What is pay transparency?
Pay transparency is the practice of openly disclosing compensation for both current and prospective employees in the pursuit of pay equity. Pay transparency is one strategy to improve communication, address pay inequality, and build trust in the workplace.
What are some examples of pay transparency?
Pay transparency can look different for every organization. Companies that prioritize pay transparency advertise salaries in job descriptions. Some attempt to break the taboo against talking openly about salaries with co-workers and encourage conversations about pay between colleagues.
Pay gap analyst Michelle Gyimah proposes the following five categories to explain different degrees of pay transparency:
- What: Openly discussing salaries with team members
- How: Share external benchmarking data, so your people can compare their pay against current market rates
- Where: A thorough compensation plan which includes a breakdown of salary, compensation benefits, and a clear pay range for each member of the team
- Why: Create clear processes for calculating pay and train managers to communicate about pay regularly
- Whoa: A completely open pay system, where the whole organization can access information about everyone else’s salary or grade band
Why is it important to have a pay transparency policy?
Pay transparency policies help show your people that you value all team members equally and that the company is making a concerted effort to address the gender pay gap and correct pay inequality.
When it comes to pay transparency, there’s no set formula to follow. It’s up to leadership to decide how open they want to be with their people. However, you may run into challenges when trying to implement and maintain compensation transparency without a clear pay transparency policy, as any miscommunication could cause tension in the office.
Pay transparency policies help companies:
- Identify where they currently reside on the pay transparency spectrum and where they’d like to land, moving forward
- Create a pay philosophy, influenced by talent strategies and company culture
- Define roles and responsibilities for each salary bracket
- Use market data to calculate and implement consistent salary parameters
- Conduct a comprehensive payroll audit to target and rectify any discriminatory pay discrepancies
- Train management to articulate why the company is adopting compensation transparency
- Encourage a culture of open communication and trust in an organization, influencing other aspects of business operations
What are the pros and cons of pay transparency?
While pay transparency might seem like a no-brainer, without a cohesive, clearly communicated pay transparency policy even the best intentions can unravel into ambiguity, miscommunication, and (at worst) tensions in the workplace.
Here are some of the strengths and weaknesses to consider when implementing pay transparency:
|Supports pay equity||May dissuade people from applying to or staying with a company|
|Increases staff morale and engagement||Some people may feel uncomfortable with others knowing their salary|
|Reduces the possibility of biases affecting pay||Without proper systems in place, pay disclosure may cause jealousy and friction|
|Helps people negotiate their salaries||May cause resentment if pay is disclosed improperly or out of context|
|Creates a more positive work culture||Pay transparency alone can’t fix pay equity in the workplace|
|Shifts the responsibility of ensuring fair pay from employees to employers||Encourages salary negotiations|
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Which US states have pay transparency laws?
Pay transparency laws are on the rise. Each one aims to give employees more leverage to negotiate their earnings and close wage gaps. In January 2023, California, Rhode Island, and Washington joined the chorus of states, cities, and counties enacting salary transparency laws.
The National Labor Relations Act, passed in 1935, defends the rights of professionals working in the private sector to engage in discussions about pay. In the US, there are currently 18 states which have adopted additional pay transparency laws.
California was the first state to adopt a mandatory pay transparency statute, with a bill that requires proactive wage range disclosure and pay dating reporting from employers.
As of April 2022, New York City employers must list the minimum and maximum salary on all postings, promotions, or transfer opportunities.
Not only does Colorado’s Equal Pay for Equal Work Act require all employers to include a pay range on job descriptions, it also prioritizes “opportunity transparency” for all employees, mandating that all current team members must be informed of promotion opportunities.
Employers in Maine can’t stop team members from discussing their wages or from inquiring about a colleague’s wages, so long as the purpose of the disclosure or inquiry is to enforce workers’ rights.
Employers in Vermont can’t stop team members from discussing their wages or inquiring about the wages of other people in the organization. They also cannot require people to “sign a waiver that denies the right to disclose wages or inquire or discuss the wages of other employees.”
Employers in Nevada must not discriminate against an employee because they have inquired about, discussed, or voluntarily disclosed their wages or the wages of another.
Similarly, in New Hampshire, the law does not allow employers to discriminate against team members who inquire about, discuss, or disclose their pay or the pay of other team members.
Employers in Maryland must provide the salary range for a position if an applicant asks for it.
In Louisiana, employers cannot discriminate, retaliate, or take any adverse action against any team members for inquiring into, disclosing, or otherwise discussing their wages or the wages of any employee.
Employers in Michigan must not discriminate against an employee because they have inquired about, discussed, or voluntarily disclosed their wages or the wages of another. It is also illegal for employers to force their people to sign waivers that redact worker’s rights.
In Illinois, pay transparency laws are stricter than in most other states. In addition to anti-discrimination laws protecting people who have asked about, discussed, or disclosed wages, Illinois has laws in place protecting employees and candidates from employers inquiring about salary history. The law covers people applying to part- and full-time positions, temporary and permanent positions, and hourly or salaried.
Employers in Nebraska can’t discriminate against any employees or job applicants because they have inquired about, talked about, or disclosed anything relating to employee wages, benefits, or other compensation.
In Minnesota, employers can’t require nondisclosure by an employee of their wages, as a prerequisite for employment. They can’t require people to sign a waiver or other document that rescinds their right to disclose their wages. Additionally, they can’t discriminate or take adverse action against anyone for disclosing their own or another’s wages if disclosed voluntarily.
Employers in Oregon can’t discharge, demote, suspend, discriminate, or retaliate against any team member who discusses or discloses their own or another team member’s wages.
Employers in the state of Washington must list the minimum and maximum salary range and all additional benefits on all job ads, including remote work.
New Jersey employers must provide both the salary range and description of benefits on all ads for any job, transfer, or promotion.
In Connecticut, employers must provide their people with their salary range if requested, when they are hired, or if they change positions.
It is unlawful for Massachusetts employers to require, as a condition of employment, that employees refrain from discussing, asking about, or disclosing information about either their own or their colleagues’ wages.
For more information on which provisions apply to your own state, visit the Department of Labor’s website.
How can you implement pay transparency at your company?
Pay transparency can offer more than just an open dialogue to discuss compensation in your workplace. Many companies have used their pay transparency policies as launchpads to enact tangible change for their company, encouraging a culture of diversity, equality, and trust.
There are many ways to implement pay transparency best practices, including:
- Planning for success. Companies that create a pay transparency policy stand a better chance of enacting tangible change, increasing pay equity in their workplace. We recommend collaborating with HR leaders and legal teams to figure out which state laws apply to you. Pay transparency can be a touchy subject, and avoiding complicated jargon can help prevent miscommunication and misunderstanding policies when taken out of context.
- Prioritizing good communication. Once you have a pay transparency policy in place, it’s important to create an open channel of communication. We recommend hosting workshops or organizing pay transparency FAQs for everyone during regular office hours.
- Honesty is the best policy. Your pay transparency analysis may unearth illegitimate pay discrepancies. As HR leaders, it’s important to align with other business decision-makers to rectify any issues that may arise with integrity and honesty. Not only will you avoid any legal repercussions, but you’ll also build trust among your team.