Could Pay Transparency End the Great Resignation?

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A few weeks ago I was attending an event and had the opportunity to chat with a young lawyer about her job. “One of the best things about working at my firm is that they’re completely transparent about everyone’s salaries,” she told me. “You know exactly what you’ll be paid before you even interview, you know that you’re being compensated fairly compared to your colleagues, and you know what your potential is for growth.”

“And since the other firms near me are also required to share their salaries, there’s very little turnover at my company,” she added. “People who are a good fit with the culture stick around, since they know exactly what else is out there in the market.”

After I got home I dug into this a bit more, and realized that the law firm where she works is in California, the first state in the U.S. to pass a?mandatory pay transparency statue. Since then,?many other states and even some cities have followed suit with their own requirements. And of course, the U.S. isn’t the only place where this is happening — Europe is about to decide whether to make everyone's salaries public, and Australia, the UK, Germany, and Ontario, Canada have already passed legislation.

The exact requirements of these laws vary; some require disclosure in job postings, while others require disclosure only upon request. However, they all have one goal in common: promoting more equitable pay. But pay transparency certainly has its downsides, and employers may not recognize some of the other benefits this practice can offer in addition to closing pay gaps — from better employee performance to lower turnover rates.

With this in mind, the aim of today’s article is to examine some of the pros and cons of salary transparency — subscribe now and you’ll immediately receive the full article. Here’s a preview of some of the research I highlight on how pay transparency can be beneficial:

• It can close pay gaps: In the U.S., women are paid just 83 cents for every dollar a man earns. However, PayScale discovered that women who reported pay transparency at their organization earn between $1 and $1.01 for every $1 earned by a man.
• It can improve retention efforts: PayScale found that most employees think they’re being paid below market — even if they aren’t. And that’s a huge problem, because among people who believe they are paid below market, 66% are seeking a new job, compared to just 34% of those who believe they are paid at or above market.
• It can boost performance: One study found that pay transparency could increase performance by around 10%, noting that “We may work harder even if we don’t see a raise if we know that we’re doing well [compensation-wise] compared to our peers.”?

Let me know what you think in the comments below — does pay transparency make sense or will businesses push back, like some recently did in response to New York City’s proposed salary transparency law?

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