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The Pros and Cons of Pay Transparency

Undisclosed pay is still the dominant policy for more than half of Americans, meaning that employees are actively encouraged to not share their pay information and even penalized if they do. This long-held taboo against sharing compensation amongst employees is slowly beginning to ebb away, especially as states begin to enact pay transparency laws around job listings.

Currently, according to ZipRecruiter, a staggering 72% of employers said they post salary information on all postings. Conversely, 18% said they only disclose pay in states where it is required, and 10% said they do not disclose pay at all. This is a huge shift from how companies previously listed salary expectations. Before pay transparency laws were enacted, only 20-30% of job postings had any pay information associated with them.

In states that have passed pay transparency laws, employers are required to disclose a role’s pay range to applicants either within the job posting itself or during the hiring process. The trend began with Colorado passing their ground-breaking pay transparency law in 2021. Since then, ten other states, including California, Connecticut, Hawaii, Illinois, Nevada, New York, Maryland, Rhode Island, and Washington, have passed their own legislation, and other states are currently considering similar bills. Businesses that operate across multiple states have to decide to either abide by the individual laws of each state or, out of convenience, elect to be transparent about salary ranges in all states they do business.

States have pushed to pass these laws due to the positive effects pay transparency can have on diversity, equity, and inclusion in the workforce. A recent study in the academic journal Nature Human Behavior found that pay transparency rules in U.S. academic institutions dramatically reduced the gender pay gap, even eliminating it in some states. An overall effect of the policy was that institutions more consistently and equitably linked pay to observable measures of academic productivity. It’s clear that pay transparency can have positive large-scale effects on workers and the ongoing quest for pay equity in the US, but let’s explore its complex effects on recruiting, compensation, and company culture.

Pay Transparency’s Effect on Recruiting


When we look at the intersection of pay transparency and recruiting, there are many positive outcomes. Companies that post pay ranges in their job descriptions receive 50% more applications on average according to ZipRecruiter. With expectations clearly established within the job posting, employees who do apply are also better qualified and seriously interested in the role.

Without disclosed salaries, candidates often make it through the interview process and then discuss salary. If a candidate’s expectations are far above the role’s accepted pay range, the company and its hiring manager discover late in the process that they squandered time and resources reviewing the candidate. Now, employers and prospective employees can align early around salary expectations, ensuring that time is not wasted during the recruiting process.

Pay Transparency’s Effect on Compensation


When pay transparency laws began to move through state legislatures, there was much written about the potential effects on compensation trends; however, studies have not shown a significant increase or decrease in salaries in reaction to these laws. One study by the National Bureau of Economic Research interestingly found that these laws reduced overall wages for the broader population by 2%, but increased wages for the inequitably underpaid. Their research revealed that since employers now list salary expectations hiring managers bargain less with employees on compensation during the hiring process. This means that the laws have reduced the relative bargaining power of employees, as they now generally accept a salary within the stated pay range. On the positive side, employees who experienced wage discrimination and were paid less saw a significant boost to their income as a result of the legislation.

When reviewing the pay ranges listed by companies, it is clear that the span between the lowest and highest possible salaries has generally widened now that companies are required to post. To analyze this, Glassdoor looked at posted pay ranges in California before and after the law was passed in that state. Before the law, posted pay ranges were about plus or minus 9% from their midpoint. After the law went into effect, the range widened to 11%. Similar effects were seen in other states as well. This does not mean that compensation has increased or decreased, but rather that employers are widening the ranges to give themselves flexibility. With a wider range, for example, companies can attract top talent by offering them the higher end of the pay scale, while not being locked into that specific compensation for other candidates.

Pay transparency laws have also shifted the conversation around benefits. Employers are seeing an increased focus on the full compensation package, including benefits when engaging with prospective employees. According to the U.S. Bureau of Labor Statistics, 31.4% of a civilian worker’s compensation comes from benefits. That’s a large part of an employee’s overall pay, and workers are beginning to understand its impact. Since these laws have made it more culturally acceptable to discuss compensation, workers are taking more detailed looks at their employer’s benefits package. These can now be an additional tool for an employer to attract and retain top talent.


Pay Transparency’s Effect on Company Culture


A company’s culture is a delicate ecosystem, so when you are ready, or required, to implement pay transparency it must be handled with care. When job postings with stated salaries begin to emerge, employees may start to compare their pay to other roles, even if they are not commensurate. This can create negative feelings of comparison and jealousy. It’s important to communicate to your team that pay transparency is a helpful tool for everyone. Make sure to do an internal pay study and fix any existing situations of inequitable pay before implementing pay transparency. To slowly implement pay transparency to employees, some employers opt in to pay transparency before their state requires it. This allows them to introduce the policy on their own terms.

Pay transparency can also have mixed effects on productivity. In a recent study done at the Kelley School of Business, when employees found out that they were paid fairly, overall productivity remained positive. However, if it was revealed that they had been unfairly allocated pay, overall productivity declined. If employees believe that their pay is unrelated to their performance and instead based on biases and other factors, they have less interest in maintaining productivity. That is why a researched and thoughtful rollout of pay transparency is critical to the safekeeping of a company’s culture.

Implementing Pay Transparency in Your Organization


Laws are continuing to change across the country when it comes to pay transparency. Companies must keep up with current legislation, or make the decision to preemptively list salaries on job postings. By electing to be transparent with salaries, companies can carefully weigh the pros and cons and develop a thoughtful strategy before they are required to quickly implement.

If you are looking for a partner to help you with your recruiting strategy and to be an advisor to your team, work with ITAC Solutions. Over the last two decades, the team at ITAC Solutions has helped companies develop the best recruiting and hiring strategies for their unique needs. Contact us today to begin the conversation.