Pay transparency: meaning, benefits, and best practices

Pay transparency is the practice of openly sharing compensation packages and pay range information within an organization. It’s aimed to empower workers and reduce discriminatory pay disparities based on gender, race, or other factors.

In this article, we explore the evolution of pay transparency, its benefits and drawbacks, new state laws, and best practices for implementation.

Pay transparency: what is it, and how did it evolve? 

Pay transparency is providing information about wages, salaries, benefits, and bonuses. It represents a major shift from ‌pay confidentiality norms and has become a way to promote equity and fairness in the workplace.

Legislation like the Equal Pay Act of 1963 and the Lilly Ledbetter Fair Pay Act of 2009 helped advance pay transparency. Online salary websites, like Glassdoor and Payscale, also improved access to pay data. Further, several US states have passed laws mandating that employers share wage-rate information with their employees.

Cultural and legal changes are steadily making pay transparency more commonplace in workplaces.

Pay transparency laws by US state

Here’s a quick overview of ‌pay transparency requirements in nine US states.

California

Employers who have 15 or more (and at least one working in California) must post salary ranges in all their job ads. If an employer hires a third party to share, post, and publish the job, that party should also make the pay scale clear in the job posting. This is compulsory for both in-person and remote jobs. Penalties for violations range from $100 to $10K. 

Nevada

Employers must disclose salary info after the first interview with an employee. This is applicable to all Nevada employers. Employers are also prohibited from asking job candidates for their salary histories. 

Maryland

Employers must share compensation information upon a candidate’s request. They can’t deny an interview or refuse to hire job applicants who ask for a salary range or don’t provide them with a wage history.

New York 

Employers must publish salary ranges for all jobs and promotions. This is applicable to employers with at least four employees, at least one of whom works in New York. This law, however, doesn’t cover temporary help firms. 

Hawaii 

In Hawaii, job postings must include salary ranges. This rule is applicable to all Hawaii employers with 50 or more employees.

Colorado 

Employers must mention salary ranges, descriptions of bonuses and commissions, and general descriptions of benefits like health care and retirement. They should also mention when the job will close and how applicants should apply. This is applicable to employers with at least one employee working in Colorado. Failure to comply can mean a penalty of $500 to $10,000 per violation.

Connecticut 

Employers with at least one employee working in Connecticut must provide a salary range if a job seeker requests ‌it or at the time of the job offer — whichever is sooner.

Rhode Island 

Employers must disclose salary info upon a candidate’s request. Employers are not permitted to ask an applicant about their wage history.

Washington

Employers with 15 or more employees — at least one of whom works in Washington — must share salary ranges and benefits in job descriptions.

How does pay transparency benefit organizations? 

Openly sharing salary information provides many benefits for both employees and employers. Here are a few of them.

Reduces pay gaps and strengthens diversity initiatives

Salary transparency complements diversity and inclusion efforts by revealing any pay inequities along gender, racial, or other lines. 

However, 37% of employees say that their organization doesn’t reveal gender pay gap data internally or externally. Lack of transparency allows inequities to persist.

For example, American women who work full-time year-round get paid about 83 cents for every dollar that men earn. That’s a gap of about 10,000 USD per year. This gap widens even more for women with disabilities and women of color. 

Pay transparency helps identify any gender, racial, and other pay gaps within an organization and reduces inequality. The company can then take proactive steps to promote equality and fairness in compensation.

Urges employees to negotiate

Access to salary information empowers team members to negotiate ‌their own pay. They can then avoid making compensation requests blindly. 

Instead, employees can benchmark their skills and experience against compensation data to determine an appropriate pay range. This allows them to advocate for fair salaries that accurately reflect their value and contribution.

Boosts morale and retention

Making compensation transparent demonstrates that companies are committed to paying their employees fairly. Employees feel valued and respected when their employers are open about pay practices. This fosters trust between staff and management, boosting engagement as a result. 

Pay transparency policies also help retain top talent. When employees recognize that they’re being fairly compensated, they’re less likely to look elsewhere for work.

