Pay transparency is the practice of openly displaying employee salary information to existing employees and candidates. Some companies may disclose this information publicly on job postings, while other organizations may only inform employees within a given department or candidates at a certain stage in the interview process.
What Is Pay Transparency?
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.
What Is Pay Transparency?
At its core, 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 with discussing salary, while only 53 percent of Baby Boomers are.
Even still, 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, she told Built In in a 2021 interview, 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 said. “It’s changed some of the conversations I have, and I will talk about salary more openly, even with my kids.”
“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. PayScale, a salary platform company, measures pay transparency on a spectrum. Telling an employee what they earn is the bare minimum. Higher transparency levels include sharing pay ranges for each role and sharing insight into how salaries are calculated.
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.
Discover actionable tactics and checklists to address wage growth, pay transparency and hybrid compensation within your organization.
Pay Transparency Laws
Salary transparency isn’t just the right thing to do. For some companies, it’s a legal requirement (or soon will be).
Signed into law in 2018 as an update to Washington’s decades-old Equal Pay Act, lawmakers revisited the Equal Pay and Opportunities Act in 2022. Changes to the law went into effect January 1, 2023, requiring businesses that employ at least 15 people to make a salary range and description of benefits and other compensation part of all job postings.
California, Connecticut, Maryland, Nevada, Illinois and Rhode Island 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.
In 2021, Colorado’s Equal Pay for Equal Work Act went into effect to prevent gender-based wage discrimination. In addition to making it illegal for businesses to pay “an employee of one sex a wage rate less than the rate paid to an employee of a different sex for substantially similar work,” the law also requires all Colorado-based businesses to include expected salary ranges and benefits in all their job postings.
Colorado employers who have employees in state must comply with the law for remote jobs, while the transparency requirement does not apply to employers based outside Colorado who do not already have employees in state and are advertising remote jobs.
The law also lays out a list of permissible factors for explaining salary discrepancies, including seniority; a merit system; quantity or quality of production; geographic location; travel and relevant education, training or experience.
The pay transparency stipulation is a critical component of the act’s strategy to prevent wage discrimination, said Colorado State Senator Jessie Danielson, one of the bill’s primary sponsors.
Washington has already joined Colorado in mandating pay ranges upfront with its 2023 amendment to its pay transparency bill. And New York City has followed the same pattern. 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. Only one employee needs to be based in the city for the workplace to be covered.
Though pay transparency isn’t law everywhere just yet, companies have started stepping up on their own.
Microsoft began publicly disclosing salary ranges for both internal and external job postings in January 2023. Headquartered in Washington, Microsoft’s shift coincides with amendments to the state’s Equal Pay and Opportunities Act, but extends transparency to all U.S. job postings.
Benefits of Pay Transparency
Helps Improve Company Culture
Ultimately, a salary is much more than a number. Salaries reflect what a company values, and they are usually tied to job titles, expectations and performance, said Shelly Holt, chief people officer at PayScale. Pay transparency requires a company to reflect on how each of these factors play into salary considerations, which in turn can help to uncover bias and lead to a more inclusive workplace.
Holt knows how scary pay transparency can be to HR leaders. Salaries have long been treated as a taboo subject in the workplace, and the assumption is that open salaries will lead to resentment among employees.
But those worries don’t reflect reality, Holt told Built In in 2021. Employees talk, and odds are they already know what their peers are making. They also have access to compensation data websites that can help them determine how their salaries stack up to the market rate. Moreover, 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.
In other words: By not taking a more proactive approach to the salary conversation, a company is actually doing more harm to its culture than good.
“There is a bigger burden on organizations and leaders to articulate with consistency what their approach is to things like compensation,” Holt said. “But just not addressing it ... you’re going to end up having downstream impacts in things like retention and recruitment.”
Combats the Gender Pay Gap
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, Colorado State Senator Danielson told Built In in 2021.
“It becomes difficult to hide this type of discrimination when it becomes public,” Danielson said. “And it gives people an opportunity to advocate for themselves.”
Pay transparency alone doesn’t lead to equal pay, however, and Colorado’s law seeks to address other sources of bias as well. It 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. It also empowers the Colorado Department of Labor to help filers recoup the difference in wages.
Offers a Better Candidate Experience
Applying for a job without knowing what you’re earning potential 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.
Challenges of Pay Transparency
Can Create 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.
Can Be Difficult to Implement
As much as Hubbard has adapted to Buffer’s style of radical transparency, she admits it isn’t always easy.
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. These are difficult conversations to have, but it’s also what Hubbard loves most about the company’s approach.
