Pay Transparency: The Benefits and Challenges

Conversations about compensation has always been a topic that was considered taboo as employers hide this information behind privacy reasons, and employees are simply afraid to discuss with others. However, people are starting to do more research online to see what others in their positions and with their experience levels are being paid. And with websites like Glassdoor, and Payscale that provide compensation information based on location, experience level, and position, it gives employees and job seekers more leverage when it comes to salary negotiations. But there are many voices asking for more to be done about pay transparency.


What is Pay Transparency?

It is the open disclosure and communication of information about compensation with employees and job candidates. How this is done can differ between one company to the next. From sharing all salary information publicly, to sharing salary ranges, to how salaries are calculated, to each individual employees’ salaries.


Around the world, different level of government is starting to introduce legislation to address pay transparency and here in Canada, it is no different. Locally, the Ontario government recently passed Bill 149, the Working for Workers Four Act, 2023 which will include pay transparency, among other important amendments to the Employment Standards Act, 2000 (“ESA”). It requires employers who advertise a job publicly must disclose the expected compensation for the position or the range of expected compensation.


The goal of pay transparency is to give workers and job candidates understanding of what is being paid for the responsibilities and expectations of the position. Furthermore, there are many other benefits as well:


1) Pay Equity

As companies are more open about how they are compensating their employees, they are more accountable for how they are implementing fair pay practices. This would eliminate any bias and inequalities stemmed from nonjob related factors.


2) Improved Company Culture and Retention

Creating a more inclusive workplace rid of bias and inequalities as transparency fosters an environment of openness, honesty, and trust. When employees can trust that they are all being treated equally regardless of gender, race, and ethnicity, they know that they only need to focus on their performance and there would be equal opportunities to grow with the company. Employees would be more motivated to improve their performance as that is the primarily measure for who gets a promotion or pay raise.


3) Improved Communication

When employers and employees can openly and honestly discuss around the topics of compensation, this builds to the environment that allows anything to be discuss freely up and down the organization. This will lead to better communication and collaboration among peers in the workplace.


4) Attracting more talent

Job seekers know what they want when they are considering new opportunities and knowing whether the compensation package for a job aligns with their expectations when they will ensure that there is no time wasted. Furthermore, candidates want to be part of an organization that is transparent.


As with everything in life, there are two sides to every coin. While there are benefits to pay transparency, there are also some.


1) Exposing Pay Equity Problems

If a company already has a pay equity problem, it will all be exposed by pay transparency. It is important for businesses to address pay equity problems as part of taking the step forward to pay transparency.


2) Negative Social Comparisons

When everything is out in the open, it may lead to certain individuals to compare themselves to their peers and no matter how hard an organization tries to be fair, there will always be those who feel it is not. This may lead to envy and resentment between employees and that can be costly as it could lead to unhealthy competition and decreasing morale.


3) Reduced Candidate Pool

Companies may receive fewer applications when disclosing the compensation ranges on job postings, if their compensation is less competitive than what their competitors are offering in the market.


4) Pay Negotiations and Employee Poaching

When employees know what the salary ranges are for their position and depending on where they fall on that range, they will be inclined to negotiate for the top band of that range. This will require employers to be able to justify why individuals are getting what they are paid. Furthermore, if the competition can see exactly what an employer is paying their employees, it makes it easier to poach said employees with slightly higher compensation packages to lure them away.


While the concept of pay transparency to its core is a great idea, there are drawbacks to it and the execution of how companies implement it will determine whether it will be successful for their team or not.


Contact Us today to speak with one of our Account Executives and let us help you build your team with the right talent this year!


Photo Credit: Image by jcomp on Freepik

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