of female employees is a more serious concern for many women relative to what their male colleagues could be earning. Shockingly, sexual harassment remains prevalent even in organizations that have adopted pay transparency (Saari, 2013). This finding is a clear indication that pay transparency cannot be an effective tool for combating prejudice against women in the workplace. Instead, organizations should adopt a thorough anti-harassment policy coupled with a culture that encourages respect for women first. Hence, pay transparency should not be the primary approach to eliminating gender disparity in the office simply because it will fail if not supported by a strong culture of respecting women.

Racism and gender discrimination often demonstrate themselves in aspects such as employees’ salaries. Proponents believe that pay transparency can eliminate systemic racism in an organization. While it is important for employers to ensure pay equity, regardless its employees’ ethnicities, pay transparency only seeks to address the symptoms rather than the cause of the problem. Federal departments with transparent pay schemes often record instances of racism, an indication that a deeper problem than pay equity exists. In other words, racism cannot disappear from a company because all employees earn equal pay. Instead, every well-meaning organization must devise robust mechanisms for confronting racist tendencies such as unfair targeting of minority employees. If organizations can achieve these mechanisms, equity in pay will be automatic whether pay records are publicized or remain as a private issue.

Pay transparency is believed to increase trust between the management and the employees in an organization. True, some employees may find the information about what their colleagues are earning valuable. As Obloj and Zenger (2015) opine, if employees are aware of what their colleagues earn, they do not spend much time worrying about whether they are receiving justified pay. However, employees who need to see their peers’ paycheck for them to be committed to the organization are simply not worth hiring in the first place. Every organization must seek to work with only dedicated employees whose primary concern is not how much they are earning relative to their colleagues. Indeed, employees who love their work do not usually spend much time worrying about the pay. Thus, organizations should primarily concern themselves with evaluating the dedication of such employees and not the pay culture. Employees who are dissatisfied with their pay are more likely to leave the organization than to demand to know what other workers are earning.

Pay transparency is believed to enforce equality in organizations. However, the notion of equality may be hard to enforce since employees are gifted differently. In other words, some employees demonstrate exceptional skills in certain areas, which simply warrants them to earn more. Given this situation, equal pay is simply impossible to realize for an organization that values the individual input of every employee. Instead, organizations should strive to achieve pay equity where employees earn according to their performance. Equity in pay can be enforced by involving all employees in creating an effective formula for evaluating performance. This approach would ensure they are comfortable with the pay they receive. Most employees are dissatisfied with pay because they are not involved in the establishment of their performance appraisals. Hence, they feel cheated. Pay transparency is suitable for organizations with a small number of employees. However, they do not work properly in large organizations where the employees do not even know each other. As such, the benefits ascribed to the practice cannot be realized in large organizations.

Some proponents such as Lytle (2014) believe the exact opposite. According to them, pay transparency helps to reduce employee turnover in an organization. This notion originates from the assertion that employees who are aware of what their colleagues earn are less likely to feel cheated in their pay. Sadly, while this belief could hold some truth, it fails to appreciate that most organizations do not have proper metrics for determining salaries. For this reason, publishing employees’ salaries will only cause dissatisfaction with the existing methods used in setting the pay. Unfortunately, rather than reducing employee turnover, it drives them away due to the frustrations. Thus, the notion that pay transparency assists in employee retention are simply untrue.

Other supporters of pay transparency such as the United States Department of Labor (2016) argue that the practice rewards high-earning workers while motivating their low-earning counterparts to work harder for better pay in the future. While this argument may bear some truth, for most employees, pay transparency only sparks discontent and feelings of little self-worth. High-earning employees such as top executives welcome pay transparency because it presents them as being able and dedicated. Thus, while it favors the top-notch employees, it is of little use for the lower-ranking workers who are otherwise comfortable without such knowledge. Therefore, pay transparency is an unnecessary practice with little or no benefit to the majority of an organization’s workforce.

Obloj and Zenger (2015) argue that pay transparency encourages promotion due to increased employee productivity. However, while this practice has become a norm in the private sector, little can be shown in terms of employee promotion based on productivity. As such, pay transparency has had an insignificant positive impact on the public sector. Many federal/state departments and institutions already have a pay transparency policy in place. At the same time, these institutions do not register any better results relative to the private organizations, most of which do not publish the salaries of their employees. Public institutions post worse promotion patterns relative to their private counterparts. For these reasons, one cannot help but question the viability of transparent salaries as a policy.

