What an employee is paid isn't only how they pay their bills and living costs, but it also determines their quality of life. So, needless to say, employees care about their pay, and rightly so!
Yet a Glassdoor survey found that only 15% of employees say their employer openly discusses pay scales internally, and 75% feel uncomfortable discussing compensation with their boss or coworkers.
It’s a working assumption that employees are curious about what their coworkers make. However, a 2022 LinkedIn study found that just 16% would share details of their compensation with colleagues, and 32% would do so with close friends.
The bottom line: Despite our curiosity, we feel uncomfortable talking about money.
We know pay transparency is something employees want, as evidenced by Buffer. When they introduced pay transparency, job applications increased by more than double.
With that in mind, jobseekers may be pleased to hear that salary transparency may soon become mandatory.
The proposed Salary Transparency Act in the US House of Representatives asks that all US employers, regardless of their size and employee numbers, be transparent about the following:
- Wage ranges for applicants and all job postings
- Salary ranges for existing employees
This act could permit employees to sue an employer if they believe they’ve violated this law.
So, with all that in mind, let’s explore pay transparency in greater depth:
U.S. States Not Keeping Compensation A Secret
Although the Salary Transparency Act is yet to be passed at a federal level, some U.S. states are ahead of the curve. So much so that Time magazine called 2022 the ‘year of enforced pay transparency.’
Many states have already implemented their own pay transparency legislation. For example, in 2021 New York City Council passed a bill requiring employers to post salary ranges for all vacancies, transfers, and promotions.
Similarly, any business with 15+ employees in California must list salary ranges for both internal and external job vacancies. Existing employees also have the right to enquire about the pay scale of their current job. This is big news because California has some mega employers like Apple, Google, and Meta.
It’s the same story in Washington state, where companies with 15 or more employees must display pay scales on all print and online ads - for both internal and external hiring. Businesses also have to list the company benefits new hires receive.
So far, so great.
However, it’s clear that while national legislation isn’t yet in place, recruiters and employers are still reluctant to talk about compensation openly, with only around 17% of private companies practicing pay transparency, 41% discouraging it, and 25% prohibiting talk about salary.
So, what are some of the hidden costs when employers keep compensation a secret? Let’s take a look:
Decreased Morale and Higher Turnover
Employees who suspect pay discrepancies may feel unfairly treated and exploited, resulting in decreased morale and job satisfaction. The stats bear this out. For example, one study found that when employees negatively perceive pay equity in their workplace, their motivation to stay with that employer is reduced by 15%, a 13% increase in job searches, and a 13% dip in employee engagement.
It’s common knowledge that it’s more expensive to hire someone new than it is to nurture existing employees. In fact, it costs a business around 50-60% of an employee’s annual salary to replace them. So, not only is high turnover disruptive, but it’s also a financial burden.
Of course, one of the easiest ways to nip all this in the bud is to make your company salaries transparent (providing there aren’t any pay discrepancies!)
Harder to Hire
Suppose an applicant sees that a business doesn’t offer pay transparency, leading them to conclude the company doesn’t practice pay equality. It stands to reason that where there’s secrecy around compensation, candidates might (potentially rightly) suspect that hiring managers have to skirt around the topic because something fishy is happening.
Unsurprisingly, in these cases, job seekers are less likely to apply for jobs with said business. In fact, one study found that 67% of US workers were unwilling to apply for jobs at companies they perceived to be practicing wage discrimination.
Unequal Pay for Women
The sad fact is that keeping salaries a secret can potentially result in women getting paid less than men. Although there’s no research on the direct result of pay secrecy, there’s clearly a disturbing history of unequal pay for women, and in particular, women of color. For example, the National Partnership for Women and Families found that women are only paid $0.80c for every dollar paid to men.
Even when pay clarity is required, e.g., within US government agencies, women only make 81% of what men make. However, in the private sector, women earn only 79% of what their male counterparts earn.
In the case of minority women, the pay gap is even wider. For example, Latina women make just $0.53c for every dollar a white male makes, while for black women, it’s $0.61c - irrespective of industry, education level, and occupation.
Unfortunately, keeping salary information behind closed doors nurtures a culture of secrecy where pay discrimination, whether deliberate or inadvertent, can thrive. Not only is this wrong on an ethical level, but it could also be harming your recruitment efforts. For instance, according to a Reed analysis of job adverts in 2020, job ads displaying a salary had 43% more applications than those that didn’t.
Are You Ready to Embrace Pay Transparency?
Businesses wanting to get ahead of this planned federal legislation and demonstrate their commitment to salary transparency and equality can prepare by conducting a thorough compensation analysis to ensure everyone is paid equally and fairly.
There’s no pretending this is an easy task. Still, LaborIQ can produce salary recommendations tailored to specific industries, locations, and company sizes. You can then use these as a reference to ensure you’re paying staff fair and competitively.