Pay transparency is everywhere these days. There are endless stories in the press. Tweets with salary disclosures go viral. TikTok even has a salary transparency hashtag with more than 700 million views.
Business leaders are taking notice: New Indeed data shows that 98% of HR and talent attraction professionals identified pay transparency as either “very” (82.4%) or “somewhat” (16%) important to their C-suites.1 And 86% of those surveyed said pay transparency has been implemented throughout the entire organization.
Yet despite the growing momentum for pay transparency, I’ve witnessed a lesser-known factor that is preventing some organizations from developing comprehensive pay transparency policies and sharing wage or salary information in job postings:
Many executives simply don’t know what their workers make.
In this piece, I’ll explain what I mean by that and why this is a critical moment to talk about pay transparency — plus share strategies and tactics for implementing it.
The momentum behind pay transparency
Job seekers have been a driving force behind the growing movement toward pay transparency. An Indeed survey published in April 2022 found that 75% of respondents were more likely to apply for a job if the salary range were listed in the job posting. Another study found that two out of three employees would switch companies to access greater pay transparency. And many workers aren’t waiting for company policies to catch up: two out of five millennial and Gen Z workers have shared their pay information with a colleague or professional contact.
State legislation is also pushing companies toward pay transparency. California, Colorado, Connecticut, Maryland, Nevada, New York, Rhode Island (as of next year), and Washington all have laws requiring various degrees of salary-range disclosures for every posted position. And Massachusetts and South Carolina are considering pay transparency laws.
Yet the acknowledgment among business leaders of pay transparency’s growing importance hasn’t universally translated into action across the US.
Indeed’s survey of HR and TA leaders finds that the majority (44%) of those whose organizations haven’t implemented pay transparency say it’s because they were “unable to find good models or guidance,” followed by concerns that pay transparency “will decrease trust among employees” (31%), “will make employees uncomfortable” (31%), “will lead to resentment and dissatisfaction” (31%), and is “too complicated to implement in a consistent way across the company” (25%).
Executives were shocked by what their employees make
But as I mentioned, I believe another factor holding back pay transparency at some organizations is a lack of understanding among leaders as to what their employees actually earn.
In my first month as managing director of the Good Jobs Institute, one of the country’s largest retailers hired us to help improve its frontline jobs. My team and I spent a couple of months analyzing their data and visiting their stores. We found that, like many retailers, they didn’t pay most workers enough to get by: Workers had to take second jobs and struggled to pay for rent, medical care, or childcare.
The project culminated in a two-day workshop for senior executives, where we presented our analysis of their pay practices — specifically, showing them the percentages of workers who made less than $10,000 a year or between $10,000 and $15,000, for example.
The executives were shocked, embarrassed, and ashamed that they paid so poorly. As one said to me, “I had no idea it was this bad.” And I was shocked by their shock: It had never occurred to me that executives might simply not know how much they paid their workers.
I was so taken aback that I co-authored a Harvard Business Review article on the phenomenon, Why So Many CEOs Don’t Realize They’ve Got a Bad Jobs Problem. In the two years that followed, that retailer significantly increased average compensation, and worker productivity and retention also rose.
The experience showed me that one of the keys to expanding pay transparency is … transparency. Since then, I’ve worked with many companies, and the story is always the same: Showing senior executives exactly what their workers make typically leads to shock, embarrassment and, eventually, change for the better.
This is a critical moment to talk about pay transparency
Expanding pay transparency isn’t just good for workers — it’s good for companies, communities and society at large. As I argued in Politico, transparency around pay data allows workers, investors, consumers and even corporate boards to pressure companies to pay more, and to pay more equitably. We’re in dire need of that pressure. Economic inequality has soared to record heights: Over the past 40 years, earnings of the top 1% have increased 160% while wages for the bottom 90% have grown by only 26%.
White people are more likely to get raises. Black men earn 87 cents for every dollar a white man earns, and women earn 84% of what men earn. Both Black men and women are paid less for doing the exact same job as a (white) man.
