Why salary transparency could pay off in 2024
By Jo Faragher on 2 January 2024
Could 2024 be the year that more organisations embrace pay transparency?
In June 2023, the EU Pay Transparency Directive came into force, introducing obligations on employers to disclose salaries at the point of recruitment and comply with requests for pay data, among other things. Although it will only directly apply to EU member states (who have until June 2026 to implement the directive into their own law), there will be increased pressure on UK companies to match these standards.
There are a number of arguments in favour of salary transparency, which normally implies companies are sharing pay details in job adverts (rather than vague ‘dependent on experience’ messages), as well as not asking candidates about their salary history. The key benefit is that it supports the narrowing of the gender pay gap: there is likely to be less bias in setting pay because hiring managers are not basing salary decisions on someone’s previous pay (which for men would tend to be higher), and research from the Fawcett Society finds that women are less confident in negotiating pay. It can also boost the candidate pool: four-fifths of job seekers are less likely to apply for a role if they can’t see a salary advertised, according to Reed.co.uk.
In 2022, the government did announce a pilot scheme where participating employers would list salary details on job adverts and stop asking candidates how much they had earned in the past, but this was quietly dropped. According to jobs database Adzuna, the proportion of UK job ads that include salary information has slipped to a seven-year low, even though those that do receive many more applications. Yoko Spirig, co-founder and CEO at Ledgy, says employers should not need a legal push to be more open about pay: “Companies can play their part in the journey towards pay equality by committing to transparency on compensation – this means equity as well as the base salary,” she says. “By encouraging more companies to embrace transparent reporting across entire compensation packages, we can truly understand the scale of the gender compensation gap, and work together to achieve equal pay for equal work.”
Justine Woolf, director of consulting at reward specialists Innecto, argues that sharing salaries means applicants have a better view of true salary expectations and that the actual salary they are appointed on is within a confined range. She says: “Surveys have shown women, for example, often undervalue themselves meaning they may not negotiate as hard as men and enter roles at a lower salary. Theoretically all groups benefit as it ensures that pay is determined within a set range and is not subject to unconscious bias. Pay secrecy makes it easy for bias and pay discrimination to take root, even if the employer is trying not to discriminate.” Woolf points to some states in the US, where asking about salary histories is banned. In Massachusetts for example, the ban led to a 5% pay increase for all job changers, an 8% increase for women and a 13% increase for Black workers. In another study, women over 35 saw the greatest earnings increase, particularly those who were married and had older children – highlighting the pay penalty caregivers often suffer where salary details are vague and open to negotiation.
But how should it be implemented? It’s not as simple as just including salary details on job ads, explains Romain Muhammad, founder and CEO of Diversify. “Effectively implementing salary transparency involves a multi-faceted approach,” he says. “In job ads, organisations should be clear about the salary range for a given position and provide additional details about benefits and perks. Internally, sharing overall compensation structures and educating employees on how salaries are determined fosters an atmosphere of trust.” Other actions companies can take could be using compensation bands rather than specific figures, allowing for flexibility in negotiations while maintaining transparency. Training managers to discuss compensation openly, and regularly reviewing and adjusting these ranges will also help, he adds: “Clear communication about the organisation’s commitment to transparency and its role in fostering a fair and inclusive workplace is essential for successful implementation. Salary transparency serves as a catalyst for positive change, aligning with the principles of fairness and diversity in the modern workplace.”
Tom Cornell, senior psychology consultant at HireVue, agrees that salary transparency can foster greater inclusion, particularly among those who may undervalue themselves for certain roles. One of the issues is that salary negotiations can often end up in a stand-off, which leads to stress during the interview process. “This additional cognitive load, fretting over when it will come and how to navigate the question around salary, can weigh on the candidate and mean they don’t present the best version of themselves,” he explains. “For salary transparency to truly work long-term to foster diversity and inclusion, it must be implemented with a consistent structure across the organisation. One way would be to remove the salary discussion from the interview process itself, instead having that conversation with someone from HR, so it doesn’t influence the interviewer – eliminating the subjective notion of earnings from evaluating whether the candidate is capable for the role, not just for today, but the potential the candidate can have going forward.”
Many companies worry that by being more open about pay, they will open a Pandora’s
Box as suddenly existing employees will see if they are not paid within these ranges, adds Woolf from Innecto. This means it can be tricky to become transparent about pay overnight. “We advise you to get your house in order first, conduct salary benchmarking, understand if there are pay equity issues internally by conducting an equal pay audit and address these first so you can pre-empt employee concerns regarding transparency,” she explains. “Working behind the scenes to understand current pay practice will give reassurance to leaders and enable you to address any issues before information is published. It’s a journey that requires education and manager training to avoid perpetuating any unequal pay practice. When recruiting, it is critical to review the salaries of existing staff when offering new entrants, checking against gender or ethnicity to ensure there are no inherent biases or creation of pay gaps.
Dr Zara Nanu MBE, director of Fair Future of Work Strategy at XpertHR, says the impact of this work will make it worth it, however. “According to our research, companies with transparent job adverts report a 9% gender pay gap, compared to 19% for those without,” she says. “Pay transparency can also significantly benefit other minorities and traditionally underpaid groups, as it promotes fairness and helps identify and rectify wage disparities across all demographics, not just gender. Achieving a data-driven approach to pay transparency requires organisational investment in resources and technology and a zero-tolerance culture for unfair pay practices. Only with this investment in place can key stakeholders be empowered to make informed decisions and implement effective measures to improve workplace inclusion.”
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