Pay Transparency: What It Is and How to Do It Right

Pay transparency is growing in popularity among tech companies — and in some places, it’s a legal requirement.

Written by Brian Nordli
Pay Transparency: What It Is and How to Do It Right
Image: Shutterstock / Built In
UPDATED BY
Matthew Urwin | Feb 20, 2024
REVIEWED BY

Pay transparency is the practice of openly displaying employee salary information. Some companies may disclose this information publicly on job postings, while others may only inform employees within a given department or candidates at a certain stage in the interview process.

What Is Pay Transparency?

Pay transparency refers to companies being open about the compensation provided for current and prospective employees, as a step toward pay equity. Companies may share information like salary ranges, how salaries are calculated and individual employee salaries.

Pay transparency is popular among workers. According to a 2022 report from compensation software company Beqom, 60 percent of 1,000 employed U.S. adults surveyed would switch companies to one with more pay transparency. 

Recently, it’s gained traction among lawmakers. In 2018, California passed its own Equal Pay Act. Since then, 23 states have enacted or are considering pay transparency laws.

As more states enact pay transparency laws, it’s important to understand what pay transparency is, its benefits and how to implement it.

Related ReadingHow Your Company Can Achieve Pay Equity and Transparency

 

What Is Pay Transparency?

Pay transparency is a strategy for talking about employee salaries within the company. This idea may seem taboo, but it’s become more mainstream over the years with the uptick in legislation to make pay transparency a legal requirement. In fact, it’s been illegal for employers to punish employees for discussing their wages since 1935, when the National Labor Relations Act was passed.

As more pay transparency laws are enacted and younger generations enter the workforce, open communication in the workplace is expected to be more commonplace. Eighty-nine percent of Gen-Z workers are comfortable discussing salary (compared to 53 percent of Baby Boomers).

Even so, many people aren’t used to talking about money so publicly. For most of her career, Caryn Hubbard thought of salaries as a private matter. Then, she joined Buffer as its VP of finance.

Known for its culture of radical transparency, Buffer posts salary information for its employees online. That means anyone — not just other employees — can find salaries on Buffer’s website. The exposure took some getting used to at first, Hubbard said, but it also had a profound impact on how she thinks about salaries.

For starters, it’s increased her awareness of bias and pay inequities. When employee pay is no longer a secret, every little difference in salary needs to be accounted for. That’s challenged her as the head of finance — and the company as a whole — to think about its pay philosophy and the way bias can creep in to create those pay differences. Talking about salaries has since become second nature.

“I’m definitely more comfortable [talking about salaries],” Hubbard told Built In. “It’s changed some of the conversations I have, and I will talk about salary more openly, even with my kids.”

Pay transparency looks different for individual companies. It’s up to each employer to define how transparent they should be within their organization. Ultimately, the goal of pay transparency is to give workers an understanding of why they’re paid what they are — and what they need to do to reach the next step on the ladder.

 

Free Playbook: Building Competitive Compensation Packages

Discover actionable tactics and checklists to address wage growth, pay transparency and hybrid compensation within your organization.

 

Benefits of Pay Transparency

Improved Company Culture 

Pay transparency requires a company to reflect on how factors like job titles, expectations and performance play into salary considerations, which in turn can help to uncover bias and lead to a more inclusive workplace.

Plus, employees talk, and odds are they already know how much their peers make. By not taking a more proactive approach to the salary conversation, a company is actually doing more harm to its culture than good.

 

Stronger Employee Retention 

Transparency cultivates trust and communication, leading to a healthier environment that employees will want to remain a part of. And if employees know what others are getting paid and feel like they’re being compensated fairly, they may be convinced their employer recognizes their worth and consider it another reason to stick around

“There is a bigger burden on organizations and leaders to articulate with consistency what their approach is to things like compensation,” Shelly Holt, chief people officer at Payscale, told Built In. “But just not addressing it ... you’re going to end up having downstream impacts in things like retention and recruitment.”

 

Increased Pay Parity Between Genders

The secrecy surrounding salaries can make it especially difficult for women workers to know if they are underpaid relative to their male colleagues, which perpetuates the gender pay gap.

The biases that lead to wage gaps are less likely to take root when employees and candidates have insight into the pay range for their roles, according to Colorado State Senator Danielson.

“It becomes difficult to hide this type of discrimination when it becomes public,” Danielson told Built In. “And it gives people an opportunity to advocate for themselves.”

 

Better Candidate Experience

Applying for a job without knowing what you’re earning for the role can be frustrating and, occasionally, a waste of time. In fact, 79 percent of job seekers and employees say they want some kind of pay transparency when it comes to job ads. An additional 32 percent want absolute full transparency in job ads and information on what employees with a company are making. 

Companies that meet the demands of job seekers are sure to reap the benefits with improved candidate experience and more engaged talent pools.

