Employers’ approach to communicating about compensation is referred to as pay transparency. But discussing money is often seen as taboo. Interestingly, even when talking with close friends, many people find it pretty difficult to be transparent about how much they make. In the business world, the issue of pay transparency was always a polarizing topic. Whereas everyone values general transparency in the workplace, the situation differs when money is discussed.
Some companies have always valued the concept of transparency related to money. Others, however, don’t approve of the idea that employees exchange their salary information. And believe it or not, some went so far as to forbid any discussion about money in the company.
The winds are shifting, though. The financial crises and the stagnation in salary increases lead to the increase in employees’ dissatisfaction. More and more people refuse to be kept in the dark about finances. An increasing number of hiring experts emphasize it is important to be transparent about salary as much as it is important to be transparent about workplace culture and values.
Varied studies show there are still enormous disparities in pay across sex, ethnicity, and race lines. For example, one study showed men in tech companies are offered more money for the same job than women. As we are approaching April 2nd, Equal Pay Day, we must talk about pay and job transparency and the reasons why companies need to consider adopting it as their policy.
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Pay Transparency Reduces Employees’ Stress & Dissatisfaction
Companies that choose to be secretive about salaries often do so because they are afraid that transparency may cause problems. It is the opposite. When people don’t have a clue about how their pay rate relates to their co-workers, they typically think that they are underpaid, discriminated against, or even exploited. Plus, secrecy around salary makes it easier to discriminate against people based on their sex, race, or ethnicity. Or at least, it makes it easier to conceal discrimination.
On the other hand, pay and job transparency enable people to see how their salaries compare to those of their co-workers and become reassured that the company values them and pays them fairly. Money transparency means that each paycheck needs to be justifiable compared to others. That way, everyone understands how pay rates are set. Apart from that, people working in the company feel better and trust each other more because everyone sees how they are paid according to their skills, experience, and results.
Salary Transparency Attracts Top Candidates
We are all fed up with seeing the words “competitive salary” when looking for job ads because that doesn’t say anything. Preparing and applying for a job takes quite a bit of effort. Thus, it is only natural to get frustrated when you see those two words.
It is equally infuriating when during the interview, you have the impression that you found your dream candidate only to realize seconds later that you are miles apart in the way you think about salary. The thing is that candidates value salary transparency and want to have all the information before they decide to come or not for an interview. Glassdoor research, for example, shows an incredible number of new employees are likely to quit shortly precisely because of the salary.
The companies that choose to be transparent about money can expect to find candidates that are willing to work for them and are okay with the offered salary range. Being transparent about the finances helps you avoid wasting time and other resources on candidates who disappear when they realize that the pay doesn’t meet their requirements.
One of the reasons websites like PayScale and Glassdoor are becoming increasingly popular is that the employers that publish job postings include a salary range. It is essential to be honest with candidates from the beginning. Even if you don’t feel comfortable posting the salary range online, you should tell them in the first phone call or online meeting. That will help the candidates understand whether the job offer is right for them. It will also save you plenty of time and energy.
It Helps You Combat Discrimination
Though Equal Pay for Equal work has been a feminist and human rights activist goal for a century and more, we are unfortunately still not close to it. In the U. S on average, women are paid nearly 20 % less than men. For every dollar that an American man earns, a woman makes about 82 cents. And this is when we talk about white American women. Latin American women earn only 55 %, while African American women earn a bit more – 63% of the earnings of white American men.
Many companies, nowadays, want to have a more diverse staff and recruit across cultures. This is undoubtedly a good thing. But to combat existing discrimination across race and ethnicity, they need to implement pay transparency as their core value.
Adopting salary transparency directives in the companies means that our right to information about pay is guaranteed. This type of directive requests that the employers always disclose information about salary for the specific job before the actual interview. Another benefit of such a directive is that it can play a significant role in court proceedings against wage discrimination.
People Feel Motivated to Work
Transparency around salaries has a positive effect on productivity. Studies show when people have clear information about salaries, they feel encouraged to work more. As we already mentioned, the secrecy around salaries makes many people wonder whether they are underpaid. More importantly, they think that others are drastically overpaid for the same quality and amount of work they do. This situation leads to high levels of dissatisfaction and decreased productivity.
At the same time, one of the benefits of pay transparency is that when people know the rules, they work towards particular goals. For example, instead of waiting for a raise or promotion, people can see how they can develop professionally to arrive at the place where they want to be. It is, of course, necessary to provide fair pay, too, to achieve this, and not just to be transparent about finances.
Transparency Makes the Company Different from the Competitors
In simple terms, salary transparency brings more value to the company. First, the relationships between employees and the general workplace atmosphere become better. Of course, being transparent alone is not enough to create a positive work environment, but it plays a significant role. As we already mentioned, people who know the financial situation in the company are likely to be more productive. But more importantly, being open about everything, including money, reduces the number of unsatisfied people who decide to quit.
As we know, the market is more competitive than ever. In that climate, more and more companies decide to be plain-spoken about what candidates can expect in terms of money, conditions, etc. Doing this helps companies establish trust with candidates and find the talent they need.
If companies choose to remain secretive about finances, people will look for information elsewhere. They will read reviews on the internet or ask around to see if they can find someone who has experience with the company that interests them. However, this information can sometimes be inaccurate or incomplete. As a result, companies that are not straight about money risk losing excellent, even the best candidates.
Drawbacks of Pay Transparency
Despite various benefits pay transparency brings, like everything else, it has some shortcomings, too. One of them is that people who expect higher compensation for their skills and knowledge will not respond to the ads. Apart from that those, who feel that they are not valued enough will go to someone who offers them better pay.
Before disclosing salary information, companies need to ensure that pay is distributed equally. That means they need to review all the payrolls and sort out the discrepancies before sharing the information with employees. Other than that, all employees have to accept that their salaries are revealed. If people know about the salary of some employees but don’t know that of others – there is no pay transparency.
Full Transparency vs. Partial Transparency
The vast majority of companies, however, implement so-called partial transparency. They don’t fully disclose compensation details. Instead, they publish pay ranges for each specific position. Full transparency is pretty rare. Nonetheless, several famous brands, including Buffer and Whole Foods, are fully transparent. Buffer went as far as to make employees’ salaries available to the public.
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Bottom Line
As more countries and companies push for salary transparency, it will inevitably become an integral part of the recruitment process shortly. It is essential to respect candidates from the start and provide them with all the information to clarify what they can expect. Of course, every company decides for itself the type of transparency. But you have to make sure that you have the budget to pay the employees and be fair and open about it. Candidates want to make informed decisions, and if you don’t disclose the information, they will look for it in other places. It is, thus, always better to be honest about what you can offer. They will appreciate it.
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