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. And in turn, it challenges her and members of the leadership team 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.”
Opens the Door for 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. 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.
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, and where you want to be. Survey managers to understand what employees want to know about their salaries.
- Conduct a pay analysis to identify discrepancies. Consider questions like: What do you value in new hires? Which behaviors do you want to incentivize?
- Use objective data to determine salaries. This helps to eliminate bias and create a less subjective pay structure.
- Get buy-in from managers and employees. There’s no way to do this right they aren’t on board.
- Explain the policy to employees. So they fully understand the why.
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.
The first stage is telling employees what they earn; it’s the absolute bare minimum. The next tier is to share with employees how market data was used to calculate their pay.
At the third stage, companies give employees insight into their compensation structures. This would include outlining the company’s pay philosophy, providing salary ranges for open positions, and outlining a clear set of policies for raises. Broadly speaking, third-stage salary transparency is what Colorado’s Equal Pay for Equal Work Act requires.
Fourth-tier companies provide all the insights required at stage three, but they also break down the individual factors determining pay and how much they contribute. Fourth-tier companies also maintain open lines of dialogue with employees over compensation policies, with the goal of working together to make these policies more equitable over time.
The final stage of transparency is open salaries, which gives employees insight into how much their colleagues make. This data can be made available to employees of the company, or made public for anyone to see, like Buffer’s salary data is.
Each company should assess where it currently falls on that spectrum and determine where it ultimately wants to be, Holt said. 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, Hubbard added.
Conduct a Pay Analysis to Identify Pay Discrepancies
When a company makes a commitment to pay transparency, it’s not uncommon for pay discrepancies to pop up. That’s especially true for fast-growth companies.
Holt recommends doing a pay analysis first 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. It could be that the person’s responsibilities don’t line up with their job title, or that they transitioned into a new role and their pay didn’t change. If there isn’t an objective reason for the difference, the manager or HR leader needs to rectify the situation.
“If you know our philosophy and you know we use ranges and things like that, then I can have that conversation with you.”
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 to help managers explain to employees why their compensation is what it is, and what they need to do if they want to make more. Companies should also look carefully at how their salaries compare with market rates, and how salary, along with other factors like company size and maturity, can impact the type of talent they are able to recruit.
“If you know our philosophy and you know we use ranges and things like that, then I can have that conversation with you,” Holt said. “You might not like that you’re red-circled and won’t get a merit increase, but you might still be able to blow it out of the park and get paid more on a corporate bonus.”
Use Objective Data to Determine Salaries
At Buffer, Hubbard spends a lot of time thinking about fairness. Comparisons are inevitable when salaries are open, which means any difference in pay needs to be accounted for. This is where Hubbard finds comfort in data.
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.
“Having a data-driven level of salary can reduce the different levels of bias that are possibly inherent across managers if they’re choosing their own way to go about it.”
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.
The more salaries are tied to an objective framework, the less likely biases are to impact salaries.
“For us, it created a level of comfort and security,” Hubbard said. “Having a data-driven level of salary can reduce the different levels of bias that are possibly inherent across managers if they’re choosing their own way to go about it.”
Get Buy-In From Managers and Employees
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.
Hubbard took a similar approach at Buffer. When she was working on the new pay formula, she met with each manager to explain the reason for the change, and to discuss the expected short- and long-term impact. During those meetings, she was also able to discuss any questions and concerns. This helped her build trust during the rollout.
“[Managers] are the ones who get the questions ... And if they are not prepared to answer them or they aren’t trained to answer them, then you don’t have transparency.”
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.
“They are the ones who get the questions,” Holt said. “And if they are not prepared to answer them or they aren’t trained to answer them, then you don’t have transparency.”
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.
Providing this context helps employees understand why their performance matters, how it connects to their salaries and how it fits within the bigger picture, Holt said.
“They may not agree with everything, but they understand why we do it and how it connects to them.”
Holt said PayScale hosted a number of employee sessions to share the new pay philosophy, career framework and growth plan. The company coupled that with a rollout of resources to support employee development. These resources include management training, as well as employee workshops on goal setting and strategies for advocating for themselves in conversations with company leaders.
“We’ve received a warm reception from employees because they understand why,” Holt said. “They may not agree with everything, but they understand why we do it and how it connects to them.”
This approach helped put employees in charge of their own career growth, with an understanding of how each step would influence their salaries. After all, pay transparency isn’t just a one-time thing, Holt said. It needs to be constantly reinforced and tied to every facet of the employee experience.