Motivates performance

Visibility into pay structures and metrics allows high-performing employees to see that working hard results in fair, tangible compensation. This motivates them to keep striving for excellence within their roles.

Enhances market competitiveness

With clear visibility into prevailing pay rates, organizations can set compensation at levels matching or exceeding those of their competitors. This helps entice skilled employees to join the company — and stay with it for the long term.

Risks involved in pay transparency 

While pay transparency offers many benefits, implementing it also comes with risks to weigh. Here are some examples.

Morale issues

Transparent pay structures can negatively impact morale if employees discover major pay gaps between themselves and higher earners. 

Perceived inequities and income dissatisfaction can breed resentment, distrust, and disengagement among staff. It may also negatively impact team productivity.

Administrative burden

Pay transparency requires dedicated resources and diligent record-keeping to implement salary disclosure. Key administrative burdens include the following.

• Conducting thorough audits and analysis of compensation data to reveal inequities

• Developing and maintaining clear documentation of pay policies, structures, and ranges

• Ongoing training of managers on communicating about compensation

• Fielding frequent requests for pay data from current and prospective employees

• Ensuring compliance with evolving pay transparency regulations across locations

• Managing communications and change management surrounding new policies

To alleviate administrative burden, consider partnering with an expert. For example, Remote brings localized expertise on wage transparency regulations in different countries. Our payroll technology helps you standardized pay frameworks across borders tailored to local requirements.

Best practices for pay transparency

Here are some ways to reach transparent pay the right way:

Conduct a pay equity audit

Start by fully auditing existing pay data to reveal any inequities based on gender, race, and other factors. Analyze both compensation averages and individual employee pay relative to experience and performance. 

Look for unjustified gaps that you need to address. You can even use statistical modeling and outside consultants if you helpful. This provides the baseline understanding needed to guide transparency efforts. 

Create structured pay bands

Structured pay bands mean having clear salary ranges for defined groups of jobs or levels within the organization. They allow transparency into wage ranges without revealing individual salaries. 

For example, all entry-level software engineers might fall into an “Engineer I” pay band ranging from 60,000 USD – 80,000 USD annually. Mid-level engineers, on the other hand, might be in the “Engineer II” band, with salaries ranging from 80,000 USD – 100,000 USD.

Here are some tips for crafting well-structured bands.

• Base bands on those that competitor companies have established for similar roles

• Keep the bands wide enough to allow merit-based pay progression

• Update the bands regularly to reflect market conditions

Train managers thoroughly

Providing managers with proper training is critical for smoothly navigating pay transparency conversations. 

Here are some potential topics your training can cover.

• Company pay structure and policies

• What salary information can and can’t be shared

• How to respond to employee concerns and dissatisfaction and maintain positive relationships with them

• How to act without bias and as a representative of the organization’s values

Communicate proactively and often

Transparency succeeds through extensive, two-way communication between leadership, managers, and staff. Here are some to-dos:

• Share the processes, timelines, and goals of new policies

• Listen to concerns with an open mind

• Keep employees updated on any progress or changes

• Make information easy to access on the intranet and job sites

• Help managers leverage compensation data tools to demonstrate fair pay during negotiations.

Implement pay transparency gradually, if needed

Transitioning to full pay transparency all at once can be jarring for organizations and employees accustomed to pay secrecy. Phasing it in through incremental steps can help ease the adjustment.

Analyze and address reactions

Gather feedback and usage data to learn what employees think about the new policy. Analyze the information for concerning trends, like lowered engagement scores or requests for unrealistic raises.

Be prepared to refocus your efforts if ‌transparency has unintended negative consequences. Following strong implementation and oversight practices maximizes the likelihood of it having a positive effect on your workplace.

Build a more equitable workplace with pay transparency

Pay transparency helps build a fair and diverse workplace.

With Remote Payroll, we help you stay compliant and competitive in countries you hire in. Pay your global team in multiple currencies, and build a more equitable workplace with pay transparency.

Contact us today to learn more about how our payroll solutions can support your push toward an open, honest workplace.

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