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Pay transparency and how it affects the workplace

Are you curious about how much your colleagues earn? 

Would you like to know what your boss makes? 

If so, you are not alone. 

Discussing salaries in the workplace, even for those working remotely, has long been viewed as taboo. This is because people grow up being told not to talk about how much they make. 

So, when they get a job, they don’t know how to have that conversation.

Luckily, the debate around pay transparency is heating up in many public arenas, with many companies on both sides of the fence boldly stating the pros and cons of the issue in videos, articles, and webinars.

Until recently, over 33% of firms in the US held workers under contractual obligation not to discuss their wages with colleagues. 

This no-disclosure practice is what led to some states banning these kinds of internal policies.

While many people are touting the virtues of pay transparency in the workplace, such as treating employees as adults, increasing trust, and spurring competition, many others believe there are downsides to ditching the secrecy around salary.

This article explores both sides of the story of pay transparency and how it affects the workplace. 

Pay transparency as an anti-discrimination tool

One of the major benefits of pay transparency is that it helps to reduce wage disparity by uncovering pay gaps between similar employees. 

In America, research has shown that wages are higher for women in states that have outlawed pay secrecy (even when accounting for state-specific factors and standard human capital controls).

This means that pay transparency can be an effective anti-discrimination tool in the business world. 

And, as pressure from governments and communities rises, the demands for transparency have increased as well. 

For instance, since 2017, British companies with more than 250 employees have reported gender pay gaps

This move has been pivotal in helping to reduce the gap, and similar reporting requirements are expected to be introduced for disability pay gaps and ethnicity pay gaps.

All in all, this can be a vital step toward dealing with racial, gender, and disability discrimination and encouraging diversity and inclusion. 

Relevant: 5 ways to prevent workplace discrimination

Governments worldwide are using regulations around pay transparency to tackle unfair pay gaps and excessive differences between the salaries of the highest-paid and lowest-paid employees.

Because of that, this is one benefit of pay transparency that is hard to overstate. 

Here are a few more advantages around disclosing salaries at work: 

Pay transparency as a productivity booster

Transparency around salaries also seems to have a positive effect on employee productivity in some organizations.

Studies have shown that the majority of individuals work more productively when they are given information about the earnings of their peers.

For the most part, when employees are kept in the dark about what their colleagues earn, they tend to overestimate what others earn drastically. 

This, in turn, leads to higher levels of dissatisfaction and lower productivity at work.

Studies have shown that the majority of individuals work more productively when they are given information about the earnings of their peers.

One example is Whole Foods Market, a US grocery chain that has reported encouraging results after sharing full pay information internally.

Other examples of companies that have reported positive benefits include smaller tech startups like Squaremouth, an insurance comparison website, and SumAll, a social media, and analytics company. 

These companies have shared their salary information as the companies continued to grow and make money – and each has experienced phenomenal results.

One of the main reasons for this is that by proclaiming the policy loudly from the very start, these businesses have attracted a certain type of individual who is less likely to look at salary comparisons negatively.

Therefore, transparency has become entwined with the company’s culture and DNA. 

Many businesses stand to benefit from this type of approach. 

For instance, Inkbot, a popular company that offers design services, might make all its salaries visible and follow a well-structured set of procedural rules as a way for the businesses to eliminate pay imbalances. 

Having an open salary model in a growing business would help them prevent bargaining and social comparisons.

Pay transparency helps to attract new talent

Yet another positive benefit of openly discussing salaries in an organization is that it helps to attract top talent

Skilled individuals want to work for companies that offer competitive and fair wages. 

Talented job seekers view companies with strong philosophies of establishing pay equity as more progressive. 

Such companies are, therefore, more desirable to potential applicants. 

Having a policy of pay transparency also helps to streamline the process of recruiting new talent

For example, ReliableSoft is a company that offers marketing courses, SEO courses, and digital marketing courses. 

They help those who want the tools for learning online marketing, and the company hires new talent regularly.

If they were to post a salary on a job ad, it would serve to weed out individuals who would normally waste time going through their recruiting process only to discover that the salary is way below their expectations.

Pay transparency increases retention

Adopting an approach of full financial transparency from the start can also contribute to high levels of employee engagement and therefore increase retention. 

In fact, being open about salaries in the workplace plays a critical role in helping businesses retain top talent. 

It helps build a cohesive workplace culture that improves employee loyalty. 

More and more companies are starting to look at pay transparency to address employee retention issues in the workplace. That is why it’s always important for employers to use VPNs to protect the privacy of their employees’ information regarding their salaries.

But, by speaking to their employees in the same language they speak and being transparent in all matters concerning salaries, it’s possible to make their employees feel that they are being treated equitably. This will make them far less likely to leave the company because of the salary.

In fact, studies have shown that this tactic works to increase retention even when employees are being paid below market! It all comes down to whether they feel the company is being fair in their treatment of everyone. 

More and more companies are starting to look at pay transparency to address employee retention issues in the workplace. That is why it's always important for employers to use VPNs to protect the privacy of their employees' information regarding their salaries.

Pay transparency boosts diversity

Yet another advantage of pay transparency is that more diverse candidates are likely to join a company if they feel that they are being treated fairly. 

Having a pay transparency policy is a great first step in showing employees from all walks of life that the company does not practice pay discrimination.

Pay transparency improves business reputation

Transparency generates value for businesses by improving workplace culture. 

The way businesses pay their employees can be perceived as a means of communicating externally (to both customers and shareholders) what the organization values. 

In short, pay transparency sends a message to other businesses and individuals that its employees are its most valued asset. 

Ultimately, this helps the company attract new business, as in the example of a company such as this one that is focused on healthy plant-based eating.

