Pay Transparency Is Changing Hiring & Retention Practices

To publish or not to publish pay ranges? Some benefits and drawbacks — and why more workers already know what they should make

Not many years ago, figuring out appropriate compensation was an imprecise estimate for employers, employees, and job candidates. Word of mouth and online calculators comparing limited data provided a rough idea. From there, individuals and organizations worked out appropriate salaries based on market forces and their own needs.

Much of that process still happens, of course. But the latest tools, pay-range laws, and a higher demand for pay transparency are changing the game.

So, how does transparency impact employers and their relationships with employees and candidates? And should all companies be more candid about pay?

The new pay transparency paradigm

In the old days, the vast majority of companies kept what they paid employees as quiet as possible. Today, many still attempt that. This secrecy enables salary disparities that may benefit the bottom line and help avoid conflict and turnover. But now, the genie is largely out of the bottle. Because of tools now readily available on the internet, everyone seeking pay information can get a much better idea of what others are making and what they should be.

For example, Payscale offers software that can give companies and workers good estimates of what people in specific positions earn in their area. It provides this information for a fee and with the condition users provide their salary information, effectively compiling a real-time database that is more accurate than old-school online estimators. Employers can get access to aggregate data by paying for the information.

The Associated Press also reports that far more employers are “posting salary ranges for job openings,” with Indeed data revealing this proportion essentially doubled “between February 2020 and February 2023, from 18.4% to 43.7%.” Some but not all of these changes reflect recent laws that require revealing pay ranges in job ads or the hiring process. California, Colorado, Connecticut, Maryland, Nevada, Rhode Island, Washington, and various cities in other states have varying versions of such laws.

Thus, whether some pay transparency is mandated or obtained through online tools, workers tend to know what constitutes competitive pay. So do employers, who can use better information to attract and maintain quality hires.

The benefits and drawbacks of pay transparency for employers

Pay transparency is universally beneficial for job candidates’ and employees’ abilities to make informed decisions. But many employers may consider this situation a mixed bag.

Better data mean improved tools to set fair and competitive pay, but this information minimizes some ROI advantages that secrecy once afforded and allowed. Hiring good workers at a discount can be prioritized by smaller employers who grapple with overhead and touch-and-go-profit margins. Much of these benefits rely on the theory of negotiation that “whoever mentions a number first loses.”

That said, the value of maintaining secrecy about pay has drawbacks, especially as a competitive hiring market continues. First, job application and hiring processes vary in complexity, and workers with many choices often don’t bother with open positions where they have little idea what they pay. Publishing a pay range may attract more candidates and help ensure a better fit once someone gets further into the hiring pipeline.

Second, determining realistic and competitive pay ranges is part of maintaining a viable business model, of course. And putting some of these ‘cards on the table’ can also prevent valuable candidates and employees from discovering weak compensation and disparities through other means, a shock contributing to abandoned applications and turnover.

Communicating compensation depends on setting realistic, competitive compensation

An unspoken but obvious caveat to pay transparency is that existing employees will know when pay for new, equivalent positions rises. And if they are making significantly less, this information often increases turnover. This problem is exacerbated by current inflation and a tight job market. Many workers can recite instances in their careers where they’ve witnessed new hires onboard at equivalent or higher rates, even though the existing employee’s value to the company is far greater.

The primary strategy for handling compensation holds true regardless of the level of pay transparency — though it becomes even more vital when companies publish this information. Devise appropriate and competitive compensation relative to the value someone provides for the organization. And don’t get so fixated on filling open positions that you neglect the top talent already in-house.

Maintaining high-value workers by fairly compensating them has a clear and compelling ROI. Our previous blog on the subject sums it up: “Pay Key Employees More — or Lose Them and Pay Even More:”

A Society for Human Resource Management (SHRM) study found that the average cost of finding and training a replacement for a lost employee is equivalent to six to nine months of their salary. A Center for America Progress study argues bigger numbers: “the cost of losing an employee can be anywhere from 16 percent of their salary for hourly, unsalaried employees, to 213 percent of the salary for a highly trained position.”

Thus, employers should use the best available data to set attractive and fair pay relative to an employee’s worth and qualifications. Those who do will have far less trouble complying with pay transparency laws or choosing to publish ranges.

Remember, in most cases, today’s employees and candidates will have a very good idea of what other people are making and what other companies are paying.

Pay is an essential piece of the puzzle — but it’s not the only one

Fair, competitive compensation is vital, but additional factors play a massive role in attracting and keeping employees. Customized and innovative benefits, from four-day workweeks to hybrid or remote work models to individualized financial resources, can be more valuable to many workers than receiving a premium relative to other jobs.

Employers can also achieve immense leverage through the cultures they create and how they treat employees. For example, setting reasonable workloads, recognizing good performance, providing attractive leave policies, and avoiding toxic cultures may mean far more to seasoned workers and candidates than higher salaries, as long as the pay is reasonably competitive.

Regardless of whether an organization publicizes pay ranges, pay transparency is here to stay and more common than ever. Ultimately, staffing success calls for understanding this paradigm and creating the blend of compensation, benefits, and culture that keeps and attracts talent.

Karp HR Solutions helps businesses master the mix of finance and human resources. Contact us today for a free consultation.