What Is Pay Transparency? 5 Common Misconceptions

Discussing your salary with colleagues was once considered a faux pas — but times have changed. In 2023, approximately 1 in 4 employees are protected by a growing number of state and local laws that protect their right to pay transparency.

Today, candidates and employees no longer tolerate being left in the dark when it comes to pay equity and their total compensation.

While more employers are beginning to embrace pay transparency and the benefits it can bring to their business, there are still plenty of misconceptions around what it takes to get started.

Read on to learn the truth about five common misconceptions.

First, What Is Pay Transparency?

Simply put, pay transparency is a strategy in place for how employee salaries are discussed within a company.

Some companies have made headlines by creating spreadsheets listing each employee’s salary for total transparency within their organizations – but that’s not the only way to implement pay transparency. For example, it can also consist of regular salary benchmarking and payroll audits to minimize pay discrepancies, or proactive conversations between managers and employees to discuss compensation and potential growth within the company.

There are several steps you can take to determine where your company currently stands on the spectrum of pay transparency. Consider asking yourself the following questions to get a better idea:

• Are you surveying employees to understand what compensation they truly want?
• Does your compensation philosophy align with your talent strategy and overall company culture?
• Are roles and responsibilities clearly defined, and are you using real-time market data to promote fair pay and eliminate bias within your pay structure?
• Is your team conducting regular salary benchmarks and payroll audits to correct potential pay discrepancies?
• Are managers educated on how to take a proactive approach to compensation conversations with employees?

Misconception #1: Pay Transparency Isn’t Necessary

In many states, pay equity initiatives are no longer nice-to-haves – they’re written into law. This trend shows no signs of stopping as pay transparency laws continue to become more popular on both state-wide and city-wide levels across the US, with at least ten states currently requiring employers to disclose salary ranges to candidates.

In 2018, lawmakers revisited Washington’s Equal Pay and Opportunities Act in 2022. Set to go into effect on January 1, 2023, businesses that employ at least 15 people will be required to make a salary range and description of benefits and other compensation a part of all job postings. It doesn’t stop there. California, Connecticut, Maryland, Nevada and Rhode Island already have laws planned or in place that require salary ranges to be made available at certain points of the interview process or at a candidate’s request.

Starting in November 2022, New York City’s salary transparency law will require employers to include a salary range in job postings for hourly and salaried positions, which has inspired the state of New York State to plan state-wide pay transparency laws by April of 2023. They may also be followed by Massachusetts, where current bills are under consideration to require employers to provide salary ranges for employment opportunities.

Getting on board with pay transparency initiatives is not only a positive step toward realizing pay equity, but it’s also a way to future-proof your business and adapt to a growing appetite for pay laws that are becoming increasingly common.

Misconception #2: Pay Transparency is Bad for Business

Now that pay equity conversations are going mainstream and are being written into law, you may wonder how this has affected today’s workers.

Research from job search website Zippia found that:

• 80% of US employers who perform pay equity audits find inequity in their organization.
• Pay transparency laws reduce the gender pay gap between men and women by 20-40%.
• From 2021-2022, LinkedIn job postings with salary information increased by 50%.
• Between 2019 and 2022, the number of job listings with salary ranges in the US increased from 8% to 12%.
• 70% of candidates now expect to hear about salary ranges when first contacted by a recruiter.

Pay transparency isn’t going away anytime soon. Failing to provide insights into pay transparency can have negative effects on a company’s overall brand image and it may even have financial repercussions, especially if they don’t live up to the inclusive values that they advertise. For instance, Nike’s brand has based some of its most famous advertising campaigns around social justice figures and committed millions of dollars to racial justice in recent years.

However, according to an article by HR Dive, investors became concerned that Nike could be seen as inconsistent in its external marketing image when compared to their internal DEI practices. After facing pressure from shareholders in August of 2022, Nike is now set to release worker recruitment and promotion data by gender, race, and ethnicity by the end of 2024 to evaluate the efficacy of their internal DEI programs.

Misconception #3: Salary Is the Only Driver of the Total Compensation Conversation

It’s a given that salary is a motivating factor for candidates and employees, but it isn't everything. Total rewards encompass much more than a base salary number. Did you know that 40% of compensation is non-cash, and 95% of candidates and employees don’t understand the value of their equity?

With benefits, PTO, time off, perks, and more contributing significantly to overall earnings, employers can be doing themselves a disservice by failing to clearly communicate total compensation to employees. The time to think outside of the box when it comes to benefits is now.

SHRM’s 2022 Employee Benefits Survey identified the following trends in benefits and perks that are now being offered to employees:

• 93% of organizations offer telemedicine or telehealth as a benefit to employees, up 20% since 2019.
• 1 in 5 employers offer mental health days separate from standard sick leave days.
• 78% of employers cover opportunities to develop new skills, up from 75% in 2021.
• The number of employers who felt professional development benefits were important to offer grew to 65% in 2022.
• 48% of employers offer undergraduate or graduate tuition assistance as a benefit to employees.

These are just a few of the many ways employers can get creative to offer new and valuable benefits to candidates and employees. Without effectively communicating the value of these benefits during compensation conversations, both companies and employers can lose out.

Misconception #4: Pay Transparency Makes Compensation Management Harder

Implementing pay transparency and pay equity initiatives often seems like a daunting task for employers and HR teams, however, the benefits can easily outweigh the initial steps it takes to get started.

Social media software company Buffer has made the news with one of the most public-facing pay transparency policies out there, and they have enjoyed the benefits of pay transparency ever since. Caryn Hubbard, Head of Finance at Buffer has stated that Buffer’s pay transparency policy is just one piece of their trusting company culture, which is what attracted her to apply in the first place.

Alex Haimann, partner and Head of Business Development at startup software company Less Annoying CRM listed a cohesive workforce, less distractions, and a reduction in leadership politics as key benefits of implementing pay transparency policies. Pay transparency also acted as a priceless recruiting and retention tool – they’ve only had to let one employee go and only four people have left the company voluntarily in the last seven years.

Plus, it also made financial planning easier, because annual raises were not subjected to negotiations or lengthy performance review processes. Lastly, pay transparency policies helped Less Annoying CRM gain a competitive advantage thanks to the positive public perception they’ve received from offering equitable and competitive pay to their workers.

Misconception #5: It’s Difficult to Implement Pay Transparency

Pay transparency can be internal or external. It can apply to specific roles, particular departments or the entire company, and it can support a wide variety of business goals.
According to multiple leaders at companies that have successfully implemented pay transparency initiatives, the most important aspect is that the strategy aligns with the overall company culture and isn’t just a one-off.

Luckily, in today’s day and age, teams no longer have to rely on manual processes to meet their pay equity goals. Thanks to HR software and compensation management tools, it’s possible to streamline the process and create efficient workflows that work better for everyone.