Pay Transparency

Pay Transparency

Are you in favor of Pay Transparency (PT)? If you are, you will be pleased to learn the recent trend - businesses are under increasing pressure to adopt it in their recruiting and talent management strategies. For example, on January 1, 2023, a new law SB 1162 went into effect in California. SB 1162 requires the disclosure of pay scales in job openings for all positions, internal and external, in person and remote, with "pay scale" defined as the salary or hourly wage that the employer reasonably expects to pay for a position. Businesses with 15 or more employees have to comply with this rule for job postings not only on their company website but also on third-party platforms such as LinkedIn or Indeed.

Why the trend towards pay transparency? Benefits

Well, PT has some obvious perks:

EMPLOYEES MAY BE HAPPIER AND PERFORM BETTER
Think about the opposite. If an employee doesn't know how much his colleagues are paid—especially if the company deliberately keeps salary information a secret—he would most likely assume that he is underpaid compared to his peers and be distracted by this dark thought nagging at the back of his mind; as a result, he would give no loyalty to his company and deliver as little as possible at work.
PT MAY DECREASE THE PAY GAP
Knowing their peers' salaries allows employees to fight for pay equality and close the pay gaps that are unjustly presented among various ethnic groups, genders, and even people with different social networks or negotiating skills.
PT COULD MOTIVATE THE EMPLOYERS TO PROVIDE A FAIR PAY FORMULA
When employees are apprised of each other's salary, they will ask why if there are discrepancies. A fair pay formula is one of the best explanations an employer could offer. The good news is that we're not short of solutions in this regard, such as the compensation plan proposed by management 3.0 I summarized earlier.

Disadvantages of Pay Transparency. Drawbacks

Of course, some of you may not agree with applying PT in your workplace since there are, supposedly, some flipsides of it:

COMPANIES MAY HIRE OR RETAIN FEWER PEOPLE
Companies might argue that if the employees know how much their colleagues earn, the lowly paid will not be happy and may quit, and potential new hires will not even apply for an interview if they know beforehand that their pay rates on offer are below those of their friends working in the same industry. But why is this a problem? Only if a company plays favoritism or treats people unfairly in other ways will it fear for its employees' anger should the truth be exposed; and only if a company is myopic enough to always scrimp on new hires (or in the case of being on a tight budget, the company doesn't make up for it with other benefits like flexible schedules, a great organizational culture and inspiring leadership, etc.) will it worry about its incapability of attracting talents.
As it happens, it could be turned around—companies can proactively adopt this policy to attract young talents since young people are asking for PT in job postings more than ever.
PT MAY PIT EMPLOYEES AGAINST EACH OTHER AND TRIGGER JEALOUSY
Yes, PT could trigger jealousy and discordance, but whether that is a drawback depends on how you look at it. It is good for underpaid employees since it pulls them out of the dark and gives them a legitimate reason to get a raise, or motivates them to take a brave step to advance in career by finding a better job somewhere else. It can be bad for the business as the company will have to deal with either underperformers or loss of talents if it doesn't want to make any effort to gain back the trust from its employees. While people care about how much money they earn, they care no less about fairness; it means that PT needs to incorporate how performance is measured and how pay rates are determined, which can be well established in a company's fair pay formula.

Conclusion

My point of view is that pay transparency is mostly a good thing. PT benefits all employees who are willing to work with diligence and want to be treated with impartiality. It certainly gives advantages to those companies as well whose leaders are wise enough to value their employees and operate with principles.

⇨What about you? Are you an advocate of PT or an opponent?

Sources:
Cooney, S. (2018, Aug. 14). Should You Share Your Salary With Co-Workers? Here's What Experts Say.
McGregor, J. (2022, May 24). California Employers Could Soon Have To Include Salary Ranges In Job Ads, A 'Game Changer' For Pay Transparency.
California Payroll. (n.d.). SB 1162 California Pay Transparency Law – Here's How It Works for Recruiting and Hiring.