Pay Transparency and Pay Equity: One Can Lead to Another

Pay transparency in the workplace is the practice of openly sharing information about employee salaries and compensation packages. This can include making salaries public, providing employees with access to pay data, or simply being more forthcoming about how compensation decisions are made. The goal of pay transparency is to promote fairness and equity in the workplace, and to help close the gender and racial pay gap. Amid the legislative changes in the U.S., most estimates say approximately a fifth of the American labor force is now covered by some kind of law relating to pay transparency. 

The issue of pay equity has become increasingly important in recent years, as studies have shown that women and people of color are often paid less than their male and white counterparts. This is due to a variety of factors, including discrimination, unconscious bias, and differences in negotiating skills. On the point of negotiating salary, research has shown that women are often caught in the middle and often penalized or face a backlash for negotiating their salary. One way to address this problem is to increase pay transparency, which can help to level the playing field and ensure that everyone is paid fairly for their work.

There are several ways in which pay transparency can promote pay equity in the workplace. First, by making pay data more accessible, companies can help to eliminate pay secrecy, which is one of the primary drivers of pay inequality. When employees have a better understanding of how their pay is determined and how it compares to their peers, they are more likely to feel valued and respected, which can lead to increased motivation and productivity. Attitudes drive behavior, and pay transparency or the perceptions of equitable pay can play a significant role in shaping those attitudes.

Second, pay transparency can help to eliminate pay disparities by making it more difficult for employers to justify paying different wages to different employees. When pay data is readily available, it is easier to identify instances of discrimination and take action to correct them. For example, if a female employee discovers that she is being paid less than a male colleague who performs similar work, she can raise the issue with her employer and seek a fair resolution.

Finally, pay transparency can help to promote perceptions of pay equity by creating a culture of fairness and transparency in the workplace. When employees feel that their employer is committed to treating them fairly and openly, they are more likely to trust their employer and feel a greater sense of loyalty and commitment to the organization. Gaps between identity groups on their perceptions of compensation practices provide valuable information regarding an organization’s culture. 

Globally, Kanarys found that 56% of women believe their total compensation is fair relative to similar roles in their industry, compared to 63% of men. Broken down by racial categories, East Asian employees reported the highest endorsement of fair compensation (66%), whereas Black/African American employees reported the lowest endorsement (47%). These disparities become more stark when taking an intersectional lens as well. For example, White female employees perceived their compensation to be less fair (56%) when compared to White men (65%). Regarding fairness in promotions, intersectional differences are also stark. White (52%), Hispanic and Latinx (57%), African-American/Black (45%), and Asian (59%) female employees reported lower perceptions than their male counterparts, 64%, 63%, 51%, and 64% respectively. 

While there are many benefits to pay transparency, there are also some potential challenges and drawbacks to consider, but as we’ll see, much of the challenges can be addressed through better internal education and improved communications.  A significant challenge is concerns that pay transparency could lead to increased competition and resentment among employees. Let’s be clear. Pay transparency shouldn’t and doesn’t involve disclosing individual salary information for each employee. Instead, companies should disclose compensation bands based on position and role, which provides additional benefits when making offers, retaining employees and planning for future growth.

To address these concerns, companies can take steps to ensure that pay transparency is implemented in a thoughtful and respectful way. For example, they can provide employees with training and education about the benefits of pay transparency and how it can promote fairness and equity in the workplace. They can also work with employees to develop a transparent pay system that is fair, consistent, and easy to understand.

Pay transparency is an important tool for promoting pay equity in the workplace. By taking a thoughtful approach, companies can help to eliminate pay secrecy, reduce pay discrimination, and promote a culture of fairness and transparency. While there are some potential challenges to implementing pay transparency, these can be addressed with careful planning and communication. Ultimately, by promoting pay equity, companies can create a more inclusive and equitable workplace that benefits everyone.