Why workers are pushing for transparent pay??

Welcome back to LaborIQ Insights, a newsletter about all things labor market and compensation. We are your source for "why it matters?!" answers.

This special edition of the Insights newsletter is our second in a three-part series on pay transparency. What does pay transparency mean for you? And how can your response improve talent retention and attraction efforts in your organization?

Who is pushing for pay transparency?

Hint: It's not just governments.

Pay transparency is more than showing a salary range in a job posting. Establishing pay bands is a crucial part of hiring and compensation strategy, especially since pay transparency is required by law in many areas. In fact, one in three U.S. workers live in an area with pay transparency requirements.

But it is not just legislation building momentum for pay transparency. Workers and job seekers are advocating for more insight into compensation practices.

The job seeker's perspective

Salary is one of the primary motivators when looking for a new job opportunity. When job seekers see salary ranges in a job description, it is the first impression to determine if the job is a good fit. A salary range provides a specific reference point that allows candidates to easily compare opportunities in the labor market. It’s something applicants have wanted for a long time.

This openness saves time for job seekers and HR teams. Applicants enter interviews and negotiations knowing what they can expect in terms of compensation, and businesses save time by avoiding several rounds of interviews only to discover salary misalignment. Pay transparency helps in setting realistic expectations regarding career and salary progression, allowing candidates to plan their career paths more effectively.

However, misunderstandings around pay can still creep in. Some candidates may only apply for the jobs that offer the most money without considering whether their skills or experience align with job requirements.

Job titles can also be misleading without appropriate context. Titles like “Manager” or “Director” can signify vastly different responsibilities, expectations, and compensation packages from one organization to another. For instance, a manager at a small non-profit may have a broad range of duties with a modest salary, whereas a manager in a large publicly traded company might oversee an entire department, with several direct reports and significant budget, and receive a higher salary.

By educating candidates about the nuances of salary ranges and the factors that influence them, companies can help ensure more informed decision-making, aligning job seekers with roles that truly fit their skills, career goals, and personal needs.

The employee's perspective

Employees desire more transparency when it comes to their organization’s pay structures. More than two-thirds of workers would switch jobs in favor of a new opportunity with greater pay transparency. When employees understand how their pay is determined, they feel more valued and fairly treated, which can build trust and loyalty.

Pay transparency can provide a clearer understanding of the pathways for career advancement, allowing employees to see potential salary progressions. This visibility can motivate employees to pursue promotions and personal development, knowing the financial benefits associated with different career paths.

However, without clearly established pay structures and well-defined criteria for each salary range, pay transparency can leave employees with more questions than answers.

Even with the most thoughtful and well-planned compensation structures, there may be some challenges with pay transparency.

If an employee discovers that their salary is near the top of the pay range, that could limit the scope for significant raises without promotions, potentially dampening their enthusiasm for annual review cycles. In contrast, learning that one’s salary is at the lower end of the pay scale can lead to dissatisfaction and resentment. Employees may feel undervalued if they believe they are performing at the same level as higher-paid colleagues. Managers may also face increased pressure to justify pay discrepancies or to advocate for salary increases, leading to difficult conversations, especially when budget constraints limit the ability to offer raises.

For pay transparency to be effective, companies need to clearly explain to employees how compensation is determined, emphasizing fairness, equity, and the other factors that influence pay decisions. Include external benchmarking results in pay communications to demonstrate that competitive pay practices are aligned with the market.

Broader Market Implications

How does this impact the labor market? It depends, but here are some things we’ve observed.

??Job market churn... maybe

When individuals have clear, accessible information about potential earnings in their field, they may be more likely to pursue new opportunities that align with their financial goals and career aspirations.

The technology sector has built a reputation for job hopping where individuals look for personal hyper growth and move from company to company every 18 months. While this strategy may work for financial gain, businesses make an investment in each hire and may be less likely to bring someone on board who is likely to leave in a short period of time.

And yet, the reverse is also possible. Workers are less likely to quit their job for a new opportunity when they work for a company with transparent pay practices. Pay transparency can build trust between employers and employees, which can reduce retention risks.

??Equity increases

With transparency pay practices and a plan to adjust compensation to meet the market, HR leaders can correct disparities they would’ve otherwise missed. This can help reduce wage gaps and promote more equitable hiring and promotion practices.

??Can small business keep up?

Large companies may be more equipped to adopt transparent pay practices. They have the resources to do so.

Smaller businesses may find themselves at a disadvantage. These companies could struggle to match the compensation packages offered by their larger counterparts, or they may lack the bandwidth to implement a new compensation structure and prepare employees to communicate about pay transparency.

This can lead to a talent drain toward larger, more transparent companies, creating a competitive disadvantage for smaller firms and startups that do not have the financial flexibility to increase pay at the same rate.

What next? Staying ahead of compensation trends.

Pay transparency is here. Employees and job seekers want to better understand business' compensation strategies and pay ranges.

The economy is cooling, but wage growth hasn't followed suit . LaborIQ forecasts wage growth will once again top 3.5% in 2025.

Now is the time for businesses to focus on their pay strategy, refine organizational structures, and establish pay bands.

LaborIQ provides HR teams and business leaders with market-competitive compensation benchmarks. In an evolving job market, you need to know what salaries to offer to retain employees and fill open positions faster.

Want to hear about how LaborIQ can help your HR team? Learn more