Pay transparency can help fight this inequity. Greater pay transparency — particularly in job postings — gives low-wage workers more leverage and helps them focus on employers who pay well. With more pay transparency, the gender pay gap would likely decline: A Danish law mandating pay transparency led to a 7% reduction in the gender pay gap. The same thing could well happen for race.
Finally, pay transparency helps economic mobility. While designing McKinsey & Company’s nonprofit workforce development program, I learned that young people from low-income or low-education backgrounds often know very little about how much they can make in different careers. As a result, they don’t know which academic or vocational programs to pursue, which limits their socioeconomic mobility. (And the US currently has lower socioeconomic mobility than even class-conscious England.)
How to implement pay transparency
Despite huge benefits to society, pay transparency is scary territory for some companies. And showing them what’s happening inside the company, as I mentioned earlier, is only the first step. The next step is to put a plan in place — and assuage the inevitable fears about the complexity of pay transparency implementation and downstream consequences. That can be difficult, not least because there are very few good, comprehensive resources to help talent leaders navigate this issue.
In my experience, the following are three key concerns executives have about pay transparency — along with suggestions for how you might overcome them inside your own company.
Concern 1: People will realize they’re not earning as much as their peers or people at other companies and leave
This concern is evident among those that HR and TA leaders voiced in the recent Indeed survey, such as worries that pay transparency will lead to employee mistrust, resentment and dissatisfaction.
It’s true that this is a risk — especially for companies that pay inequitably or poorly. In the pay transparency survey of workers Indeed conducted earlier this year, 69% said they began looking for a new job when they discovered they were being paid less than their coworkers; 55% reported feeling less motivated at work; and 50% said their trust in the company decreased.
But what companies don’t realize is that they’re already losing people who assume they’re being paid unfairly. In fact, 57% of employees who are paid at market rate and 42% of workers paid above market rate nonetheless believe they’re paid below market rate. For people who are paid below market, 72% know or suspect it already. In other words, most people who are underpaid know it. But companies are losing employees paid at market or above because they believe they’re underpaid.
Here again, transparency is the answer. Not only do employees often not know enough about the market to understand how their pay ranks against peers; they also often don’t know the full value of their pay package.
These knowledge gaps can hurt retention efforts. Closing them can be an effective way to keep talent where they are. I know this from my own experience.
In addition to studying and writing about pay transparency, I also serve as the chief business officer of &pizza, a 60-location fast casual chain. A few months ago, we began allowing customers to tip. After a few weeks, I surveyed workers to determine if they knew how tipping had impacted their pay. I found that there was no correlation between the responses and what people actually earned in tips. Workers receiving $3 extra an hour thought their pay hadn’t budged! And that meant we were likely to lose them to competitors. So we started showing workers on every paycheck how much they made in tips. Since then, turnover has dropped more than 30 percentage points.
Concern 2: Our wage bill will rise
This concern is not unfounded: 43% of respondents to the Indeed survey acknowledged that pay transparency had caused their wage bill to go up.
But if a company pays so poorly or inequitably that they would have to raise pay before they could disclose it, they should probably make pay investments anyway, not least because they need to stay competitive. After all, workers talk to each other.
Instead, HR professionals should use the pay transparency process to convince the C-suite to make investments in compensation that pay off in the form of access to better talent, higher retention and higher motivation. I spent years explaining the business case for high pay to companies; suffice it to say that investing in employees really can improve the bottom line.
To invest in pay in the right way, I recommend a two-step process:
- Analyze your pay and decide what needs to change. Review your full pay distribution cut by gender, race, ethnicity and role type. If you have hourly workers, use take-home pay rather than just wage level.
Once you have the data, analyze the following:
- Equity. Are men paid more than women (average, median, top 10%, bottom 10% and so on)? Are white workers paid more than non-white workers?
- Adequacy. For companies with lower-paid workers, are workers earning enough to get by? The Good Jobs Institute has a free living-wage pay assessment tool to help with this analysis.
