5 Pay Transparency Myths Debunked
Longtime HR leader Samantha Strube was accustomed to working for companies that kept pay practices hush hush.
“I’ve been in situations before where, unfortunately, collaboration with finance teams on compensation was nonexistent,” she said. “I’d be given a decision or a salary band with no transparency to me as to why that decision had been made.”
When Strube joined Indianapolis-based greentech company Encamp as its vice president of people, the company’s approach to compensation left her pleasantly surprised.
“One thing that has really stood out to me was that our CEO said, ‘I want a compensation philosophy, and I want that compensation philosophy to be surrounded in transparency,’” she said. “This was all just music to my ears.”
Pay Transparency Myths, Debunked
- Pay transparency costs too much to be worthwhile: False. Secrecy around compensation can cost employers more in terms of hiring, retention and employee rapport.
- If compensation is already fair, pay transparency isn’t necessary: False. If you’re paying employees equitably, openness about pay practices can only help build trust.
- Pay transparency helps with DEI: True. It’s one of the most valuable tools to combat race and gender pay gaps.
- Salary data demotivates employees: False. Learning how their pay compares with industry peers may motivate them to level up.
- Pay transparency makes finding candidates harder: False. Posting salary info will attract serious candidates and save time and resources in hiring.
There’s a perception that salary talk is impolite or inappropriate. But more companies like Encamp are fighting the stigma and dispelling myths about pay transparency. Now that several states, including Colorado, Washington and California, have adopted legislation requiring employers to share compensation information, pay transparency is becoming normalized and expected.
“Now that workers are becoming aware of how pay transparency makes it easier for them to know where to start negotiating, more and more employees have come to expect it from their bosses and companies,” said Paul Lewis, chief customer officer at Indianapolis-based career search engine company Adzuna. “[Additionally,] inclusive work practices are something more and more job seekers look for when seeking a new company, and pay transparency is one of the pillars supporting this.”
The future of salary transparency is coming, but first, many misconceptions need to be unpacked. Below, HR leaders debunk common pay-transparency myths and suggest steps toward a more honest future.
Myth: Pay Transparency Is Too Costly and Complicated
For companies that haven’t already established transparency around compensation, conducting market analysis, researching pay bands and publishing salary information might seem too onerous and expensive to be worthwhile. Lewis says this isn’t the case.
“In the current high turnover job market, when employees feel they are being underpaid, they are more likely to feel dissatisfied and to underperform,” he said. “This means not being transparent on pay creates its own costs.”
Around 66 percent of companies plan to develop pay equity and transparency practices in the coming year, according to a survey from Payscale, a Seattle-based compensation software company. What’s more, research from Glassdoor found that roughly 69 percent of workers wish they had more clarity around their compensation. That means employers who opt out of such initiatives will ultimately lose out in the competition for candidates.
“There are so many options now for employees to establish their worth, such as free online calculators, extensive professional networks, or even messaging strangers in their field,” said Stephanie Lovell, head of marketing at San Francisco-based recruiting tech company Hirect. “When employees discover they’re underpaid and therefore undervalued, this will undoubtedly lead to resentment, loss of productivity, increased turnover and even potential reputational harm to the business.”
Established organizations with bigger wallets likely have the resources to hire compensation analysts or conduct internal compensation audits to provide clarity around their practices. While smaller companies or startups may not be able to achieve the same level of transparency, that shouldn’t prevent them from being open and honest with employees, Strube said. You might not be able to match the salaries that tech giants offer, but letting your teams know your strategy around compensation and plans for the future can go a long way toward earning their trust.
“Start simple and make sure there’s a level of flexibility,” Strube said. “At the end of the day, you should be asking yourself, ‘what do we really value? What do our people value?’”
Myth: If Pay Is Equitable, Transparency Isn’t Necessary
Pay transparency often makes the news once a breaking point has been reached. Companies that come under fire for unfair pay practices are likely to respond with new commitments to compensation transparency. So if your company already pays its employees fairly, you don’t need to worry about pay transparency, right?
Wrong. “People tend to not be good at judging whether they are paid fairly compared with others,” said Adzuna’s Lewis. “An employee might be getting really great pay, but if they don’t believe it, it doesn’t really work. It’s not knowing they are being paid less than others that frustrates employees.”
You and your management team may know how your pay practices measure up against industry norms and whether they meet equity standards. Your employees, though, are probably not privy to that information. Keeping them in the dark can lead them to question your judgment and intentions. When you’re open about your compensation methods, you build trust with your teams and establish yourself as an employer with integrity.