Recently, former US President Barack Obama issued a directive for all medium to large organizations to release their salary records to the public. The move was lauded as a major step toward combating gender discrimination and racism in offices. Before then, organizations such as Whole Foods Market Inc. and the University of California already had similar measures in place. Despite a strong belief existing to the effect that pays transparency boosted employee satisfaction, the paper argues against it because it does considerable harm to organizations. One of the major harms is that of causing dissatisfaction after employees discover the existence of pay inequality. Overall, the disadvantages of pay transparency far outweigh its advantages. As such, no organization should feel obliged to adopt it. Unlike popular belief, there is little evidence to show that it motivates human resources to work harder to earn better salaries. Conversely, overwhelming evidence indicates that employees only become jealous and discontented upon realizing that they are underpaid compared to their peers.

Almeling, D. S. (2012). Seven reasons why trade secrets are increasingly important. Berkeley Technology Law Journal , 27 (1), 1091-1117.

Card, D., Mas, A., Moretti, E., & Saez, E. (2012). Inequality at work: The effect of peer salaries on job satisfaction. The American Economic Review , 102 (6), 2981-3003.

Jha, A. K. (2013). Time to get serious about pay for performance. JAMA , 309 (4), 347-348.

Lytle, T. (2014). Making pay public. HR Magazine, 59 (9), 24-30.

McGill, J. (2016). Is pay transparency good for business? NZ Business, 30 (10), 23-24.

Obloj, T., & Zenger, T. (2015). Incentives, social comparison costs, and the proximity of envy’s object.  Web.

Saari, M. (2013). Promoting gender equality without a gender perspective: Problem representations of equal pay in Finland. Gender, Work & Organization , 20 (1), 36-55.

‘The case against pay transparency’ (2016). Harvard Business Review . Web.

United States Department of Labor. (2016). Office of federal contract compliance programs (OFCCP) – pay transparency nondiscrimination provision.  Web.

Source: (United States Department of Labor, 2016)

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More From Forbes

Study reveals why 70% of hiring managers lie to job candidates in 2024.

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Why hiring managers lie to job hunters during the interview process.

According to U.S. News, a pattern known as “shift shock” was one of the top 10 workplace trends of 2023, and it has risen in early 2024. Shift shock is the realization that your new job isn’t what you expected it to be. So what does a job candidate do if a hiring manager hasn’t been honest about the role? A recent Muse Shift Shock Survey found that 72% say they’ve experienced shift shock, and 80% say it’s acceptable to leave a new job before six months if it doesn’t live up to your expectations.

According to Josh Millet , founder and CEO of Criteria , shift shock often results from a misleading or poorly designed hiring process that paints a rosy, unrealistic picture of the role or company, often leading to high turnover. Recently, I reported here on research by Resume Genius that shows why hiring managers ghost job candidates after the interview process. Millet urges job candidates to set clear expectations and voice what they’re looking for in a position in terms of the role, salary and general job expectations.

This week Resume Genius released its Misrepresentation in Hiring Practices Report , revealing that 70% of hiring managers have lied to job candidates during the recruitment process. After surveying over 600 hiring managers, the results showed that the primary reason they lie is pressure to meet immediate hiring demands and protect company interests, with 35% admitting they frequently engage in this behavior.

Why Hiring Managers Lie To Job Candidates

The second most common reason is to protect sensitive company information, with 41% of hiring managers saying they lie frequently for this purpose. Other key findings include breakdown other reasons driving hiring managers to lie:

• To fulfill immediate hiring needs (76%)
• To protect sensitive company information (75%)
• To avoid giving negative feedback (73%)
• To control the narrative and prevent bad reviews (72%)
• To please the candidate and increase offer acceptance (69%)
• To exaggerate job benefits and responsibilities (65%)
• To cover up negative aspects and protect the company’s reputation (64%)

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Corissa Peterson, career expert at Resume Genius, stated, "While it’s understandable that hiring managers are under pressure to fill positions quickly, it’s unfortunate that dishonesty is leveraged as a way to do so. This kind of behavior can really hurt job seekers and erode their trust in employers. Lying can also result in disappointment and dissatisfaction when the reality of the job doesn’t match the promises made during the hiring process."

