Pros and cons of salary transparency

Pay transparency has always been a polarising topic. Some organisations are completely transparent about pay and how it is determined. But others frown upon open salary conversations between staff and consider pay transparency to be a taboo subject. Some even go so far as to ban their employees from discussing pay rates altogether.

In recent years, however, salary increases have stagnated, and employees have become increasingly dissatisfied with their pay rises and current salary. Often, this dissatisfaction stems from a sense that their pay doesn’t reflect their performance, skills or experience.

Such discontent suggests there is a fundamental breakdown in communication between employees and employers regarding how pay levels are set.

Salary transparency is one solution to this mounting dissatisfaction. Pay transparency, whether internal, external or both, allows employees to compare their salary to colleagues and gain reassurance that they are being paid fairly.

Some organisations opt for full pay transparency, where the salary for each role is available. Others elect to reveal partial salary information, such as a salary range for each role.

Either way, there are several pros and cons to pay transparency, which must be thoroughly thought through before coming to a decision about what approach is best for your organisation.

The pros: Is salary transparency a good thing?

There are several advantages that can be gained by disclosing the salaries an organisation pays its staff. So, why should salary be transparent?

It’s important to employees

Each year, our annual Hays Salary Guide finds that pay transparency is important to skilled professionals. Yet, year after year, few employers say they are transparent with all employees about how salary levels and increases are set.

Keeping salaries secret often only benefits those employees who are the best negotiators. In contrast, pay transparency means each individual salary must be justifiable in the context of all others. So, even if you find yourself with tight salary increase budgets, transparency helps staff see that the overall value of their increase is in line with the general trend across the organisation.

Trust, morale and engagement improves

Salary transparency not only helps to improve understanding in how pay levels are set, but it improves trust with employees. By being open and honest about how pay levels are set, everyone can be confident that their salary aligns with their skills, experience and results.
Pay transparency also helps to raise employee morale and engagement, since staff see that their salary is fair and objective.

Motivation increases

Employers may also find that their employees’ motivation receives a boost after learning more about senior salary levels. Transparency allows entry and mid-level staff to see the financial rewards of career progression. For those who want to advance their career, they are motivated to work harder to achieve such remuneration for themselves.

Bias is reduced

Whether conscious or unconscious, salary transparency reduces gender, ethnicity, background and many other demographic and characteristic-based biases that fuel wage gaps. By having a clear formula for how pay is determined, and full transparency, there is less room for bias to creep into the salary figure and more accountability for equal pay.

While pay gaps have reduced slightly in certain areas in recent years, there is still a long way to go. By sharing pay information openly, organisations are far more likely to correct any salary inequality and explore the reasons behind it.

Candidate attraction improves

In a competitive jobs market, employers need to stand out to attract and retain top talent. Many companies are known for pay transparency. They often attract the interest of candidates, who value an open and honest approach to salaries and the subsequent assurance that they would be paid fairly.

Furthermore, salary transparency allows an organisation to share accurate salary messaging with the candidate market. Without this, jobseekers turn to online review sites for salary information from current and former employees – which, depending on each person’s overall employee experience, may not provide the full context.

The cons: What is a disadvantage of pay transparency?

Salary transparency in the workplace can have downsides, too, which need to be carefuly considered.

Internal resentment could build

Before making salaries transparent, organisations should review their employees’ pay to ensure equal distribution. Revealing previously undisclosed pay information can create tension and resentment if employees learn a colleague with less experience earns a higher salary. This can lower morale and engagement.

Any pay discrepancies should therefore be rectified before salaries are disclosed. Use a formula that is applied equally so that two or more employees in the same or similar roles with comparable experience will not earn vastly different salaries.

Similarly, established employees need to be ready to have their salaries revealed. Transparency doesn’t work if salaries are shared for some but not all roles. Engage staff and share the reasons for pay transparency to minimise opposition.

Tunnel vision can impact morale

Employees must completely understand the duties, responsibilities and successes that determine each pay level. Otherwise, they can lose motivation and engagement if they believe their performance equals or exceeds a colleague who earns more.

A transparent and clear rationale for how salaries are determined in your organisation therefore must be provided, with managers taking every employee through the different pay levels one-by-one.

As part of this, managers may require training on how to discuss pay with their staff, how salaries are set, how to overcome common objections and how to answer expected questions.

Turnover can rise

If employees still feel dissatisfied with their compensation, even after you’ve discussed the guidelines for determining pay, their motivation, engagement and productivity can fall. Such employees are more likely to explore their options in the jobs market.

Explain pay scales

Regardless of whether you make pay transparent, sharing information about how salaries are determined can boost engagement and trust in workers that they are being paid fairly.

To make the context for salaries clear, share the data, formula or rationale used to calculate pay levels. Also share any other factors you use to determine salary, such as years of experience, additional duties outside the job description, performance results and successes. By sharing these details, and always applying them equally, employees understand the full picture and see that their salaries are justifiable.

Don’t forget to also compare pay at your organisation to typical salaries in your industry and location. For detailed salary information on current pay for thousands of roles, download our Hays Salary Guide.

Ultimately, transparency can improve trust in employees that they are being paid fairly, close pay gaps and eliminate unconscious or conscious bias in salary decisions. However, transparency may not be for every business, so weigh the pros and cons carefully to make an informed decision that’s right for you.