This year, several laws take effect across the United States requiring employers to be more transparent about salaries in job postings. These laws follow legislation adopted last year, including the European Union's Pay Transparency Directive under which employers with more than one hundred employees are expected, among other things, to report on gender pay gaps. The accumulating global rules for organizations to be more transparent toward their workers is ending an era in which pay was cloaked in secrecy.
Pay transparency is a term that refers to the openness of employers about the salaries and benefits provided to employees. Pay transparency has gained a lot of attention thanks to important movements like Me Too and Black Lives Matter and global events such as the COVID-19 pandemic. Louder calls for pay transparency are a response to a history of organizations being secretive about pay differences between workers and unfair pay practices negatively impacting women and underrepresented minorities. The term pay transparency covers two topics, namely openness toward applying talent about salaries and benefits and transparency to hired talent about differences in salaries and benefits among employees. Legislation on pay transparency requires employers to include salary ranges in job offers and report on pay and pay gaps. The legislation is clear in the consequences for organizations that fail to comply. Organizations that are not transparent on pay are subject to sanctions. In addition, they may be forced to financially compensate employees that have been paid unfairly.
The need for more transparency around pay is high. Information on wages is crucial for employees to establish whether they have to renegotiate employment terms. According to the United Nations (2023), the gender pay gap is around 20% globally. On average women earn 77 cents for every dollar earned by men. Data by Pew Research Center (2023) shows that in the United States, women earn 82 cents for every dollar earned by men. The numbers look significantly worse for women of color, who earn anywhere between 61-67 cents for every dollar earned by white, non-Hispanic men (U.S. Bureau of Labor Statistics, 2021). In the European Union, women earn 87 cents for every dollar earned by men (EY, 2023). These findings are supported by research from the World Economic Forum (WEF), which reports on the topic annually with a global gender gap score. Last year, the score closed at 68.4% (Word Economic Forum, 2023). That's a progress of 0.3% compared to the year before. Without further action, it would take another several hundred years before the gap is finally closed. More transparency around pay and the expected social outcries over reported pay gaps will force employers to take more action.
Actions that promote pay transparency are good for the labor market. 80% of workers in the United States are more likely to consider applying for jobs with salary ranges (SHRM, 2024). Including pay ranges in job listings doesn't just motivate candidates to apply, it also improves the quality of applicants. The Society for Human Resource Management (SHRM) found that 70% of organizations that enriched job offers with pay ranges saw the number of applications go up and 66% said the quality of applicants was better. Today, more and more organizations are disclosing salary ranges. A 2023 survey by ZipRecruiter indicates that 72% of employers now post salary information. The survey also found that employers are increasing base salaries and benefits as a result of more transparency. The findings by ZipRecruiter are similar to the findings by Indeed. Indeed (2023) found that 75% of job seekers would be more likely to apply for a job if it included salary data. Postings on Indeed that included pay rates attracted 30 percent more applicants. Reporting by CNBC (2023) describes a shift in the behaviors of talent, talking more openly about pay. Pay transparency plus a more vocal labor force is lifting an old taboo.
Pay transparency laws enacted by countries and states strengthen the position of employees. In the early stages, organizations tend to be creative in finding ways to comply with legislation without disclosing any meaningful information. An example of this is the laughably large salary ranges included in some job posts. While these poor efforts attempt to keep pay secret, the laws meet their purpose. Nonetheless, there's much work to be done to have organizations comply with these laws. According to Revelio Labs, 30%-40% of U.S. employers are not (yet) complying with new state pay transparency laws. Examples of nations with robust legislation on pay transparency are the Nordics. Iceland, Norway, Finland, and Sweden find themselves in the top five of countries most effective at closing gender pay gaps (WEF, 2023). Since 2001, the net income of Norwegians is public knowledge. That means every Norwegian can consult the tax authority online to find income data of other citizens. Yet, 92% said they haven't used it to get info on the incomes of friends, relatives, or acquaintances (BBC, 2017). The combination of pay transparency and commonly accepted collective wage agreements has guaranteed Norway a third position on the global index. Iceland ranks first on the index and that's because the country requires organizations with more than 25 employees to prove they pay men and women equally for a job of equal value. Clear rules help employees obtain a strong and fair position in their relationships with employers.
Organizations must accept pay secrecy as a thing of the past. Leaders may initially feel that actions promoting pay transparency expose their businesses to too much risk. However, data waves those risks and builds a strong case for leaders to do more. That includes being more open and realistic about pay ranges to candidates and adding these to all job listings. Leaders have to proactively address the gender pay gap. They have to assess the pay of their employees and determine if employees are unfairly paid. Furthermore, they must commit to correcting pay and consider in what way they'll compensate for the time those employees have been paid unfairly. The best time to eliminate pay gaps was when unfair treatment first started. The second best time is now.
Transparency on pay is about employers openly disclosing salary information to candidates and employees. Actions promoting pay transparency are urgent due to the slow progress in closing pay gaps between genders and people with different skin colors. Taking those actions is positive for employees and employers. Talent is more eager to apply for jobs with pay information and organizations receive more qualified applications. Countries with laws binding employers to pay transparency experience lower pay gaps and better employment terms for employees. Leaders must understand that pay transparency is here to stay and is rapidly taking down the curtain that once hung around pay.