What is Pay Transparency & Why Does it Matter?

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What is Pay Transparency?

Pay transparency is a company policy in which employee compensation data is made visible. Pay transparency policies help to ensure that employees have a good understanding of their organisation’s compensation philosophy, strategies and practices.

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The Argument Against Pay Secrecy?

?Critics argue that pay secrecy creates an “information asymmetry” i.e. staff members are not aware of how much they are paid in relation to their co-workers, but employers know about everyone’s pay. There are numerous disadvantages associated with this that can hinder staff attraction, engagement and retention.?

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One research paper contends that letting employees’ imaginations run wild “may cause misconceptions about compensation distribution in the company, a decreased sense of internal and external equity (or fairness), decreased motivation, decreased capability of the management to influence the employees’ behaviour at work, decreased employees’ loyalty and trust in the company.”?

Pay secrecy has also been found to create the conditions that allow wage inequality to thrive. In an environment where pay secrecy is the norm, employees have no way of discovering if they are being paid less than their peers. What’s more, given that raises are based on previous earnings, some employees are less likely to negotiate for higher pay. The institution of a pay transparency policy not only motivates employers to create fair pay systems but also gives employees the opportunity to monitor, complain about and rectify any pay discrepancies.?

What Factors Have Contributed to Rising Demand for Pay Transparency?

1. More Government-Backed Wage Inequality Initiatives

Over the past few years, numerous countries have introduced legislative measures to tackle discriminatory wage gaps. In many cases, these measures use salary transparency to force employers to be more accountable for wage discrepancies. One example of this is the Gender Pay Gap Information Act which was signed into law by the Irish government in July 2021.?

2. The Great Resignation

Since 2020, “The Great Resignation” has led to employees leaving their jobs in droves. Against the current backdrop of salary inflation, many professionals who feel that they are being underpaid in their current job are seeking out new, better-paid roles. As such, some organisations are adopting innovative practices such as salary transparency in order to bolster their talent attraction and retention rates.?

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3. Gen Z Enters the Workforce

As the oldest members of Gen Z start securing entry-level roles, we are beginning to get an idea of how this generation will shape the workforce of the future. Gen Z is distinguished by their social conscience and this has played into their professional aspirations. This age group is passionate about equality for all in the workplace and is willing to challenge the status quo in order to achieve it.??

4. Online Movements?

Social media and online forums have provided a space where countless people from all backgrounds can discuss salary transparency. Given the taboo nature of pay, many people feel more comfortable discussing these issues in an anonymous conversation online with strangers than face-to-face with their real-life colleagues, friends and family.

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