Dollars and Sense: The Rise in Salary Transparency
There’s a strong and growing movement towards more salary transparency. It’s already become the law, in some places, that employers must include the salary range in every job posting. On top of that legislation, there’s a general societal push to do the same.
To be clear, there are some excellent reasons for this. Equal work should receive equal pay. Sadly, this isn’t always the case. For example, ample research indicates that, on average, women make less than men for the same work. There are similar pay gaps that fall along racial lines. Compensation transparency could be the way to eliminate this inequity once and for all.
Even when made with the best intentions, any change can bring both pros and cons and unintended consequences. Let’s look at a few from both the employer and employee perspectives.
Salary transparency adds clarity in recruiting
In theory, pay transparency should bring clarity to recruiting and hiring. Job seekers apply for jobs that fit their expectations. Employers only receive applications from candidates that are within their budget. In theory, yes. In practice? Not entirely.
Many companies – small to midsize companies, especially – have some flexibility in their organizational structure. If a more experienced candidate, or one with unexpected additional skills, comes along, they can modify a job to justify a higher salary. Mandated transparency would limit this flexibility and could mean that employers miss out on some candidates who don’t bother to apply.
There’s another issue. In some jobs, salary is only part of the overall package. Bonuses, stock options, commissions, and other incentives aren’t included in that advertised package and can affect the total compensation significantly. Salary transparency doesn’t equate to compensation transparency, so in the end, this kind of transparency may not achieve what it hopes to. The subject of bonuses is a good topic for a future blog. Some are regularly achievable. Employees can’t earn some because of structure or because the metrics are changed mid-stream.
Salary transparency encourages equity between employees
Clearly, the ‘pro’ here is equal pay for equal work. Complete transparency ensures that compensation across the organization is equitable and aligned with DEI efforts.
There isn’t necessarily a ‘con,’ but there could certainly be some catching up to do for many employers. If salary scales have changed over the years – with compensation for existing employees not increasing as quickly as the payroll budget for new hires – employers could find themselves with some disgruntled employees. The same could be true if you’ve applied the kind of flexibility in some roles I mentioned above. And once again, salary in some positions is only part of the overall compensation package, so the perception of equity may not be the reality.
Offer negotiation
With complete pay transparency, everybody’s coming to the table with the same information. So, negotiation should be easier all around. Right? Maybe, and maybe not.
In reality, salary transparency can tip the balance in favor of candidates. They know the employer’s top and bottom lines, which – in a sense – gives them more power in the negotiation.
This transparency could also put junior, developing talent at a disadvantage. Companies sometimes identify a ‘growth’ candidate during the hiring process. One who comes with less experience and skill than the original position anticipated (and therefore is fairly compensated at a lesser level) could be a great prospect to develop over time. In an environment of complete pay transparency, employers might be unable to stretch the range for these employees. Even at the bottom of the range, junior candidates could be put off by what they see as a ‘lowball’ offer.
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Finally, there’s a possible unintended consequence here. According to a Salary.com survey, 55 percent of women say they are ‘always apprehensive’ when negotiating salary, compared with just 39 percent of men. That being the case, a man is more likely to state expectations at the higher end of a range than women (and presumably more likely to be offered a higher salary). Instead of eliminating the gender gap in pay, in some cases, transparency may perpetuate it.
What part do professional third-party recruiters play?
I can’t speak for all third-party recruiters, but we post job salary ranges at Goodwin Recruiting. We are also the mediators and consultants who help the candidate understand their value and the employer understand market conditions. As outsiders, yet partners, we can see the bigger picture.
A couple of months ago, I represented a high-level female executive who was getting underpaid. Her current compensation was partially due to her long-time tenure, but one can’t help to think it was also gender-related, to some degree. The culprits could be the company’s resistance to the expense, possibly their view of her value as a female executive, and her hesitancy to ask for more. In presenting her to my client as a candidate, she was willing to be more flexible than seemed appropriate, given her value. We agreed, and I strategically presented her in a range that was more in line with her worth and that made her an excellent value to the client.
Last week I had a fast-casual restaurant client with a newly promoted regional operator in Southern California. He needed GMs for North San Diego County and Orange County. He wanted to offer $60-69K. I advised him of market conditions and asked for $70-75K for North County and $75-80K for Orange County. He conferred with the HR VP, and all agreed to offer $69-75K. In current market conditions, it would have been a waste of everyone’s time to search for fast-casual GM candidates in the $60s.
The takeaway
Whether you consider pay transparency positive or negative, there’s growing momentum in that direction. It’s already the law in some places, and it’s likely to become the law in more. Now is the time to think about it and plan for it. Examine your compensation structures and consider how transparency could affect your ability to attract and retain the top talent you need.
Additional Resources
Forbes.com: What So Great About Pay Transparency?
Harvard Business Review: Managers, Are You Prepared to Answer Questions About Pay Equity?
JimNewcomb.com: Recruiting Resources
JimNewcomb.com: Productivity
JimNewcomb.com: Personal Development
Last week’s blog, in case you missed it: Interviewer Skills.
[Jim Newcomb has been a Senior Recruiting Partner with Goodwin Recruiting since 2013, 2016 Partner of the Year, 2017 Ambassador of the Year, 2018 Extensive Support Coach of the Year, 2020 created Daily Positive Thoughts, and 2021 created JimNewcomb.com website for consistent contribution.]