Growing up in a digital age, younger managers are used to rapid communication and quick decision-making,” according to Samuel Johns, recruiting manager at CV Genius . “This constant urgency can lead to quick fixes in the hiring process, like stretching the truth to fill positions quickly,” he says. “For instance, they might exaggerate job benefits or downplay certain aspects of the role to make the position more appealing. While these tactics can help fill roles faster, they may lead to mismatched expectations and potential frustration later on.”

Strategies For Hiring Agencies To Amp Up Transparency

1. Be honest about job details. The authors of the study mention that recruiting new employees is a significant investment and suggest that companies provide candidates with positive yet realistic expectations before they join. They explain that clear and straightforward communication can build trust and create a better hiring experience for all parties involved.

“Employers should ensure their hiring teams clearly explain job responsibilities, work environment, and company culture during interviews,” the report says. “This communication includes mentioning any challenging aspects of the role, such as long hours or frequent travel, so applicants are fully aware of the job’s demands and can assess their fit for the role.”

The findings recommended creating detailed and specific job descriptions to help candidates understand the role's responsibilities. They add that descriptions should include daily responsibilities, required skills and insights into the company’s culture, an example being,

2. Let candidates interview your team. The report suggests allowing candidates to connect with current employees to build trust and provide a genuine understanding of the workplace culture and job expectations. This approach encourages potential hires to ask candid questions and receive unfiltered feedback, fostering transparency and confidence in their decision-making process.

3. Share realistic expectations about career growth. Employers should be upfront about opportunities for advancement and professional development within the company, according to Resume Genius’s recommendations. “Providing specific examples of employee progression and the support systems in place helps candidates understand potential career paths,” they point out. “Instead of making vague promises about promotions, companies should offer concrete information.”

Tips for Job Seekers to Avoid Being Misled

1. Ask specific questions during interviews. The career experts suggest that applicants gather concrete information and ask specific, direct questions during interviews to gain a clear understanding of the role and company. Instead of general inquiries like "What’s the work culture like?", they provide examples to candidates such as "Could you describe a typical day in this role?" or "How does the team handle high-pressure situations?"

If interviewers dodge questions or give vague answers, it may indicate a lack of transparency. So, Resume Genius advises candidates also to ask about specific challenges and how the company supports employees in overcoming them.

2. Clarify role expectations and metrics. Job seekers should understand how success is measured in a role and the key performance indicators (KPIs) to help them determine if the position aligns with their skills and career goals.

Candidates are also advised to inquire about the performance review and criteria process to determine how often feedback is given and what a company’s benchmarks for success are. Additionally, the report notes, asking about specific goals for the first few months, such as "What are the expected accomplishments in the first 90 days?" ensures reasonable expectations.

The career experts state that questions like, "What kind of training or support will be provided?" and "Are there opportunities for professional development?" help determine if the company will aid in the candidate's success. Clarifying these aspects, they insist helps job seekers judge if the job is a good fit and confirm the company's transparency.

3. Trust your gut. Applicants should always trust their instincts during the interview process, the report explains, adding, “Pay attention to how the responses and overall interaction feel. Evasive answers or a rushed interview might indicate underlying issues or a lack of transparency.”

“If job seekers can visit the workplace, they should observe the environment. A welcoming and positive atmosphere is a good sign, while a tense and uninviting one may raise concerns,” they caution. “After the interview, reflect on the experience. If there are lingering doubts or something feels off, applicants should take those feelings seriously and reconsider the job opportunity.”

A Final Word

Eva Chan, lead career expert at Resume Genius, had this to share: “Securing top talent is tough, and finding a good job is equally difficult in today’s job market.” Chan further states, “Despite these challenges, both sides need to uphold high standards and ethics. Employers need to improve their hiring practices and strive for transparency while avoiding any form of dishonesty if they can help it. Job seekers should also do their due diligence and ask specific questions to ensure they have a clear understanding of potential roles. By being honest and diligent, employers and job seekers can make the hiring process feel more trustworthy and effective, she concludes.”

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