 

Higher Productivity 

Research suggests employees are actually more productive when they learn what their managers make — a finding unveiled in a 2018 study from the National Bureau of Economic Research. If a company follows meritocratic pay practices, an employee may feel more motivated to perform well in their role to reach a higher-level position with a greater salary to match. 

 

Challenges of Pay Transparency

Unhealthy Competition Among Employees 

When employee salaries are available to the entire company, it’s only natural that employees will be curious about what their coworkers make. Seeing higher salaries for coworkers might foster competition for some employees. At the same time, if a pay transparency policy is done right, it can outline the steps employees need to take to reach their highest earning potential. 

 

Salary Negotiations 

Enacting pay transparency policies may reveal that some employees are getting paid less than their peers. Even if this gap is due to a difference in credentials or experience, employees may still want to open salary negotiations. This can put a strain on businesses that don’t have the financial capacity or are going through difficult economic times.    

  

Implementation Issues

Pay transparency is great in principle, but often it’s difficult to implement. Nothing is hidden from employees, which means that if someone gets a raise or is promoted, other employees will want to know why they weren’t considered. People also have their own opinions on what the pay formula should address. Often, these are difficult conversations to have.

At Buffer, employees are encouraged to ask these questions and advocate for themselves, instead of whispering about them at lunchtime, which is often what happens when salaries are taboo. This challenges Hubbard and other leaders to have answers.

“It’s not all sunshine and rainbows, which is kind of the cool part,” Hubbard said. “[Pay transparency] is not super easy, but it also brings on a level of reward that you might not be able to anticipate or project.”

 

Potential Poaching 

As with many new workplace initiatives, some companies will be quick to adopt pay transparency and others will lag behind. As candidates and employees seek positions that have clear outlines of earning potential, the companies that fall behind may see top talent leave for better transparency and pay. 

 

Reduced Candidate Pool

Even companies that are fully transparent with their salaries might lose workers simply because other companies are able to offer more money for similar work. Organizations that practice pay transparency may want to consider attaching other employee perks to a position or being willing to negotiate pay to attract the right candidate. 

Related ReadingBonuses Don’t Work For Software Developers. Try These Alternatives Instead.

 

How to Implement Pay Transparency Successfully

Every company will have a unique view of pay transparency and what works for them, but there are some simple steps organizations can follow to implement pay transparency. 

5 Steps for Better Pay Transparency

  • Figure out what pay transparency looks like for your company.
  • Conduct a pay analysis to identify discrepancies. 
  • Use objective data to determine salaries. 
  • Get buy-in from managers. 
  • Explain the policy to employees.

 

1. Figure Out What Pay Transparency Looks Like for Your Company

Holt recognizes that an open salary model isn’t right for every company. PayScale regards salary transparency as a spectrum that spans five stages.

  1. Tell employees what they earn.
  2. Share with employees how market data was used to calculate their pay.
  3. Share the company’s pay philosophy, provide salary ranges for open positions and outline a clear set of policies for raises.
  4. Break down the individual factors determining pay and how much they contribute. Maintain open lines of dialogue with employees over compensation policies, with the goal of working together to make these policies more equitable over time.
  5. Establish open salaries to give employees insight into how much their colleagues make. This data can be internal only, or made public.

Each company should assess where it currently falls on that spectrum and determine where it ultimately wants to be. That requires looking at existing policies and talking with managers about what conversations they’re having with employees about salaries.

Insights gained from these conversations can help company leaders identify problems with the current salary policy and determine what questions their pay transparency policy needs to answer.

A news report exploring what pay transparency looks like at different companies and the benefits. | Video: Scripps News

 

2. Conduct a Pay Analysis to Identify Pay Discrepancies

Holt recommends doing a pay analysis for each role and looking for “red-circle” employees. These are workers who make significantly more or less than other people in similar roles. The next step is to analyze why there’s such a big difference in pay, Holt said. If there isn’t an objective reason for the difference, the manager or HR leader needs to rectify the situation.

For an employee making less, it could mean they’re due for a raise to put them equal to their colleagues. If an employee’s salary is above market rate, Holt suggests pausing their merit raises and explaining why. For those on a salary freeze, it can help to offer an opportunity to earn bonuses and make up the difference through high performance.

The key, however, is to have a pay philosophy and an objective blueprint for employee salaries. Pay needs to be aligned with business strategy and company culture. 

 

3. Use Objective Data to Determine Salaries

Hubbard works with the director of business operations to build Buffer’s formula and philosophy around employee salaries. The formula has gone through several iterations, and Hubbard is still constantly evaluating it and re-benchmarking roles based on new data. The current version takes into account the market rate for a person’s role, their experience level and the cost of living for their location.

This is all then integrated with the company’s career framework. There’s a clear career progression that scales from level one to the C-suite, along with benchmarks for how to reach each level. The end goal was to create a framework that is easy to understand, pays employees a high market rate and is couched in objective data.

