In the current labor market where technical talent is hard to find, your company may feel even less inclined to introduce more transparency in your pay scales. However, recent research from LinkedIn and a similar Canadian study suggest that pay transparency can instill trust, help level the playing field, and ultimately, help create the kind of company culture talented candidates seek.
From the vantage of a recruiter, pay transparency also saves time and increases effectiveness of recruiting efforts, streamlining negotiations. Jobs with a posted wage get a higher application submission rate, according to economists Ioana Marinescu and Ronald Wolthoff in their study Wages, Job Queues, and Skills. They found that job openings with a posted wage received 7.8 percent more applications than job openings without wages.
Salary transparency is also likely to help recruit diverse candidates. With widely public statistics on gender and race inequality, many candidates gravitate to companies who are up-front about pay scales. For example, according to the Pew Research Center in Washington, D.C., nationally, women earn 83% that of men. What better way to show that your company intends to close that gap than with pay scale transparency?
Closing that gap and meeting gender and race equality goals has proven achievable when transparency has been legislated. In “Pay Transparency and the Gender Gap,” (2019) researchers from Princeton, the University of Toronto and the Memorial University of Newfoundland teamed up to create a working paper for the National Bureau of Economic Research. They used administrative data covering more than 100,000 university faculty across Canada, where public-sector disclosure laws prompted the disclosure of university faculty salaries. The gender pay gap was around 15% in 1970 and reduced to 4% to 5% by 2017. The study also found that transparency did not increase salaries overall, but had the long-term effect of lowering them. However, since most of the data came from unionized environments at public institutions, it’s not certain that trend would bear out in private enterprise.
Case studies in LinkedIn’s 2019 Global Talent Trends report point to pay transparency as being a great step toward achieving gender and racial pay equity. For example, Starbucks began a program that achieved 100% pay equity across the U.S. after implementing a phased-in transparency plan. In another case study, Anil Dash, CEO of the software company Glitch, improved his company’s diversity and inclusion through transparency in salary ranges, with the added benefit of increasing the number of applicants on postings; reviews and raises followed a predictable course.
Who’s In the Transparency Camp? It’s a Split
American companies are comparatively reticent with pay scale transparency, though it’s a hot topic and trending upward. According to the LinkedIn report, the U.S. trails nine other regions or countries in terms of hiring managers who responded that pay scale transparency “is important,”; these included Argentina, Mexico, Spain, China, India, Southeast Asia, Brazil, Canada, and the Middle East/North Africa.
Of the 5,164 Hiring Managers and Talent professionals surveyed:
- 51% of employers surveyed don’t like to share salary ranges with employees or early-stage candidates and are unlikely to start
- 27% share salary ranges
- 22% are likely to start
Transparency Can Foster Retention
Pay transparency can clear up misinformation that hurts employee morale and retention. For example, in 2015, PayScale surveyed 71,000 employees who were at or above market in terms of pay. Of the people who were paid above market, 80% incorrectly guessed their range, with 45% believing they were at market and 35% below market. Sixty-four percent of people who were paid at market thought they were below market.
“Employees often assume they’re being paid unfairly, which is just as often not true. Pay transparency removes distrust. As they say, sunshine can be a great disinfectant,” said Kay Durkin, founder of Phoenix Partners.
Considering Pay Scale Transparency? How to Get Started:
- Audit your pay scales to see how your company compares to competitors and to identify any race and gender gaps.
- Decide the level of transparency you will adopt. For example, will you share salary ranges on job posts? With employees? For their own role or all roles?
- Seek employee feedback. Share your plan with employees and invite input.
- Develop or define clear compensation criteria. Describe what is required to be at the minimum, midpoint, and maximum of each pay range.
- Train managers in ways to discuss compensation policies.
- Phase in your plan over a few years for a smooth transition.
- Be sure to communicate the driving rationale for the transparency, including the desire for pay equity and concordance with core company values.
In closing, pay scale transparency is a recruiting and retention strategy that’s worth consideration.
Do you need help recruiting highly talented technical candidates? Contact Phoenix Partners!