Pay Transparency Motivates Employees to Work Harder

Employees who feel and see their pay is fair through pay transparency and see themselves as part of a system where they can be promoted tend to work harder. That’s according to research reported in?The Wall Street Journal,?where multiple studies revealed the following:

• Knowing the salary of their colleagues can improve the productivity of your employees, providing they believe the system is fair, and offers the opportunity to secure a future pay raise
• Employees work harder when knowing the compensation of their managers, as it confirms a pathway for their own career growth
• Revealed compensation can also inspire employees to work harder without a raise. Confident employees work to stay ahead of their colleagues, while less confident employees will also work harder to avoid being left behind. Meanwhile, ‘’unbiased’’ employees endeavor to match the efforts of their colleagues.?
• The data also suggests that making salary information public also motivates employees to prove their worth

Similarly, the?Equity Theory of Motivation?suggests that if an employee feels they are receiving fair pay, they are more likely to stay motivated and find satisfaction at work.?

The benefits of pay transparency

Pay transparency?undoubtedly offers tangible benefits for businesses, from the opportunity to improve employee engagement and retention to closing the pay gap and attracting more qualified candidates to job listings:?

• In a post-pandemic era, businesses still face acute talent shortages. Over three-quarters of organizations globally?report problems in filling roles, representing a 17-year high. As employer focus turns to talent retention, committing to pay equity is an essential strategy to achieve that goal.?
• Motivating staff helps to overcome the challenge of ‘’quiet quitting.’’ According to?Gallup, ‘’quiet quitters’’ make up at least half of the U.S. workforce, while 18% of employees are ‘’actively disengaged.’’ Instilling a culture of fair pay can help to prevent that figure from increasing. In support of these findings,?research from Gartner?found that employees who perceive their pay as inequitable are 13% less engaged in the workplace.?
• Pay equity is a priority for millennials and Generation Z. Salary is the #1 reason that younger people leave their jobs, according to?Deloitte’s?Global 2022 Gen Z and Millennial Survey.?Pay transparency also supports more open conversations around career progress among young people.?
• Employee perception of pay equity is based on organizational trust. However, employers have a barrier to overcome in relation to trust. Only?34% of employees?believe their pay is equitable, and less than one-third believe they are fairly compensated for their work.?
• Pay transparency can?save employers money. Job listings with pay in the title have a 35% lower cost-per-click average than those without.?
• A commitment to fair pay can also attract more qualified candidates to job listings. A recent survey found that?6 in 10 job seekers?cite the inclusion of a salary range on a job listing as the most important criterion in deciding whether to apply for a post. Research also shows that?two-thirds of workers?would change jobs to work for an employer with greater pay transparency than their current workplace.?

Understanding resistance to pay transparency

While this latest research clearly supports the benefits of pay equity, employers both in and outside of those states where pay transparency laws exist still exhibit reluctance when it comes to embracing salary disclosures. But why??

Some employers erroneously believe that pay transparency simply means?having to pay people more. Other concerns include fears that?employees might drive a harder bargain?on pay and that those earning the most would be the most proactive in seeking a raise.?

Some organizations have been slow to adapt in either setting meaningful salary ranges or navigating conversations around pay. Subsequently, organizations comply by posting broad compensation ranges or only the lower part of the salary range. When new legislation came into effect in?New York City, for instance, some compensation ranges were so broad (up to $100,000) they risked losing relevance.?

Not only is this approach detrimental to the ethos of fair pay, but it also damages the credibility of HR among employees who already feel disconnected and disengaged, as noted above.?

A cultural shift toward pay equity

The shifting landscape of legislation relating to?pay transparency and equal pay regulations?is inspiring forward-thinking employers to provide compensation information in their job listings to remain competitive. Companies, including?Alphabet, Wells Fargo, IBM, and American Express, now post salary ranges for all U.S. job listings, even in states where that information is not, as yet, required by law.?

Ultimately, the decision for employers will be not whether to embrace pay equity but when.

Taking steps toward pay equity

Ongoing research continues to confirm the benefits of pay transparency. Best-in-class organizations choose to adopt a proactive approach to pay transparency by leveraging the benefits of pay equity solutions.

Conducting a pay equity audit?empowers your organization to take advantage of the benefits of pay transparency and minimize compliance risks. Trusaic’s?PayParity?solution identifies pay disparities at the intersection of gender, race/ethnicity, age, disability, and more. Employers can take corrective action before posting job listings.?

Trusaic’s?Salary Range Finder?enables companies to?set equitable, explainable, and competitive salary ranges?for both new and existing job openings. It also demonstrates your commitment to fair pay practices and keeps employees in the loop on your pay transparency efforts and policies.?

Take the first steps towards pay transparency and enhance your workplace culture. Schedule a meeting with one of our pay equity experts today.?

Download: Designing a Pay Equity Policy

To help you faciliate discussions around compensation, we created the?Pay Equity Communications Planner.