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Pay transparency 101: What it is and what are the pros and cons?

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What is pay transparency?

Pay transparency is the practice of openly sharing information about an organization’s compensation structure and individual employee salaries. This can include providing employees with access to salary ranges for their position, disclosing the criteria used to determine pay, and sharing information about the company’s overall compensation philosophy.

Pay transparency vs. Pay equity

Pay transparency and pay equity are related concepts, but they are not the same thing. Pay equity refers to the principle that employees should be paid fairly for their work, regardless of their gender, race, or other protected characteristics. This means that employees who perform the same job or have similar qualifications and experience should be paid the same amount, regardless of their demographic characteristics.

Pay transparency, on the other hand, refers to the practice of openly sharing information about an organization’s compensation structure and individual employee salaries. This can include providing employees with access to salary ranges for their position, disclosing the criteria used to determine pay, and sharing information about the company’s overall compensation philosophy as well as posting salary ranges on job postings.

While pay transparency can help to promote pay equity by ensuring that employees are paid fairly for their work, it is not the same thing as pay equity. Pay equity is a legal and ethical principle that organizations must follow, while pay transparency is a practice that organizations can choose to implement to promote fairness and transparency in their compensation practices.

What are the benefits of pay transparency?

There are several benefits to implementing pay transparency in the workplace.

Promotes fairness and equity

Firstly, it can help to promote fairness and equity by ensuring that employees are paid fairly for their work. This can help to reduce the gender pay gap and other forms of pay discrimination.

Improves performance of your company

Increasing the number of women in your company, especially in managerial positions will help you for the market comprehension. Considering buying power and influence on decision, women are responsible for 80% of the global total of purchases.

Encourages a culture of open, honest, two-way communication

The basics of employment is doing work in exchange for a form of compensation. Leveling the playing field between employer and employee to have open discussions on pay, performance and career development plans while being treated fairly drives trust and transparency. Beyond transparency, employers can communicate how salary bands are created, how pay for performance and bonuses work and how hiring decisions are made drives a transparent culture.

Enhances your employer brand and reputation

You can share the positive steps you took to help address pay gaps and promote your inclusive and transparent values as the way your company does business. Employees are your greatest advocates and have great insight to share referrals and recommend the company.

Attracts diverse, top talent

People don’t want just a job – they want to contribute to a company or mission that has purpose. By advertising the positive steps your company has taken, talent, especially those who feel the effects of pay gaps will be more willing to work for a transparent company over one that is not. This is also an indicator of values-alignment, a great tool for long-term retention.

Improves employee morale, engagement & productivity

Pay transparency can help to improve employee morale and engagement by increasing trust and transparency within the organization. Studies have found that when salaries are transparent and desirable, employees work harder to demonstrate their value.

Proactively manages risks

Develop the foundation and data to backup reports and claims of equity. Further you are showing principles of good governance and ethics… it feels right! Whether a parent, sister, son or daughter, we have many reasons to want to leave the world in a more equitable state for generations to come.

Is pay transparency legally required?

From a legal perspective, pay transparency is not only legal but also encouraged by many organizations and government agencies. Paying someone less because of their gender is a form of discrimination, even if a result of unconscious bias. Although you may not yet be required to report salaries and pay gaps, pay transparency and pay equity legislation is becoming more prevalent across North America.

The Canadian Human Rights Act include Equal Wages Guidelines (1986) which establishes rules of determining pay based on skill, effort, responsibility and working conditions. It also identifies protected groups (including sex, race, ethnicity and mental or physical disability) who are entitled to equality and freedom from discrimination. Canada’s Pay Equity Act of 2018 requires federally regulated employers to establish and update a pay equity plan.

The U.S. Department of Labour’s Equal Pay Act of 1963 requires that employers pay employees of the opposite sex the same wage for the same work. Additionally, the National Labor Relations Act protects employees’ rights to discuss their wages and working conditions with each other.

Check out People Stack’s pay transparency laws across North America by province and state for the latest information including:

  • British Columbia’s proposed legislation requiring all employers to include a wage or salary range on all externally advertised job postings from B.C. employers. Employers of a certain size will also be required to provide post pay transparency reports. A vote to pass will occur in November 2023.
  • California’s newly revised salary and wage bill is actively in effect as of January 1, 2023 for all externally advertised job postings to include a salary range with employers of 15 or more employees. For internal employees, salaries are not required to be posted, but if an employee request a range it must be shared. It also notes that having third parties post does not exempt the salary range from being shared. The State has also clarified that if a job is posted across states or fully remote but the person may reside in California, the rules still apply. Each found violation may also be subject to a fine ranging from $100 to $10,000.
  • New York State employers must post salary ranges for all internal and external job postings. This law applies to all employers with four or more employees, and if the job is performed remotely but the employee has the potential to live in New York City. Employers are required to maintain a record of job postings and associated salary ranges. This law does not apply to contractors
  • New York City enacted its own pay transparency law effective November 2022, which does include contractors. The range for the listed maximum and minimum salary would extend from the lowest salary to the highest salary that the employer in good faith believes it would pay for the advertised job.

What are the cons of pay transparency?

While pay transparency has many benefits, there are also some potential drawbacks to consider and approach proactively.

One of the main concerns is that it can lead to resentment and conflict among employees. When salaries are openly shared, some employees may feel that they are being paid unfairly in comparison to their colleagues. This can lead to tension and a decrease in morale. The shift towards more transparent models will inevitably unearth problematic disparities; and we recognize employers will need some time to clean house and correct them. For example, it’s important to give more information about why the pay is different for different jobs. People Stack has a systematic process of guiding employers through their unique journey of pay transparency, and ultimately reap the benefits of pay equity in the workplace.

Pay transparency is not a solution to the wage gap on its own.

It requires pre-planning and execution, addressing any current wage disparities and sustainable management of best practices.

One of the biggest fears is that is could lead to over-paying employees. Candidates could use the data from competitors to negotiate salaries, or go with a different company that is willing to meet their salary expectations. Salaries based on competitive compensation analysis processes and an employer utilizing their efforts as a competitive advantage, as well as offering a values-aligned environment maintain competitiveness. Further aspects of total compensation such as variety of work, tools, team culture then play a bigger role in the negotiation process.

Finally, some organizations may be hesitant to implement pay transparency due to concerns about confidentiality. Sharing individual salary information can be sensitive and may violate employees’ privacy rights. It is important to adhere to privacy of information policies and procedures when working with sensitive information.

While pay transparency can have many benefits, it is important for organizations to carefully consider the potential drawbacks and implement policies and procedures to address these concerns. By balancing the benefits and drawbacks, organizations can create a more transparent and equitable workplace.

In conclusion, pay transparency is a positive practice that can benefit both employees and organizations. By promoting fairness and equity, improving employee morale and engagement, and complying with legal requirements, organizations can create a more transparent and equitable workplace.

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