The growing importance of pay transparency
Imagine that the next time you’re offered a job, the hiring manager shares the salary range, not just for the position you’re accepting, but for every position along your career path from entry level to project coordinator to associate director to vice president and beyond.
This scenario might be closer to reality than you think as more cities and states are passing laws requiring employers to provide salary information to employees and job candidates.
Pay transparency helps attract and retain employees
Legislation is not the only reason employers are providing more information about salary ranges.
Employers are also realizing that pay transparency is a way to engage and retain employees, especially as a significant number of workers are leaving their jobs during the Great Resignation.
“The reality is we’re trying to hire, and everyone we are talking to has two or three offers,” says Thanh Nguyen, CEO and founder of OpenComp, a software company that offers compensation data and bench marks to employers. “That means you need to be open about how you pay.”
When employers are not transparent about pay, employees are 50% more likely to leave their job in the next six months, according to a recent PayScale study. And even when employees are paid above market, they tend to believe they are being paid below market, according to 2021 PayScale research.
“Most organizations aren’t communicating as transparently as they would like to be about pay,” says Shelly Holt, PayScale’s chief people officer.
That often leads employees to try to determine pay ranges on their own.
“There is a lot of compensation information on the web, and employees can do their own research. But it’s unclear if the data they are using is qualified data or self reported,” Nguyen says.
People often inflate what they’re actually making, and there is no way to verify if it’s true, says Adriana Herrera, founder and CEO of PayDestiny, a software company that allows companies to share clear salary ranges with employees, showing employees the salary ranges for positions in their career path from entry-level marketing to project coordinator to associate marketing director.
How employers can use pay transparency software
As the labor market continues to tighten and become more competitive, employers may begin to see that disclosing pay ranges can be a competitive advantage for employers. “It shows we value our employees equally when you can say, ‘here’s our formula and here’s how we pay people,’ ” Herrera says.
It’s also a means for companies to show they’re committed to equity, diversity and inclusion, says Babak Varjavandi, president and CEO of Nakisa, developers of pay software Hanelly.
Pay software companies are helping employers to get more comfortable being transparent about their pay philosophy and framework,
Nguyen says. Employees should be paid a salary based on an internal pay structure that the company has bench marked to the market, and is based on each employee’s level of skills, experience and performance.
“Compensation is complex,” Holt says. Individual companies could look at their own internal data and compare it to external data, but they also need a meaningful structure to organize and communicate that information to employees, she says.
That is where pay software companies can help.
“We take this world of different titles and nomenclature, and standardize it to helps companies develop salary bands and compensation philosophy,” Nguyen says.
Not every company can be as open with their salaries as Whole Foods and Buffer, revealing to all employees how much money their colleagues make. But companies do need to clearly communicate pay ranges when employees are hired or promoted, Herrera says. That information has to be simple enough for every employee to understand. If a position requires three to five years of experience, the salary information needs to spell out what a person with three years of experience versus four years versus five years is paid. “These days, if executives or investors aren’t asking to have this developed in their organization, they will lose out on talent,” Nguyen says.
Pay transparency isn’t necessarily about companies giving employees access to all the information about every company salary, says Cynthia Medina Carson, founder and CEO of Wager, a company that works with employee groups to discuss salary information and diversity in the workplace. Instead, it’s about companies having ongoing conversations with employees to share what they are doing to bench mark salaries, and what the process is when an employee isn’t being paid the market rate, she says.
How employees can ask for more pay transparency
In the past, companies encouraged employees not share their salaries, Varjavandi says. “That is ludicrous, it is the employee’s choice and companies should neither encourage or discourage employees from sharing salary information.”
In fact, Varjavandi believes that as the job market continues to tighten, employers will have no choice but to share salary information as well as pay all employees fairly.
If you suspect your salary is below market, research how much others in your position — living in the same city, and with the same years of experience, education and skills — are being paid. “Compare salaries at three different companies to be sure you’re comparing apples to apples, and keep in mind that companies that are Series A will have different pay ranges than publicly traded companies,” Herrera says.
If you find your salary is below market, have a conversation with your manager. Ask your manager what can be done to get your salary to market rate. “Make it a conversation about alignment, rather than saying, ‘you owe this to me,’ ” Herrera says.