What You Need to Know About Pay Transparency and How it’s Changing the Workplace
March 8, 2023
The move toward greater pay transparency will have an impact on the salary considerations of employers and employees alike.
- New pay transparency legislation in the U.S. is driving organizations to reconsider their priorities when setting salaries.
- Pay transparency is part of a generational and cultural shift in how people discuss their wages.
- Some multinational organizations are considering setting company-wide policies that extend to all countries.
With the passing of new salary legislation in several U.S. states, pay transparency has become a timely issue for businesses in North America — and around the world.
Even in areas with no formal pay transparency laws, the trend of disclosing pay ranges to applicants and employees is growing. With the rapid adoption of wage transparency policies across the U.S., many businesses are rushing to keep abreast of the new culture .
The term “pay transparency” can have different meanings for different stakeholders in a business. For employers, it could mean explaining how pay is determined. For others, including employees, it could go as far as full transparency around the salary for every role in an organization.
Either way, it is seen as a way to build trust, engagement and productivity in an organization — as well as being vital in sparking discussions about the gender pay gap.
“Many companies are feeling a new urgency,” says Kelly Voss, head of rewards advisory at Aon North America. “They’re nervous about compliance with these new laws and trends. They had to do a lot of things really fast, and legally they weren’t given a lot of time.”
In order to ensure effective policies around pay transparency, it is important to understand the nuance and implications of salary sharing. Having a clear grasp on what pay transparency can accomplish and how best to avoid potential pitfalls could help organizations adapt.
While salary transparency has recently become the subject of much attention in the business world, the concept is not new. The Equal Pay Act of 1963 in the United States sought to end gender discrimination and pay gaps.
These days, the concept of pay transparency has branched out from discussions of gender to mandate salary disclosures for all.
“Colorado, New York City, and California are the three big focal points for legislation thus far,” Voss explains. “Colorado and New York essentially said that, during recruitment, companies have to post their salary ranges. California took it a step further — not only do you have to share your salary ranges in postings, but if I, as an employee, asks, you have to share my salary range with me.”
Pay Transparency and the War for Talent
Pay transparency may have a sizable influence on how employers approach hiring.
“Say I posted a job with a salary range of $50,000 – $80,000 which reflects actual pay, and I have a candidate that is asking for $95,000,” says Voss. “With pay transparency policies in place I need to be very cognizant of pay equity within my current team. And so, I’m not going over $80,000. The new legislation absolutely drives the right behaviors if done right.”
Pay transparency policies may influence recent hiring trends as demonstrated in the war for talent. While employers were previously willing to increase salaries to acquire new employees, changes in the pay equity conversation could make employers think more holistically about the implications of higher salaries.
“Pay transparency makes us think more intelligently about the way in which we’re recruiting,” Voss says. “We saw so much the last two years, where salaries were inflated to get new applicants in the door. This gives us a little bit of pause to view those decisions through a different lens.”
Generational Differences and Geographic Variables
Pay transparency also reflects changing generational perspectives on discussing salaries.
“Generation Z is entering the workforce, and they are much more comfortable sharing compensation,” Voss explains. “We are living in an environment where it has become more acceptable to share what we have historical thought of as personal information. Now we’re saying, ‘Not only is it okay for you to share that information, but we want to share the information with you.’”
Due to the increased openness surrounding wage information and the push for pay equity, employers may also be less likely to differentiate pay based on geography.
Not only are people more willing to discuss their salaries with one another beyond their immediate localities, but an increase in remote work combined with people’s willingness to move to areas with lower costs of living means more companies are reducing geographic differentials to reflect this. “We have seen all this flattening out over time due to more mobility. People just move around more than they did two or three decades ago,” says Voss. “This, in combination with remote working, is having a big influence on pay differentials.”
While pay transparency legislation has only been passed in a handful of states and cities, many companies are posting job salaries nationally — and not just in the areas they are legally mandated to do so.
“We’re seeing more organizations come to the realization that it’s easier to implement nationally. It can be too difficult to manage compliance at a state-by-state or city-by-city level, and because these laws are going to keep coming, it can quickly get too complicated,” says Voss.
Global Perspectives on Pay Transparency
In addition to the increased attention on pay transparency in the U.S., countries in Europe are following suit in the near future.
“Although there are already pay transparency laws in place in several European countries, the EU Pay Transparency Directive being implemented in 2024 is a game changer,” says Voss, explaining that pay transparency considerations have moved from a state-level or national matter to a worldwide conversation. “Many of our larger clients have global compensation structures, so we are starting to hear more organizations talking about global pay transparency. Sixty years later, we are finally going to achieve what we set out to do to eliminate discrimination in pay. We are experiencing history in the making.”
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