Pay Transparency: What is it?

The world continuously moves towards structuring more labor laws and policies for employee well-being. The working population is continuously trying to move forward from the effects of the pandemic on the workforce. With the emphasis on mental health and other healthcare practices in the wake of remote or hybrid work environments, many employees are demanding pay transparency.

Pay transparency is the practice of communicating salaries of employees in a workplace. How much an employee works is made open knowledge to everyone inside and outside of an organization. Some companies choose to apply pay transparency in the mere form of telling an employee how much they earn, while others employ more detailed practices, such as sharing pay ranges for certain roles, as well as how those ranges are calculated. 

There are many pros and cons that are to be considered when thinking about pay transparency for an organization.

Pay transparency can increase productivity. 

According to an article by Buffer, pay transparency can lead to an organization’s team being more engaged. Tel Aviv University’s research concluded that productivity was lower when employees were unaware of the salary ranges of their workforce.

Pay transparency could curb potential exploitation of workers.

Some companies pay their employees different salaries, even if there is no difference in their performance. This is easier to do when salary ranges are not transparent. However, when transparency is employed, everyone will know how much money is being made, and can thus talk to their employers about receiving fair compensation for the work that they are doing in a company.

In a similar vein, pay transparency could help close the wage gaps. 

When an employee knows how much their peers are earning, strides can be made in closing wage gaps that exist in the workforce, such as the gender gap. 

However, pay transparency without a clear salary policy could lead to failures in its employment.

For the nuances of a role’s requirements and the things that make a role different to be understood, it is important for there to be clear salary policies that are set in place and actually implemented. If the mere salaries of a company’s workforce are made publicly available, there may be issues within the employee circle regarding pay scale, which could lead to problems for the company.

Pay transparency is not a solution in itself for wage disparity.

While salary transparency may result in employees being paid an equitable compensation, this will not be enough to combat wage disparity. Even within companies that offer complete pay transparency to their employees, a wage gap was observed within men and women. 

Some of this issue comes with employees being ranked at different levels of expertise within their roles. However, it was observed that a large number of women were set at overall lower levels than men. More women were ranked at  intermediate levels, while most men found themselves ranking at an advanced level of expertise. Therefore, the wage gap continues to exist with preconceived notions and biases regarding the skills and expertise of different groups of people, which is not something pay transparency will solve.