Insights

Pay Transparency: Navigating a New World

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Pay transparency is rapidly becoming the norm in the nonprofit sector and, thanks to a growing number of city and state laws demanding salary transparency, it’s starting to trend in the private sector as well. Pay transparency changes the way job seekers and hiring organizations engage over salary and it can have far-reaching effects on organizational culture.

Below, find information about the movement toward pay transparency and what it means for candidates and hiring entities.

What does pay transparency mean?

Pay transparency is a concept that embraces openness about compensation ranges as a way of building transparency and equity. Pay transparency measures may include posting bands internally and/or publicly posting compensation ranges in job descriptions.

The driving goal behind transparency measures is to close persistent salary gaps that exist between genders and races. This gap affects women of color the most. A recent report from the National Partnership for Women & Families shows that Latinas are paid 54 cents on every dollar paid to white, non-Hispanic men. And across all racial and ethnic groups, women in the United States are paid 82 cents for every dollar paid to men.

The idea is that transparency about salary ranges ensure that jobs are pegged to a market rate, ensuring that the cycle of underpaying some candidates is broken, therefore leveling the playing field.

In recent years, legislators in dozens of cities and states have passed salary transparency laws. In late 2022, New York City became the most recent major government body to pass such a law. Any publicly posted job description for a role located in New York City must now include a “good faith” salary range. In some states and cities, it’s also illegal to ask candidates what they are currently earning and base an offer or new salary on that information.

What are the effects of salary transparency?

This movement toward transparency and the legislative requirements have forced hiring entities to think and act very differently about compensation. It has raised concerns that a shift to pay transparency may generate internal dissatisfaction, require extensive- and expensive- salary adjustments, and potentially hinder the ability to attract a wide range of candidates who may come with a wide range of salary desires.

While the long-term impact of salary transparency measures is still unknown, studies are beginning to reveal a complicated set of outcomes that will likely continue shaping the world of work for years to come. According to a Harvard Business Review article in February 2023, research shows that pay transparency is indeed closing the wage gap in a wide range of setting, from academia to the private sector. But the same study shows that while salary transparency may be closing the wage gap, it may also be having a flattening effect on salary overall and could be disconnecting pay from performance, which ultimately could cause retention challenges for employers and reduce worker’s bargaining power. There will be countless more studies about the impact of salary transparency. But for now, it’s a requirement for many hiring organizations across the country.

As executive recruiters serving the nonprofit and corporate sectors, Koya Partners | Diversified Search Group has partnered with clients who have whole-heartedly embraced salary transparency, those who are still determining how to abide by legal requirements, and many in between. Many of our clients in the nonprofit sector have proactively moved toward including salary ranges in their job descriptions as a way of demonstrating a commitment to equity.

Diversified Search Group adopted a policy of full transparency in all publicly posted job descriptions in late 2022. The reaction has been overwhelmingly positive from candidates, who are deeply appreciative of transparency efforts. And for most clients, once they have worked through internal salary equity issues, the leap to external transparency has been far less disruptive than anticipated.

The trend toward salary transparency is likely to continue to grow as employees demand more from their organizations and society demands more social engagement from companies. This is part of a suite of forces and movements that have radically shifted the world of work since the onset of the COVID pandemic. Like remote work, salary transparency seems to be here to stay in some form.