Not every company needs to build a formula to adopt a pay transparency model, but managers do need to be prepared to provide a reason behind their pay scales. At a minimum, it’s important to base it on market data for a given role and objective values like experience, education, scope of responsibilities and performance, Hubbard said.

Related ReadingHow Much Transparency Is Too Much?

 

4. Get Buy-In From Leaders and Managers

When Holt and her team rolled out PayScale’s pay transparency strategy, they started with the leadership team. They had long conversations around the career framework, the new pay philosophy and performance management. This included conversations about how to help employees set goals, how to coach them and how to support them in their career growth. The purpose was to help managers understand why pay transparency matters, and give them the tools to have the necessary conversations with their employees.

Without leadership buy-in, a company can’t have salary transparency, Holt said. After all, managers are the ones who have to answer for the differences in salaries.

 

5. Explain the Policy to Employees 

Once you have a clear policy in place, it’s time to explain it to your employees. This can be done through a company-wide presentation on the pay philosophy and performance framework, but it should also be reinforced in one-on-one conversations with managers. Managers need to be trained to answer questions about salaries and have continuous conversations around employee performance, since they are the ones who determine promotions and individual salaries.

These conversations can be coupled with a rollout of resources to support employee development, such as management training, as well as employee workshops on goal setting and strategies for advocating for themselves in conversations with company leaders.

 

Pay Transparency Laws

Some U.S. cities and states have laws already in place (or upcoming) that require salary ranges to be made available, either at an applicant’s request or at a specific juncture in the application and interview process.

 

California

An addition to California’s Equal Pay Act requires businesses with at least 15 employees to provide a pay scale for each job posting. 

 

Cincinnati

Cincinnati’s Ordinance No. 83 prevents businesses with at least 15 employees from asking for information on an applicant’s salary history. Businesses must also provide a pay scale for a role upon an applicant’s request.  

 

Colorado

Colorado’s Equal Pay for Equal Work Act includes a pay transparency section that requires all Colorado-based businesses to include expected salary ranges and benefits in all their job postings. The law also prohibits employers from asking about a candidate’s previous salary, requires all job postings to be shared with current employees and allows women to file wage complaints with the Colorado Department of Labor. 

 

Connecticut

Connecticut’s Public Act No. 21-30 requires companies to provide wage ranges to current employees and job applicants. It also prohibits companies from inquiring about a candidate’s salary history.  

 

Illinois

An amendment to Illinois’ Equal Pay Act requires companies to share salary ranges for public and internal job postings, including transfers and promotions. 

 

Ithaca (NY)

Ithaca’s pay transparency law requires companies to list the minimum and maximum salaries in job descriptions, including for promotions and transfers.  

 

Jersey City

After being amended, Jersey City’s Municipal Code 148 requires businesses to provide minimum and maximum salaries and benefits in job postings. 

 

Maryland

Maryland’s Equal Pay for Equal Work law requires businesses to share wage ranges with candidates and prevents them from asking about a candidate’s salary history.    

 

Nevada

Nevada’s SB No. 293 requires companies to provide salary ranges for all positions, including promotions and transfers. 

 

New York City

New York City’s salary transparency law requires employers to include a “good faith salary range” in job advertisements for hourly and salaried positions. The provisions apply to any business that employs at least four people or at least one domestic employee covered by the New York City Human Rights Law — regardless of whether all employees work at the same location or in New York City. 

 

Rhode Island

Under Rhode Island state law, companies must provide wage ranges to current employees or job candidates, and they may not inquire about a candidate’s wage history or use it as a hiring factor.

 

Toledo

Toledo’s Pay Equity Act prohibits companies with at least 15 employees from asking about an applicant’s salary history. The law also requires companies to share the pay scale for a role upon offering a candidate a job. 

 

Washington State

A 2022 update to Washington’s Equal Pay and Opportunities Act requires businesses that employ at least 15 people to make a salary range and description of benefits and other compensation part of all job postings. Washington also joined Colorado in mandating pay ranges upfront with its 2023 amendment to its pay transparency bill. 

 

Westchester County (NY)

An amendment to Westchester County’s Human Rights Law requires businesses with at least four employees to include the minimum and maximum salaries for job postings for jobs “to be performed, in whole or in part, in Westchester County.” 

 

Frequently Asked Questions

Pay transparency is the practice of openly sharing compensation and salary details with current employees and job candidates, with the goal of achieving pay equity. 

Pay transparency can improve a company’s recruitment and retention, productivity and culture. While pay transparency comes with its challenges, it offers lasting benefits for businesses that choose to embrace this practice.

At least eight states  — California, Colorado, Connecticut, Illinois, Maryland, Nevada, Rhode Island and Washington State — have pay transparency laws in place, and this number is likely to grow in the coming years.

Hiring Now
Anduril
Aerospace • Artificial Intelligence • Hardware • Robotics • Security • Software • Defense
SHARE