Pay transparency is slowly but steadily growing in popularity across the country. On Indeed alone, the number of U.S. job postings that provided salary information has more than doubled since 2020. The increase is partly due to pay disclosure laws going into effect, but there are also notable benefits companies receive when they promote transparency with employees. In a survey conducted by Indeed, 75% of people surveyed were more likely to apply for a job when the posting listed a salary range. From the same survey, 83% of respondents reported feeling more loyal to the company if they perceived that they were paid fairly. Unfortunately, pay transparency does not come without its drawbacks. To properly execute these policies and reap maximum benefits, HR leaders must become familiar with possible roadblocks as well as potential solutions.
The problems that may arise depend on which type of pay transparency the company is implementing. According to Harvard Business Review, there are three levels of transparency. First, outcome transparency requires sharing salary ranges for job positions. Next, communication transparency allows employees the freedom to share their salary with colleagues. Then there is process transparency, where companies share how they determine compensation. Each type of transparency can help promote employee engagement and trust within the company, but there can be issues if not implemented properly.
When a company implements outcome transparency, employees could end up feeling demotivated. If an employee learns that their salary is on the lower end of the provided range for their position, they may feel like their hard work isn’t being properly seen or valued. This is especially the case when performance metrics are difficult to track. If HR leaders neglect to share proper guidance on how employees can reach a higher salary, their workers might not have a clear idea of how their performance justifies their current pay levels. Without clear communication, employees on the lower end of salary ranges may build up resentment toward the company as they don’t feel like they are being evaluated fairly.
Communication transparency can lead to what many HR leaders think of (and fear) when the subject of sharing pay levels arises: unhealthy comparisons. When there is a pay discrepancy between employees who work at the same level, that will naturally lead to the question of why. These discussions between employees will likely lack important context. Someone can have a higher salary than their colleague in the same or similar position due to a variety of factors, including unique work experiences and special skills. Without these factors in mind, employees may jump to comparing their performance levels and questioning why their work is not as valuable to the company even if they feel their work is at the same level as their fellow team members. Much like outcome transparency, this can lead to resentment over time and even a feeling of competition between both the company and individual colleagues. Companies thrive when employees feel connected with their team, but a culture of toxic comparisons will lead to feelings of being paid unfairly and bitterness between colleagues. HR leaders who don’t find ways to mitigate the potential downfalls of transparency risk experiencing a drop in productivity and even losing the talent they worked so hard to recruit.
Executing pay transparency without harming workplace culture will require clear communication on behalf of the company. By following a process transparency strategy, HR leaders can be open with employees on how different factors shape decisions on raises, bonuses, and overall salaries. Alongside performance standards, leaders can share clear, measurable goals and strategies to meet them so that employees understand how to reach their full potential. Some companies can take it a step further by offering training to help employees boost performance levels and then rewarding employee development with higher compensation.
As pay transparency policies continue to be passed across the U.S., HR leaders need to become familiar with all the ways they can implement pay transparency within their companies. Without proper strategic planning, pay transparency can lead to bitterness, low engagement, and even employee turnover. But if HR leaders can clearly communicate their standards along with strategies to help build up employee development, pay transparency policies can help foster a company culture built on trust and fairness.
