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Pay Transparency in 2023

pay transparency

As predicted, pay transparency in 2023 isn’t going anywhere. In fact, it’s more prevalent than ever, even in jurisdictions that don’t require it. Pay transparency laws are sweeping the nation, with at least 15 states considering joining California, Nevada, New York, Washington, Rhode Island, Connecticut, Maryland, and Colorado in passing legislation. As more employers are “forced” to list pay, others elect to join in and discover unexpected benefits and drawbacks along the way.

So how can you determine why, when, and how you might jump on the bandwagon? Let’s dig right into the latest research on pay transparency in 2023 that may help you decide:

Employers Are Split

Indeed recently reported that about 44% of job listings on its site nationwide include pay information. Over the past three years, the number of job posts that include salaries has skyrocketed by 137%.

“Even in areas without active salary disclosure requirements, pay transparency has significantly increased in the past year,” Cory Stahle, an economist at Indeed Hiring Lab, wrote in the report.

PayScale agrees that nearly half of employers are playing ball. Its recent research shows that 48% of organizations are responding to pay transparency in 2023 efforts by either rapidly improving their pay data, pay structures, and pay equity or investing in equitable pay structures for the first time.

Similar to Indeed, SHRM reports that this trend is rapidly ticking upwards. When not required by law, over two in three (67%) HR professionals say their organizations voluntarily list starting pay in job postings at least sometimes. About 32% of these organizations began including pay information in their job postings within the past year.

Strategies Are Lacking

According to PayScale, 84% of organizations have or are working on a compensation strategy, a measurable increase from years past. About 63% of organizations have a person or team dedicated to the compensation management function.

That’s excellent news, but pay transparency in 2023 can introduce complications that even these organizations didn’t plan well enough for. For instance, 19% of organizations are posting salary ranges without confidence in how current employees will react.

One area this can cause problems is in pay equity. Nearly 60% of organizations in PayScale’s study admit that they don’t fully understand where their pay gaps are. Listing compensation upfront changes that, like it or not. Pay transparency is moving the needle on pay equity as it relates to both race and gender. SHRM found that for 36% of organizations, pay transparency in 2023 also caused more current employees to ask about receiving a pay raise.

Thinking through these cause-and-effects is crucial as you consider your pay transparency policies. Before pulling the trigger, it’s important to understand it, prepare for it, and communicate to reduce adverse effects on current employees.

Other Complications

Business professors Tomasz Obloj and Todd Zenger bring up some other interesting perspectives in a recent The Harvard Business Review piece. They point to a recent study showing that pay transparency in 2023 can actually lower overall wages.

“The underlying cause appears to be that, by publicly disclosing current pay or pay ranges, employers more credibly commit to not negotiating with prospective or current employees,” the professors write. “They can claim now that any individual negotiations in which they engage precipitate having to negotiate with all (or many) others. In other words, this form of pay transparency, though it reveals the employer’s salary expectations, may lower employees’ relative bargaining power.”

Instead, Wharton School at The University of Pennsylvania management professor Matthew Bidwell sees the change as a means for employees to better negotiate at the bargaining table. (So, it sounds like the jury is still out on who benefits most—the employer or the employee.)

Obloj and Zenger also discuss how pay transparency in 2023 can affect productivity, turnover, and employee priorities. For the latter, they mention a recent study on what happened when hockey player salaries in the National Hockey League suddenly went public.

“This pay transparency glaringly revealed to the players that hockey salaries were largely determined by offensive performance metrics (goals and assists) with much less weight placed on defensive effectiveness — a performance dimension that’s much more difficult to measure but nearly equal in importance. When pay and its basis became transparent, players responded predictably to the incentives it revealed: They increased goals and assists but now neglected defense, and overall player performance in the league declined,” they say.

In other words, there are cascading pros and cons with pay transparency in 2023 that further prove a strategic approach is vital.

The Bottom Line

SHRM’s research clearly illustrates the overarching benefit of pay transparency for employers: recruitment. Here are some key findings supporting it (check out the full infographic here):

  • 82% of U.S. workers are more likely to apply for a job if the pay range is listed in the job posting.
  • 74% say they are less interested in applying to job postings that do not list a pay range.
  • 73% of U.S. workers are more likely to trust organizations that provide pay ranges in job postings over those that do not.
  • 70% of organizations confirm that listing pay ranges in job postings has led to more people applying.
  • Furthermore, 66% say it has increased the quality of applicants, and 65% feel it has made them more competitive in attracting top talent.

Does that mean you should always list pay in job postings? Our recruiters say no; there are still reasons and circumstances that should give you pause, particularly in states like Texas that don’t require it. But when most of your competitors are embracing pay transparency in 2023, it’s worth weighing the benefits and drawbacks with a knowledgeable recruiter to guide you.