The Pros and Cons of an Open Salary Policy

In the past, it has been standard practice for employers to discourage employees from sharing salary information amongst themselves. Not only is such a policy, for the most part, illegal, but in recent years more and more workers are speaking out in favor of pay transparency as part of the larger push to close the wage gap. 

As more employers—mainly in the tech and startup space, but in other industries, too—opt to share pay information openly, you might wonder if an open salary policy could work at your organization. Here, we’ll discuss the pros and cons of pay transparency and give you a crash course on why a company might want to adopt such a forthcoming practice. 

What is Pay Transparency?

Pay transparency, also called wage transparency or salary transparency, is the practice of making employee compensation figures accessible—either internally to members of the company; externally, to the general public; or both. 

There are two main types of pay transparency. In partial pay transparency, a range of salaries is disclosed for a given position. You have probably come across this in job listings, and maybe you even include it on your own. In full pay transparency, an exact salary figure is made available for every employee in the organization. Many companies facilitate this via an online database. 

When considering an open salary policy, it’s important to know that technically, your employees could choose to create one amongst themselves if they wanted to by openly discussing their pay. Under U.S. Executive Order 11246, employees have the right to disclose how much they make and ask other employees how much they make. They can’t be fired, disciplined, or retaliated against for doing so (employees of municipal governments and religious schools are exempt from this order). 

Though employees can disclose their pay, there’s no mandate saying that employers are required.  Some companies like Whole Foods, Stack Overflow, and Buffer are choosing this path. Why? Let’s start with some of the benefits of sharing salary information. 

Pros of an Open Salary Policy

It contributes to stronger wage equality

The primary argument favoring pay transparency is that it promotes wage equity and gives workers a strong leg to stand on when negotiating for fair pay. Wage equality has come a long way in the last few decades, but the hard truth is that it still has a long way to go. 

On average, women earn $0.81 for every $1 men earn. The gap is even wider for women of color (a group which, in these figures, includes American Indian and Alaska Native women, African American women, and Hispanic women), who earn $0.75 for every $1 earned by white men. 

An open salary policy arms these segments of the workforce with the information they need to negotiate more effectively and in turn, earn more, helping close the gap. 

Top candidates expect transparent salary information 

Another compelling reason to adopt a transparent approach to pay is that the most competitive applicants are looking to see it in your job ads. According to a Glassdoor and The Harris Poll survey, 67% of candidates look for salary information when deciding whether to apply for a job. 44% of candidates said the inclusion of salary information contributes to their assessment of whether the company holds long-term potential for them.

To put it plainly, if an in-demand candidate is faced with three job listings that are otherwise equal, but one does not offer a salary range, are they going to spend time going through all the motions required to get that information, or will they move forward with the openings that include a salary? It is impossible to say for sure, but it’s a factor that is strongly worth considering if you want to woo top talent.  

Pay transparency breeds effective employees

A study published in the Journal of Business and Psychology focused less on the fairness aspect of pay transparency and more on how it affects the inter-working behaviors amongst colleagues. What they found was intriguing. 

When pay information about colleagues was openly accessible, researchers found the team members worked together more effectively and were better at asking the right people for help when needed. The researchers surmised that publicly available salary information gave workers an accurate gauge to assess their various colleagues’ skills, making it easier to know who would be most useful to them in solving a given problem. 

The results of another study out of UC Berkeley were even more interesting; researchers found that employees who knew how much their coworkers made—and where they personally fell in the wage distribution—put forth “significantly more labor effort” than those who had no information about their peer’s earnings. 

It can benefit your employer brand 

Among candidates, sharing salary information is generally perceived in a positive manner. According to a Buffer spokesperson, job applications to work at the company significantly increased after it made compensation information public. 

She pointed out that from an employer’s perspective, it’s better to be in control of the narrative surrounding how much your company pays than to let things like online reviews and rumors do the talking. She told TIME, “If an organization doesn’t form its own pay method on transparency, someone else will — and it probably won’t be a complete message.”

Related: Strategies for Building a Successful Employer Branding Strategy

Cons of an Open Salary Policy

While there are certainly upsides to an open salary policy, there are some potential downsides employers must consider, as well. Here are a few of them. 

It can hurt your ability to attract talent on a tight budget

The most obvious negative consequence of pay transparency affects companies that already struggle to keep pace with the market on salaries. Some would argue that when you wait to disclose wages until later in the hiring process, it gives you more of a chance to make a favorable impression and push your non-monetary selling points, like a great company culture or unlimited PTO.

While this approach may have merit, there is also the argument that you should not waste a candidate’s time if your salary range is way beneath the ballpark of what they would accept. It is up to you to weigh whether having some candidates drop off early in the process is worth the upside that comes from offering pay transparency. 

Related: How to reduce your hiring costs without sacrificing quality

Employees won’t always be eager to participate

Though pay transparency pretty much comes with nothing but upside for candidates, established employees might not take so kindly to it. 

In a survey on employee attitudes toward their salary being shared, 46% said they believed salaries should be kept private. 54% felt the opposite or were indifferent, so it’s a mixed bag. Employees under 40 were less concerned about their salaries being made public than those over 40. 

Of course, if you implement an open salary policy, you cannot apply it to some people and not others. Thus, it’s reasonable to expect that pushback from at least some of your staffers will be part of the transition.

It could foster tension among employees 

When stripped down to nothing more than a number beside a name, salary information can be taken out of context. This can be frustrating to the lowest-paid employees, who may see a staggering discrepancy between their pay and that of the folks at the top of the ladder. 

To combat this, it is critical that companies with an open salary policy are also transparent about the method used to determine salaries. Communicate the factors that go into how much each person earns, like job title, number of years of experience, managerial duties, and so on. It is also helpful to elaborate on why the pay is different for different jobs or departments (i.e. sales roles that have a low base salary but are supplemented by commission). 

In the same survey we mentioned a moment ago, researchers also asked employees for their thoughts about how their employers communicated pay information. While the majority felt pay information was communicated clearly, respondents were largely uncertain on whether pay transparency was something their organization was proud of sharing. 

What does this tell us? Employers that choose to adopt an open salary policy need to make a better point of clearly communicating why they have chosen to do so along with the benefits it has for the organization and the workforce as a whole. 

Make a Great Impression on Candidates with Help from 4 Corner Resources

Could your job descriptions use a makeover? Need help selling why you’re such a great company to work for? The staffing experts at 4 Corner Resources can help position you for hiring success. 

Work with the top employers across the country to attract, screen and hire candidates with the right mix of skills, personality and experience. Whether it is a one-time gig or a rolling application process for an entire department, we will help you craft a hiring strategy that meets your needs and fits your budget. Contact us today to get started.