Pay transparency: does it help or hurt workers?

Jul 05, 2022

5 mins

Pay transparency: does it help or hurt workers?
Dan Reilly

Dan Reilly is a freelance journalist from New York.

On June 1, 2022, the New York State Legislature passed a bill that would require companies with four or more employees to disclose salary ranges for all job listings, both external and internal. While this law is still pending a signature from Governor Kathy Hochul, it follows the lead of New York City, where a similar policy passed earlier this year and will take effect in November.

Should this bill become law, it would make New York the 17th state to enforce pay transparency as an effort to reduce the wage gaps between genders, races, and ethnicities. Like any legislation that affects the workforce at large, these bills have their pros, cons, and blind spots, but there’s no denying the basic premise is working, with pay disparities shrinking — and more cities and states will likely follow suit.

A tipping point for payscale transparency?

“In the U.S., it has really become an avalanche,” says Christine Hendrickson, VP of strategic initiatives for workplace equity company Syndio. “These laws began back in 2018, but for a long time, they were very reactive. Candidates could ask for the pay scale in certain jurisdictions but because a lot of them aren’t employment law experts, those requests were few and far between. In 2021, though, the laws morphed, with more jurisdictions requiring that employers provide the scale at some point during the hiring process or, in this most recent wave, in the job posting itself. Those are passing at a clip of more than one a month this year.”

Of course, the gaps haven’t gone away entirely. In 2022, Equal Pay Day — the date into the year that a woman would have to work until to equal the average man’s annual salary — was March 15. For Black and Latinx women, the gap is even more pronounced, with Equal Pay Days coming on August 3 and October 21, respectively. But, according to a 2022 report by Payscale, salary transparency led to women making as much, and in some cases slightly more, than their male counterparts. On top of that, between September 2017 and September 2019, the study found a 20% increase in the number of companies that have committed to pay transparency, voluntarily or not, compared to previous two-year data sets.

The growing amount of companies willingly posting salary information, externally and internally, isn’t an entirely new phenomenon, in large thanks to the tech industry’s trendsetting efforts towards pay equity. Back in 2013, social media outfit Buffer was one of the first to jump into the fray, with several other tech businesses following suit. Those efforts were spurred on in early 2020 by the countrywide circulation of a Google spreadsheets where women in tech share their salary information, helping to highlight pay gaps and set market expectations for starting wages and raises.

“The tech industry is often at the vanguard of pay and workplace equity,” says Hendrickson. Where goes the tech industry so follows other industries a year or two later. We see companies working to get their arms around a nationwide or global strategy around pay transparency. We did a roundtable in California and a lot of the folks worked at large and leading tech companies. What they were all focused on was, ‘Transparency is coming, so how do we make sure that we’re prepared for it?’ There’s much more embracing of that.”

The limitations of equity

For job seekers, pay transparency is, naturally, a big help. First, it helps them save time by ruling out jobs that don’t meet their salary requirements, which in turn is a boon for HR departments that have fewer applicants to sift through. Second, and more importantly, it offers workers a more robust foundation for salary negotiations.

“Applicants are much more in the driver’s seat of being able to know what the range is for the job,” says Hendrickson. “They’re entering into those negotiations on a lot more even footing because they have access to that to the range. Oftentimes, they had a single data point — what the employer was offering them — but they had no context for that, so they had no idea if the offer is a good one.”

On the flip side, companies can use transparency to keep salaries lower. The excuse: they can’t offer one employee more money without bumping up everyone else’s wages, too.

“In a world where everything is transparent, if you ask for an extra dollar and the employer wants to raise your pay, they have to consider what it means for all your peers,” says Dr. Zoe Cullen, assistant professor of business administration at Harvard Business School. “It becomes much more costly for the employer to offer high salaries. In effect, even if wages are more equal, we also see evidence that wages are lower on average.”

One drawback to the laws, according to some critics, is that it negatively impacts the performance of workers who know they’re being paid less than their colleagues. After all, the transparency bills don’t require companies to make pay equal, and the disparities can lead to resentments among workers.

“From a company standpoint, it’s a radical change to how they are considering compensation because it requires employers to get serious about why some people may be really high in the salary range and others may not,” says Hendrickson. “They’re going to have to have really honest and real conversations to be able to address that.”

“Imagine a world where pay inequalities become known but the employer decides not to equalize pay,” says Cullen. “Then we see that the lower-paid workers are both upset and they work less hard, they cooperate less with their coworkers. You see quite a negative moral response in the world where you both reveal the inequality and also you wash the hands of the employer to allow for that inequality.”

Equality v. opportunity

Similarly, achieving pay equity via transparency doesn’t necessarily help the overall earning power of women or Black, Indigenous, and people of color (BIPOC) workers. A company can adopt a policy of ‘equal pay for equal work,’ but still mostly promote white men to positions of power.

“These laws don’t touch access to opportunity,” says Hendrickson. “They don’t address whether or not folks are more likely to be promoted out of that job. If we really want to be serious about closing that pay gap, we need to really be talking about both of those things.”

All that said, the laws are still a mostly positive step towards widespread equity between the privileged and the marginalized. “There are great examples of what I think was the first stage, when all these lower-paid individuals learn that they can use the salaries of their peers to either get a different job or what to renegotiate in their job,” says Cullen.

Hendrickson, meanwhile, is optimistic that the increased transparency is inspiring companies to actually do right by their employees, instead of just evening out the salary playing field.

“Back in 2018 when these laws were first coming out, employers were really reluctant to have these conversations,” she says. “But I’m finding that there is much less resistance now and that employers are embracing transparency because it matters to their brand, it matters to their ability to show that they’re not just claiming to be pro pay equity – they’re actually proving it. I would have never expected it in 2018. The conversations we’re having with employers are much more around, ‘How do I get it right?’”

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