However, over the past several years, a culture shift has made it challenging to maintain this system as many employees have begun disclosing their salary information regardless of company rules as a way to self-organize to support fair salary negotiations for their peers.
Now, legislation in several jurisdictions has moved to make pay transparency a requirement for employers to create a more fair negotiation process and improve pay equity for underrepresented groups in the workplace.
The majority of compulsory pay disclosure regulations require individualized disclosure to a specific individual under specified circumstances, including but not limited to at the candidate's request. Employers in several states are subject to similar regulations. Colorado went further, introducing a comprehensive, affirmative pay posting law this year, requiring wage disclosures in job advertising for physically located occupations or remote jobs that could be done in Colorado.
Some top companies not impacted by legislation have chosen to adopt these practices to stand out, attract top talent, and gain visibility as being ahead of trends in equity, diversity, and inclusion.
While this transition has many positive attributes, it undoubtedly creates new challenges for business leaders and applicants alike. And since much of the conversation around this recent move is centered around improving pay equity, it's essential to consider how this impacts the pay disparity issue in practice, and if it helps them at all.
Behind the push for transparency is the belief that if applicants know what a company is willing to pay, they will be less likely to be under-compensated. While this may help some candidates, it won't cure pay inequality. Many factors impact how salaries are distributed, and bias — explicit or implicit — and discrimination still play a role.
Pay becomes a new strategic consideration
This simple change to the structure of our hiring process creates significant new strategic considerations for recruiters and hiring managers as these public pay rates will become part of the decision-making process for applicants. Now, leaders must consider how pay ranges might be perceived, who will and will not apply at certain ranges, and what these decisions will mean at the negotiation stage.
Before pay transparency, the corporation held the cards by keeping their budgets a secret. By forcing the applicants to share what they required to be paid first, the company could find out if the individual would accept a lower rate than what was budgeted and potentially save money. Candidates who were historically underpaid might simply ask for a slightly higher salary than their last position rather than knowing what a company should be willing to spend for the work being done.
Today, candidates will become more aware of their compensation potential without needing to conduct additional research, but this may also impact who applies. For example, an individual who has been chronically underpaid may essentially self-select out of higher-paying positions under the belief that it's too high of a jump. In contrast, highly compensated individuals may not apply under the assumption that the top of the salary range is a non-negotiable cap. Therefore, it becomes even more crucial to enable candidates to understand the total compensation for a given role.
Disparities in non-cash compensation, bonus, and promotions impact equity
While creating equitable compensation for women, BIPOC, queer folks, people with disabilities, and other marginalized groups is helped by greater transparency, the administration of pay transparency by the employer varies and still stands to perpetuate bias and inequities.
Base salary or pay rate are two fundamental components of compensation: how much cash the individual makes on an hourly or annual basis. For hourly workers, an organization may make the pay range transparent during the application. Still, it may not be aware of nor address the common occurrence that special projects and overtime opportunities often go to men more frequently than women, and take-home pay is still wholly disparate.
For salaried employees, this equation may seem a little easier. However, in our work consulting with companies, we have observed that while an organization may disclose a codified pay range, in many instances, they will also exceed that range during the negotiation process — a fact not made transparent. We also know that groups historically underrepresented in specific roles, levels, and industries, including women, tend to negotiate less than their white male-presenting counterparts, and therefore may never access these secret dollars that exist beyond the top of the range.
Many organizations offer an annual or performance-based bonus structure. Often this bonus target or range (an intended percentage of base salary, usually) may or may not be disclosed as a part of these pay transparency programs. What often is not disclosed is that senior management and boards of directors may elect to apply a multiplier to an individual's bonus that either increases or decreases the total cash payout based on corporate performance.
Further, organizations often hold back bonus dollars for those considered "high potential," which often translates to rewarding individuals they feel are most similar to themselves. As a result, take-home bonus cash is highest among majority group members, often white folks, who tend to fill the top ranks in the organization by the sheer symptom of their proximity and similarity to those at the top making the pay decisions.
Long-term compensation incentives and equity (e.g., stock plans, others) usually are out of the equation for pay transparency efforts yet could hold the biggest value and potential for pay inequity and disparity. Most of the legislation we discuss here applies to cash compensation, and most elective programs that we are aware of do as well. In practice, frameworks for awarding these grants are difficult to codify equitably because the value assigned to the awards can change dramatically over time, market data for awards like these are variable and up for interpretation, and therefore many employers avoid pay-parity analyses of this form of compensation and any attempt at transparency altogether.
Lastly, due to some of the shortcomings mentioned above, systems like these require maintenance over time to be effective. If the organization is simply making base-pay range data transparent to candidates, but not conducting regular pay-parity analyses internally and market-based pay adjustments and corrections, unequal and unfair pay will propagate as the employee navigates their career.
Bias and privilege are still at the core of hiring practices
Pay transparency is just one tactic, and on its own it doesn't solve all of the challenges of inequity in the hiring process. Ultimately, much of the issue rolls back into the hands of the hiring managers and leaders making decisions about the candidates worthy of a particular pay tier.
Systems of oppression continue to disadvantage people less proximal to the access and privilege often afforded white workers, whether by lacking the network to receive insider pay and negotiation tips, or by being evaluated with greater or varied levels of scrutiny, to name just two challenges.
Breaking this cycle involves systematically undoing explicit and implicit discriminatory biases, policies, and programs that perpetuate oppression throughout the employment process. It requires evaluating candidates based on actual capacity to accomplish the expectations of the role while correcting for disparities of power and privilege.