Would Pay Transparency Improve Your Workforce’s Productivity?

Do your employees know how much their coworkers make? Do they know how much you make as their employer? Most likely, the answer is no.

The National Labor Relations Act protects the right of nonmanagement employees to discuss their salaries, but no law requires that private companies make that information readily available. Generally, if someone wants to know how their pay compares to others’ salaries, they have to ask. As the idea of pay transparency gains traction, it’s worth considering whether your business should make compensation information more visible. But what does that look like in practice — and will it actually benefit your employees and your business?

What Is Pay Transparency, and Can It Reduce Pay Discrimination?

If you received a job offer with an annual salary of $50,000, but the offer came with a salary list telling you that others in the same role earn $65,000, you probably wouldn’t accept such a lowball offer. In fact, they probably wouldn’t make that offer in the first place.

When everyone knows what everyone else earns, managers and human resources decision-makers are highly motivated to make sure salaries are fair. If you try to recruit new talent and find that you need to offer a higher salary to attract a skilled hire, it’s worth reevaluating your current employees’ salaries as well. If you don’t, then as soon as your current employees find out the new employee’s salary, you can expect to see them in your office demanding a raise.

Typically, women are less likely to ask for a pay raise. When they do, they generally ask for 30% less than men. However, knowledge of what others receive could help close that gap. Seeing themselves get passed over for raises may encourage women to break the stereotype.

Why Pay Transparency Doesn’t Solve Every Problem

Compensation for many jobs isn’t straightforward. Often, entry-level jobs have set salaries based on the job requirements and industry. But as employees advance through the company, pay can vary, even among people who have the same title. Education, training and experience can all bump up a person’s annual salary. Additionally, while two salaried employees may both be considered full-time employees, one may actually work more than the other.

It’s perfectly legal to pay people differently based on these differences. What’s not legal is varying paychecks based on race, gender, religion or other protected characteristics. When you release a list of job titles and salaries, there’s a chance that people will mistakenly believe the differences are discriminatory rather than based on these critical differences. Some managers may fear that transparency will result in many angry employees, even when pay is fair.

How Salary Openness Affects Productivity

Government salaries are often public record, which means not only can employees know their coworkers’ wages, but everyone else can know them as well. The fact that the government doesn’t wildly outpace the average business in efficiency and productivity shows that this is not a magic bullet. It will not turn a lazy, entitled workforce into a hard-working, self-sacrificing one.

However, it does remove a source of anxiety and doubt for your employees. They won’t have to wonder whether they’re being paid fairly; they can just look it up and know whether their pay is comparable. Neither do they have to silently worry that people of a different race or gender earn more than they do — they can immediately access the evidence necessary to correct any real problem.

The Possible Unintended Consequences of Pay Transparency

HR decision-makers and managers may fear that pay transparency will cause them to spend more time explaining why there are salary differences within the company. As a result, they may be tempted to give identical salaries to everyone at the same level. Though this sounds good on paper, you’ll lose your high performers. Why work harder if the slacker in the neighboring cubical will receive the same salary?

Overall, though, salary secrecy only benefits those who offer unfair salaries. If you can explain in court why person A’s salary is higher than person B’s, you can explain it to your employees. The reduction of pay discrimination lowers stress and gives traditionally lower-paid employees confidence in their pay. Don’t underestimate the effect that can have throughout your entire organization; give serious thought to making salary information public. Even if you decide against it in the end, mulling it over gives you the chance to consider what the response would be if everyone’s salary were revealed. If you think the reaction would be negative, it’s time to reevaluate your pay practices.

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