By adopting transparency as part of its policy and structuring its pay program, the employees will see such a company as creating a great work environment for them. Others will also perceive it as a great place to do business.

Chewse is a great example of a company with a transparent pay policy based on the industry’s salary benchmark report.

They have a well-communicated pay program that begins with the first email or phone call during the hiring process

Right off the bat, the company’s recruiter asks the prospective employee about salary expectations, and the employees know that the company has a no-negotiation policy with regards to pay.

So, those are some of the most important benefits of pay transparency. 

But, are there any unintended consequences to making pay public? 

Let’s find out!

The unintended consequences of pay transparency

Employee earnings are among the most highly controversial topics with regards to transparency in organizations.

Judging from the examples of companies that have adopted full financial transparency from the start, this strategy seems to work particularly well when pay transparency is a clearly stated commitment beginning from the company’s inception

However, that’s not to say companies cannot adopt this policy successfully at a later date. 

Many of the examples in this article are companies that changed their policy in recent years to implement pay transparency to enjoy the many benefits of this practice. 

But, it’s important to note that salary levels are tied to rank and tenure or dependent on a reward algorithm that is based on certain objective performance metrics. 

And, research has indicated that pay transparency often leads to challenges for both employers and employees. 

It may result in a lot of unintended consequences, such as:

  • Staff that feels less inclined to collaborate on projects with higher-paid colleagues
  • Reduced effort from staff who feel like they aren’t being treated fairly
  • Pitting employees against each other, resulting in low morale
  • A lack of general well-being in the workplace
  • Triggering envy and perceptions of inequality
  • An overall increase in stress in the workplace could lead to physical, mental health, or sleep health problems in individuals. 

Companies may also end up hiring or retaining fewer talented people due to pay transparency issues. 

And what’s worse, differences in pay could be taken out of context, creating a whole new set of problems for the company and its workers.

These are just a few of the issues on the dark side of pay transparency.

The good news is that some of these unforeseen consequences of pay transparency may be mitigated by setting standards

Here’s an example:

This company sells WordPress guest blogging plugins and employs a growing number of individuals of all ages, genders, and races.

The company might mitigate any issues arising from implementing a policy for pay transparency by using tools for measuring performance that is more objective to help alleviate any perceptions of injustice among its employees. 

This will prevent emotions like envy and perceptions of inequality from surfacing – emotions that ultimately disrupt collaboration, destroy trust, and demotivate staff, leading to higher turnover.

The unintended consequences listed above are why some companies feel that executives need to get smarter about when to withhold information and when to open up so they can get the benefits that come with organizational transparency while, at the same time, mitigating any unintended consequences.

For example, a company like this one that sells a predictive dialer might decide to implement a pay transparency policy. 

The first step would be to set pay standards, and once they’ve done that, they must stay firm in the implementation process. 

Allowing individual bargaining to continue makes it more likely that the company’s employees will continue to make comparisons between themselves. 

This, in turn, will lead to higher turnover.

A LinkedIn survey shows that over 50% of human resource professionals identify pay transparency as one of the key trends that will shape recruitment in the workplace as a whole in the coming years.

The bottom line: Will pay transparency help or hurt workers?

As you have seen from this article, pay disclosure comes with many benefits and a few inevitable downsides, such as internal conflict and resentment among peers. 

The good news is, salary disclosure appears to be much more than a mere trend. 

A LinkedIn survey shows that over 50% of human resource professionals identify pay transparency as one of the key trends that will shape recruitment in the workplace as a whole in the coming years. 

However, despite the results from the survey, there are still many who disagree on this issue, as evidenced by the experts below: 

Here’s what the experts are saying:

Argument for: 

“For the most part, employees weigh pay differentials among colleagues more heavily than those in the labor market. 

When high performers are aware that they earn more than their coworkers who don’t perform, it helps increase the employee’s perceptions of procedural and distributive justice. 

In other words, it makes it clear to them that the company values them. 

That’s the type of validation that can help companies to retain their superstars longer” Benjamin Campbell

Argument against

“Companies may find it extremely difficult to onboard purple squirrels. 

These are perfect for the job – candidates with precisely the right experience, education, qualifications, etc., who may be hired at a higher rate than normal. 

The majority of employees won’t have a way of knowing each detail of an applicant’s resume or background.

They have no idea of their full range of skills – and they were not even present during the interview.

This can make it difficult for them to understand why the new kid on the block gets paid more.

For example, a company like this that sells different types of empty capsules might be looking for a web developer to get their website up and running. 

Suppose one of the candidates has the required graphic design skills and possesses the knowledge to create a B2B portal for the business on their website or even create a knowledge base software to handle all their employee information from one place. In that case, that person will deserve to earn more than the former. 

Businesses are still split on transparency

The arguments above show that companies are still split over whether or not salary information should be shared.

As you have seen from this article, many benefits come with making salaries common in your business.

The trend toward greater pay disclosure will continue to grow and impact both companies and job seekers. 

Leaders must be aware of the potential impact (both positive and negative) that pay transparency can have on the company before making the decision to implement transparency as part of their company’s policy. 

Leaders must be aware of the potential impact (both positive and negative) that pay transparency can have on the company before making the decision to implement transparency as part of their company's policy.

Conclusion

It’s particularly important to pay attention to the balance between the benefits of transparency and its downsides. 

Only then will companies be able to address the right form of transparency to take so they can achieve the desired results without incurring any of the negative costs.

Just keep in mind that transparency isn’t a binary choice. 

All across the world, governments are adopting and promoting different forms and varying levels of it. 

Some are disclosing all salaries while others choose to disclose only a few aggregate metrics, yet others report certain gaps.

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