The topic of pay transparency in private sectors is divisive and oftentimes met with ire.
Employers worry that implementing full pay transparency — allowing every employee to view what their colleagues earn — in the workplace will foster resentment among team members and limit employers’ bargaining power in recruitment.
As a result, 17% of private companies practice full and partial pay transparency. According to the Institute for Women’s Policy Research, 75% of workers were discouraged or prohibited from discussing wages and salaries in 2017. Women’s rights activists advocate for full pay transparency as the increased visibility encourages businesses to establish a standard of equal pay for equal work and empowers female employees with information to advocate for themselves.
Businesses also benefit from increased levels of pay transparency. The policy improves productivity, diversity and workplace cohesion to enhance recruiting efforts.
Transparency Leads to Cohesion
Pay transparency builds a cohesive workplace culture to improve employee loyalty. Employee perception of fair pay has declined over the past five years, indicating increasing levels of distrust between employees and their employers. Among the top five reasons: “Employee compensation is not fair.”
To establish higher levels of trust with employees, businesses can implement degrees of transparency. For example, companies can implement partial pay transparency policies. A policy of partial pay transparency makes pay ranges available for roles within a company. This is evident in recruitment materials, which frequently provide applicants with a range of salaries associated with the position.
Some companies exceed the partial pay transparency standard to provide employees with total transparency. A full pay transparency policy makes individual compensations available to all employees.
In 1986, Whole Foods implemented a policy of full transparency, which means compensation details are available to all employees.
Buffer, a social media scheduling tool company, exemplifies the highest degree of salary transparency. The compensation details for every employee is available not only internally but also to the general public.
The public can access the spreadsheet to find each member of the Buffer team’s salary. When announcing the policy, the company claimed “Transparency breeds trust, and trust is the foundation of great teamwork.”
Indeed, trust is essential to the efficacy of all organizations.
Employees who experience trust and safety at work also feel respected by business leaders. This respect makes employees 110% more likely to remain with a company. For the company’s total transparency, Buffer boasts a 94% retention rate.
Transparency Promotes Diversity
Businesses undermine discrimination with transparent pay policies, which promote equal opportunity. In 2018, women would have needed to work an additional 39 days to earn as much as men did. The gap widens for black and Hispanic women.
Differences in access to education, occupational segregation and work experience as well as persistent gender discrimination contribute to the gender wage gap, according to Pew Research Center.
By making wages visible to employees, businesses cannot hide structural inequalities that result from gender discrimination. With accurate information about colleagues’ salaries, employees are not without context to understand their salaries. If workers do not know what peers’ salaries look like, they cannot know or argue that they suffer from pay discrimination.
Where pay is transparent, the pay gap is smaller. For example, government agencies in the United States must disclose pay information publicly. In 2017, women made 81% of what their male counterparts made. In the private sector where pay transparency is not made available, women earned 79% of what men made.
The proven commitment to equality results in higher levels of gender diversity. One study assessed recruitment and pay trends at Danish companies following the implementation of a 2006 law that mandated the disclosure of wage statistics. Researchers found that pay transparency resulted in more women hires. Diversity in all forms results in innovation, which can only benefit companies.
In a candidate’s market, diversity is also essential for companies to compete. Millennials seek diversity and inclusion programs at their prospective employers before making a job decision. After implementing full pay transparency, Buffer received twice as many job applications than it had previously. Pay transparency leads to more diversity in organizations, sharpening their competitive edges and supporting their bottom lines.
Transparency Increases Productivity
Businesses with a pay transparency policy benefit from improved employee performance.
Employees that know their colleagues’ pay perform better than those who don’t, according to a study published in the Academy of Management Journal. Moreover, pay secrecy resulted in decreased performance and continuation intentions by participants, especially high performers.
Marketing analytics company SumAll instituted a policy of full pay transparency. The organization’s CEO, Dane Atkinson, stated that the policy “morphed into a unifying productivity booster that keeps people around.” The policy institutionalized the principle of meritocracy, which encouraged higher levels of employee performance. As a result, their performance and retention improved.
Help-seeking is more effective in groups where pay is transparent. In fact, a shift from pay secrecy to transparency results in the increased efficacy of help-seeking. Researchers attribute this improvement to a more accurate assessment of task experts. This means that in companies with pay transparency, employees access the right information more quickly.
Transparency Generates Value for Businesses
Ultimately, pay transparency benefits businesses by improving workplace culture. The visibility of compensation information eases employees’ concerns about fair pay. A transparent policy establishes trust between employees and employers to discourage turnover.
Businesses encourage diversity through pay transparency, which closes the gender wage gap. When pay transparent policies are in place, companies hire more women to promote revenue growth and a competitive advantage in the market. The disclosure of compensation details results in more productive employees who remain engaged in tasks and seek help more effectively.
Pay transparency not only benefits the individual, but also businesses as a whole.