The Good, the Bad, and the Ugly of Pay Transparency
Cue the dramatic theme music and enter Clint Eastwood.
Just like the movie of the same name, there is the good, the bad and the ugly when it comes to pay transparency. Depending on how it’s implemented, it can help or harm employers’ recruitment and retention efforts in a major way.
And…. action! Here are the Good, the Bad, and the Ugly of Pay Transparency.
Although pay transparency laws are intended to promote pay equity for women and workers of color, all job seekers seem to be benefiting from this revolutionary change in the job search process. Pay transparency shows job seekers what a position pays prior to beginning the application and interview processes. This is a game changer for the job search process as it removes the stressful process of asking what a position pays and sets the expectation of what the employer is paying. From the employer side, pay transparency weeds out workers who may be asking for a much higher pay rate than what they’re willing to pay, saves time interviewing candidates expecting higher pay, and (perhaps most importantly) it increases the number of applicants for a job posting, as recent surveys indicated job seekers are skipping job postings that do not list pay or pay ranges.
Pay transparency has one big negative for employers: pay equity among existing employees. Historically, employees are not made aware of their colleagues’ pay. Now, they have visibility into what their employers are offering new hires for the same role. If that pay is similar or better than the pay of existing employees in the same job function, there will be employees demanding a raise, those angry about being underpaid/undervalued and start caring/trying less, and those who ultimately quit. Employers should work to ensure their existing employees are compensated fairly and equally, so that trying to increase headcount doesn’t end up reducing headcount.
The single biggest issue with pay transparency is the absurdly wide pay ranges that some employers use. Compensation experts say a reasonable pay range would be one where the high point of the range is no more than 1.5 times the low end of the range. For instance, a job posting with a pay range of $50k to $75k would be appropriate. Unfortunately, there are a lot of postings with pay ranges of $60k to $120k and $90k to $170k, for example. Pay ranges this extreme are not fair indications of what the job truly pays, or what determines the top from the bottom of such a range. Studies have shown that job seekers are annoyed by unrealistic pay ranges, often avoid applying for those positions, and distrust employers who seem to be dishonest regarding a job’s actual pay.
In a candidate-driven job market, employers need to be certain they’ve carefully considered what a position within their company truly pays, how it determines that pay, and how it’s compared to existing employees with similar or more experience. Pay transparency can be helpful or hurtful to employers and job seekers alike, however the Good, the Bad, and the Ugly of how an employer handles it may define hiring and retention goals as successful or an epic failure.
Good Luck, and Happy Hunting!