The Complicated Impact of Pay Transparency Laws

The growing trend of pay transparency in 2023

On January 1st, California became the 17th state with an effective pay transparency law, mandating salary ranges on job listings. Other states like Massachusetts are following suit. This trend has been growing for years: there’s been a 160% increase in job postings with salary ranges compared to 2017. But the issue of pay transparency is complicated, and these laws have been met with a mix of support and controversy.

Equity: closing the wage gap

The primary goal of pay transparency is equity. Last week, Nature Human Behavior published a study that determined pay transparency resulted in a 20% reduction in pay disparities among workers in academic departments.

Several researchers have linked pay transparency with a reduction in pay inequality across gender, ethnic, and other minorities. Why? Because transparency allows people to be more informed to negotiate and advocate for themselves. Equal access to information is the first step for leveling the playing field.

Pay transparency for talent attraction

One of the key strategies to attract top talent is with a transparent hiring process. Salary, especially in today’s economy, is a top priority when making career decisions. Providing a pay scale saves time for candidates and recruiters. Applications are more relevant and trust is built from the start.

The results speak for themselves. 87% of HR leaders that have implemented pay ranges say it makes hiring faster and more efficient.

The limitations of salary ranges

California’s new law only asks for an employer’s “reasonable” expectation of pay. The vague wording has left room for liberal interpretation by some employers who have chosen to post unhelpful wide ranges. 

Additionally, the salary range is only one part of the equation. The new laws don’t encompass other forms of compensation like healthcare or tuition assistance.

Other impacts of pay transparency

Retention: Will publicizing salaries make employees leave? One survey found that if employees find out they’re paid less than coworkers, 63% would negotiate and 4% would leave. Open conversations about salary actually work to build trust and stronger relationships. The impact of transparency on retention depends on how leaders approach the issue - are employees informed about where the numbers come from?

Productivity: The impact on productivity also depends on how employers communicate the reasoning behind pay to individuals. One study found that if pay transparency revealed equitable and consistent pay in relation to performance, productivity increased. However, if making pay public revealed unfair or inconsistent wages, productivity declined.   

‍Salary compression: Some research links pay disclosure with flatter wages, shrinking the difference between long time employees and new hires. Employers need to be proactive about consistently reassessing wages. Using salary calculators can ensure that pay scales are equitable and align with the dynamic market.

The future of transparency

Building an inclusive workplace is an ongoing conversation. Pay ranges aren’t the end goal. It’s a step towards creating a culture of trust and openness. Moving forward, it’s important to leverage compensation benchmarking tools to set fair ranges based on the current market. Transparency isn’t only about listing the range, but also communicating about where these numbers come from.

About Puck

We believe that leading with transparency is the path for finding the right people for your team. That’s why we built our salary range tool to help teams keep up with the labor market and make the right decisions. Stay up to date on hiring trends by staying in touch.

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