“Embracing transparency simply reinforces your company’s commitment to openness, honesty, and fairness.”
“If you’re already paying employees fairly and competitively, what’s the harm?” said Hirect’s Lovell. “Embracing transparency simply reinforces your company’s commitment to openness, honesty, and fairness. It also reassures employees they are indeed being compensated fairly, and contributes to a culture of integrity workers will be proud to be a part of.”
Myth: Discussing Pay Is Rude
In the professional world, talking about pay is traditionally seen as crass. The National Labor Relations Act gives employees the right to discuss their salary information, but a study from the Institute for Women’s Policy Research found that almost half of all workers were pressured to keep their wages a secret.
Wage secrecy is a big reason issues such as the gender pay gap have flown under the radar for so long. Further research from Payscale found that women in leadership who say their companies encourage pay transparency earn 9 percent more than their peers who wish their companies were more transparent. Because of this, pay transparency on the part of employers is an invaluable tool to combat workplace inequalities. Instead of stifling salary information and letting resentment stew, Strube said employers should be proactive and encourage conversations around pay.
“We have an open door compensation philosophy at Encamp,” she said. “I am never going to shy away from a conversation around compensation with an employee. When we talk about compensation ranges, I show them the data and let them know that we researched and budgeted those ranges.”
Myth: Pay Transparency Demotivates Employees
Some employers may worry that too much clarity around pay bands will harm employees’ motivation, especially if they think they can make more money elsewhere. But many studies show that compensation is only a fraction of what pushes employees to perform well at work. In Strube’s case, the knowledge that she’s paid less than some of her peers actually motivates her more.
“In my vertical, I know I’m not the lowest earner, but I’m not the highest earner either,” she said. “While I could let that deflate me, I made a conscious choice to let that inspire and motivate me to continue performing and get my compensation to that higher level.”
Many factors motivate your employees to show up for work each day. Their paychecks are definitely a big factor, but so is a passion for their role, a feeling of belonging on their team, and a sense of trust in their company’s leadership.
“At its core, pay transparency simply builds trust and confidence, which can certainly lead to greater motivation, dedication, and productivity with an employee base.”
“At its core, pay transparency simply builds trust and confidence, which can certainly lead to greater motivation, dedication, and productivity with an employee base,” Lovell said. “All professionals want to know they’re being treated equally, fairly, and are compensated at levels aligned with their experience, qualifications, and industry standards. If they are, I strongly believe this will be reflected in their overall motivation and inherently their output.”
Myth: Sharing Salary Information Might Scare Job Candidates
The hiring market in tech is tight. Recent research from CNBC found that 50 percent of employees say their companies are understaffed, and a survey from Manpower Group revealed that 69 percent of company leaders are struggling to find candidates for empty roles. Employers are in a high-stakes race to secure talent, so they might be concerned that offering too much salary information up front will scare candidates off or make them question whether they could make more money elsewhere.
“Companies that practice salary transparency will be seen as companies that are trying to eliminate unequal pay and the gender pay gap.”
In practice, however, it’s quite the opposite. The compensation tech company beqom found that around 61 percent of job searchers would be more inclined to apply for roles if the job posting included salary information. Employers who are transparent about pay practices show that they are intentional about compensation and achieving equity. This can strengthen their brand and give them a leg up in the competition for talent.
“Companies that practice salary transparency will be seen as companies that are trying to eliminate unequal pay and the gender pay gap,” Lewis said. “Not only does this help to encourage more job seekers to apply, but it’s important to create an equitable hiring environment.”
Although some leaders worry that pay transparency in job postings will make job seekers look elsewhere, it can actually help them save on investment and time to hire. Letting applicants know their potential salary band up front means you won’t waste time interviewing candidates who want more money than you can provide.
“Pay transparency also helps prioritize serious candidates, allowing hiring teams to invest energy and resources on applicants who won’t decline an offer because it doesn’t align with their compensation expectations,” Lovell said. “If a standard hiring practice is to find the cheapest candidates, or candidates who will accept less than market value, you likely find that reflected in the work or struggle to retain quality talent once they do comprehend their value and worth.”
Pay transparency contributes to your employer brand in more ways than one. Think of your employees as customers: Just like your clients, you want to provide them with a seamless and positive experience so that they only have good things to share when your name comes up. Achieving that means being honest about all your practices, including how you pay.
“My fervent belief is that if a candidate or employee has to ask us what we pay, we have not done our job,” Strube said. “If they don’t feel like you’re making integrity-driven decisions, you’re not going to keep those people around. It is our responsibility as employers to show up and do the right thing for our employees.”