What is pay transparency?

Just as it sounds, pay transparency means being open about how much money you make for the position you hold at work. For workers, this means sharing their pay grades with fellow employees or even discussing what benefits they’ve been afforded. For business owners and managers, pay transparency means encouraging a culture of openness in the workplace and letting employees share this information without fear of repercussions to themselves or the company.

In the past, discussing pay levels has been fairly taboo, and many employers discourage the practice because it means having to ensure everyone receives a relatively equal level of pay. While this is a good thing for employees, employers who are reluctant to pay more than they have to may still drag their feet on this practice.

The benefits of pay transparency in a small business

Pay transparency is important for all workplaces, but for small and medium businesses, it’s especially critical to put these practices in place. The wage gap hurts minorities in particular, and a significant benefit of pay transparency is holding employers accountable to pay all staff doing the same work an equal wage, regardless of gender, race or religion. Pay transparency can discourage discrimination in the workplace.

For employers, pay transparency helps your company build an environment of trust and honesty. When employees understand they make a fair wage for their work and there’s no secrecy around pay, productivity and morale are likely to increase. Pay transparency as part of your brand also promotes a good reputation and culture of inclusivity for your business, which may bring in a better group of prospective employees when you’re hiring for new positions. If you sell or provide a product or service to the public, consumers are also more inclined to support a company in 2021 that pays its employees fair wages and is open and honest about inclusivity and equality.

Further, being open and promoting sharing salary information lets employees understand their paycheck and accept their level of pay. For example, in a company without pay transparency, an employee might feel entitled to ask for a significant raise because they believe they’re working hard enough to deserve one. If they’re aware of what their peers are making and know they make the same amount, they’re less likely to ask for a large raise that you can’t accommodate. This can reduce disgruntlement and dissatisfaction among your workers.

Levels of salary transparency

There are three levels of salary transparency:

• Full transparency
• Partial transparency
• No transparency

Full transparency

Full transparency is not common, but there are several well-known businesses that operate under a structure where all employees are able to see what others make. Whole Foods is one brand that offers full transparency for employee salary information. Trader Joe’s and McKinsey & Company are also among some of the highest-ranking businesses for their percentage of pay transparency.

Businesses that are fully transparent about their employees’ salaries often publish spreadsheets containing all the pay and benefits information for each company position, making it widely accessible. Though some employers may be wary of this sort of openness, there are many benefits to following this fully transparent model:

• No pay gaps between people performing the same job
• Employees see higher position salaries as motivation to move up in the company
• No salary negotiations necessary
• Better morale and no gossiping or dissatisfaction about who’s paid more

Partial transparency

Partial pay transparency is the most common among businesses in America, and there are varying degrees of transparency within this category. While companies practicing partial transparency are unlikely to publish a spreadsheet with detailed salary information, they may share salary expectations on job postings or through a careers page when advertising open positions.

Other workers within the company may not know the salaries of their peers, or they may simply know the pay level within their own department but not that of the higher-ups. There are several benefits to partial transparency that may cause some small business owners to favor this model:

• Ability to offer salaries that match a candidate’s experience level or educational background
• Potential for wage increases above those of their peers may motivate employees to work harder
• The value of an employee’s work reflects how much you pay them

However, a partial transparency model does allow for inequalities between workers performing the same role, which in some situations could breed workplace discrimination.

No transparency

While not unheard of, zero pay transparency is less common than partial transparency. In this model, employers actively attempt to keep their employee’s pay level private from the public and other workers within the company. As a small-business owner, you may find the benefits of this model include:

• An ability to pay an employee whatever you decide matches the value they offer
• No need to ensure pay equality between employees who have different levels of experience or knowledge

However, it’s critical to note that failing to be transparent about salaries, especially in 2021, can cause problems in the workplace, especially in a small business where employees are likely to know one another and speak openly. Employees may become disgruntled if they become aware they’re making significantly less than someone else doing a similar job, or they may start rumors that suggest certain team members make more money than they actually do.

A workplace culture of secrecy can also lower morale and create tension among workers and their superiors.

How to implement pay transparency

Before you can begin the process of implementing pay transparency in your workplace, it’s necessary to consider what your goals are in making this change. Are you hoping to make a stance for equality and inclusivity in the workplace? Is this an attempt to boost employee morale and improve honesty within the company? Are you trying to create a more attractive workplace that garners interest from external candidates and reduces turnover rates?

Whatever your motivation, get clear on it from the onset so you can ensure the policy you decide upon reflects those values and serves its purpose. As you prepare to take the next steps, keep your objective in mind and use it to implement the pay transparency policy effectively. For example, if your goal is to ensure equality in the workplace and several employees within a department are not being paid equally for doing the same job, you may need to renegotiate their pay before widely releasing their salary information either internally or externally.

If you’re hoping to boost employee morale, consider providing workers with an anonymous survey to get feedback on what pay transparency level they’d value and be most comfortable with. This can help you determine if full transparency or partial transparency is best for your business.

If you’re aiming for full transparency, start with pay transparency internally first. Before the public has access to everyone’s salary information, employees in the workplace should have access to everyone else’s. Hold meetings, ensure everyone understands that this information will be released internally and develop a method for determining fair pay. Whether that’s a baseline salary for each department or a raise policy, something that outlines what employees can expect will make it easier for everyone to accept the information they’re about to have access to.

Once you release pay information internally in a professional, organized manner, you might consider making your company salaries available externally as well, as Buffer did in 2013. If you’re going to release salary information online for public viewing, there should be full disclosure of this intention within the company. Be willing to make changes to the policy pending employee feedback.

Is pay transparency a good thing?

Many people will be left wondering if pay transparency is a good practice for small to medium businesses. While there are pros and cons to every business model and decision, it’s safe to say that some level of pay transparency is undoubtedly beneficial to a company. No pay transparency breeds doubt, suspicion, gossip and resentment in employees, contributing to a potentially toxic work environment.

When at least partial pay transparency is implemented, employees are motivated to work harder because they feel trusted and valued. Examine your goals for the business long term to decide whether a full or partial pay transparency model could benefit you and your employees.