It is a fact that most of us when applying for a job have no real idea what the position intends to pay. Payment is often the subject of a carefully executed negotiation, where the prospective candidate is prompted to provide salary expectations, and in return, the company makes an offer based on these expectations. However, what the company was intending to pay, or what a colleague in a similar role gets paid will forever remain a mystery.

Keeping a salary secret has become a norm for both employees and employers alike. But when we stop for a moment to evaluate why these covert practices occur, the clues tend to point to the same answer. Hidden salaries mean that companies can pay as much or as little as they desire for whatever reason – and ultimately that salaries are likely not fair and equal.

The world, however, is in a constant state of evolution, and a recent campaign to eradicate discriminatory and unfair salary methods is firmly underway. Pay transparency is a concept that has gained momentum globally over the past few years, with various countries and organizations implementing versions of it.

Not everyone is in agreement though about the importance of pay transparency. But as we know, being informed is the best way to be prepared – especially in the event pay transparency laws at some point come into effect in your country.

Here we take a closer look at the finer detail and goals that a transparent salary system is out to achieve, plus the potential benefits (and downsides).

What is Pay Transparency?

In a nutshell, pay transparency is the practice of making information about employees’ salaries, bonuses, and other compensation publicly accessible. This can include sharing information about individual salaries, as well as information on pay ranges and structures, bonuses, and benefits.

The general consensus in states where pay transparency has been introduced is that it is an essential step to take to close the inequality gap. The reality is, despite a general shift towards equality in the workplace, imbalances still remain. 

An example of these inequalities is demonstrated in some recent surveys, which show  that women who work full-time receive over $10000 less per annum than their male counterparts. A different survey shows that black men only earn $0.87 for every dollar a white man earns. These statistics show the stark reality of the current times, but also a reality that the pay transparency system is set to finally correct.

Pay transparency is also an attempt to make companies who have hidden behind pay opacity to be fairer with their practices. For example, many companies have kept pay rates stagnant over years despite rising inflation. But, because the salary is never advertised, employees are none the wiser and companies escape any backlash.

What is the US doing?

Recently, the spotlight has been on the US, with pay transparency laws being implemented in a number of states, with more states set to follow suit. With Colorado leading the way in 2021, the pay transparency laws in the US are intended to protect job-seekers during the hiring process.

In a country with many states, pay transparency laws in the US are decided on by each individual state and currently, there are around 30 states implementing these laws in some form – and there are a number of states that are in the process of introducing these laws.

Recently, as of January 1st, 2023, three more major US states (Washington, Rhode Island, and California) have joined this trend. For an example of one of these pay transparency laws, we can discuss California. In California, employers with 15 or more employees (only one of which needs to be based in California) must provide an hourly rate or salary range with any job posting.

It is important to note that it is not just US states adopting these laws – the EU is also now in the process of finalizing a directive on pay transparency, which we could see coming into effect for all EU countries within the next few years.

Does Pay Transparency Work?

The big question is whether or not pay transparency will actually be effective in closing the wage gaps. Currently, there is much debate around this as several studies have discovered that instead of closing the pay gaps to be favorable to the lower-paid employees, instead the pay of the top-paid employees has been curbed to meet the lowest salary. Unfortunately, this means that those employees who have worked their way up on the salary ladder will ultimately experience a stagnant salary or a salary drop., while lower-paid employees will not get a fair increase. 

However, this being said, the importance of pay transparency is gaining popularity and there is also a widespread and firm belief that it does indeed ultimately achieve fairness. This is because it ensures that organizations are accountable by no longer hiding these important employment details. 

It is fair to say that even if pay transparency laws don’t solve all discriminatory workplace practices at once, it is a step in the right direction. Organizations may find certain loopholes in the future which could undermine these efforts, such as awarding pay rises quicker to certain employees over others, for example. In time, lawmakers may need to expand on these regulations to guard against such practices.

Ultimately, only time will tell if these laws will work in closing the pay gaps. Considering the goals of pay transparency to achieve greater workplace fairness, and the fact pay transparency is much wanted by the vast majority of employees, the concept certainly does warrant a generous amount of attention.

Future Global Trend?

If pay transparency is to become a future global trend is anyone’s guess. For many companies, especially smaller ones, the approach won’t be considered to be in their best interest. This is because a smaller company often can’t afford to pay the same salaries as big corporations – and as a result, risk losing out on some of the best talent.

However, the risks that can occur due to what a company can afford to pay can be mitigated by compiling a job offer that is not just about salary but includes flexible working hours, benefits, and room for growth. It has been long experienced that a payment package that includes these perks can be equally as desirable as a larger salary. This is largely because most employees are looking for more than just a salary, but also a positive, motivating work environment and work-life balance.

As far as the pay transparency laws go, however, it will be rare to find any employee who is not in favor. Paying attention to the importance of pay transparency and the laws around it (and possibly even making provisions on how to adopt them) may actually be a sensible way for any company to future-proof its business. After all, getting ahead of this possible trend is a great way to stand apart from the competition.

A Fairer Future is Being Built Right Now

It is a fact that we live in a world where certain discriminatory practices have become so entrenched, they are something of the norm.  These measures being taken concerning pay transparency, despite any pitfalls, are ultimately very positive steps toward making the world a fairer place.

While not everyone might run a business in a country that enforces this law, and therefore may never feel the impetus to enforce it, the time has come for companies to give some serious consideration to whether they want to take the initiative to join this positive movement. After all, with employee loyalty at an all-time low, companies that are focused on future growth will be wise to take note of forward-thinking practices and jump on board sooner rather than later.

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