- Competitiveness. From both a recruiting and retention perspective, compare what you pay to what talent competitors pay.
- Use your analysis to convince the C-suite to improve, as I did with the retailer I mentioned earlier. I recommend presenting:
- Your plan for pay transparency, with evidence that pay transparency is something employees are demanding. This can be anecdotal, from a survey you launch or from other data.
- The results of your analysis in a clear, stark way. For example, present a chart showing that, on average, men make 1.2x women in similar roles.
- The (negative) business impact of maintaining existing practices. Again, this can be based on your own recruiting and retention challenges or macro data.
- The cost to the business of any changes you recommend.
Ideally, this process will enable you not only to be transparent about pay but also to have better pay news to share with your candidates and employees.
Concern 3: It’s too hard to implement pay transparency
As I shared earlier, of the HR and TA leaders in Indeed’s survey who said they haven’t implemented pay transparency, 25% said doing so across the country in a consistent way is too complicated. But in my experience, the opposite is true: Pay transparency is incredibly simple — once you’ve decided what to disclose. The challenge is that there aren’t many good how-to guides available.
Below are three strategies for a straightforward pay transparency process:
1. Decide what to disclose.
Pay transparency can mean a number of different things. Here’s a table that I find helpful.
| Decision | Options: Disclose … |
| Pay statistic: Average/median pay vs. range vs. distribution | |
| Pay type: Wage vs. pay (relevant for companies with large hourly workforces) | |
| Unit(s) of analysis: Groups for which pay is disclosed | - Role - Gender - Race/ethnicity |
| Loading: Total compensation (incl. benefits) vs. pay |
|
In deciding what to disclose, it’s helpful to consider:
- What are your employees and job candidates asking for, specifically?
- Are you planning to invest more and pay more equitably? If yes, it may make sense to start with a summary form of disclosure and move to the full distribution once you have improved practices.
- Do you offer high-value benefits? If yes, it may be worth disclosing past statistics that include benefits so that employees understand the full value of their compensation packages.
For an example of comprehensive pay transparency, consider Intel, which publishes the distribution of annual pay by pay bracket (e.g., $19,239 and under), role type, gender and race/ethnicity.
2. Be transparent about your transparency.
In announcing to your company that you’ll be disclosing pay, it’s better to be candid about where you believe you’re falling short and what you will do to address it. Increasingly, employees, particularly millennials and Gen Zers, value transparency. Part of being transparent is acknowledging that, when you reviewed the pay numbers, you were proud of some things and also saw areas for improvement. Be clear that you’ve already committed to certain changes and that the company will be steadily making progress.
3. Make sure everyone is prepared so that your rollout is successful.
Delay disclosure if you have really egregious inequity. Fix it first, rather than risk it going public.
- Make sure that what you disclose won’t cause you to lose your top performers; I recommend looking specifically at the top ~10% of talent.
- Build equity analysis into existing processes so that you can talk about the good work you’re doing and what gets disclosed is increasingly equitable — e.g., help every business unit manager do an equity analysis before annual raises are set or when new hires are made.
- Set clear expectations for managers and give them appropriate training. For example, should they be having pay or equity conversations? What should they do if someone comes to them and says they believe they’re being underpaid?
Pay transparency is the way of the future. Companies will have to be more transparent, whether they’re ready or not. Those whose HR teams use the pay transparency process to educate executives about their workers — and to make the case for higher, more equitable pay — will have a material advantage in the talent market.
No matter where you are in your pay transparency process, there’s always the opportunity to do things better. I hope this guide helps you move in the right direction.
The views and opinions expressed in this article are those of the author and do not necessarily reflect the official policy or position of Indeed.
Katie Bach
Katie Bach works on and writes about issues related to job quality and low-wage work. She is currently the Chief Business Officer at &pizza and a nonresident senior fellow at the Brookings Institution.Article Sources:
1 In June 2022, Indeed Leadership Connect sponsored a new survey of 501 HR and TA leaders in the US. Members received early access to the findings.
