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Does salary transparency work?

As the Great Reorganization pushes employee-driven shifts, salary transparency has entered the chat.

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Back when covid-19 struck—economies paused, people losing their jobs in droves—it didn’t feel like the pandemic would lead to greater worker empowerment. And yet, at least for many, that’s exactly what it did. A mass exodus from the workforce, or into new types of work, has created a tight labor market, putting pressure on employers to evolve. The exposure of our “whole selves” to one another through a grand work-from-home experiment has led to what many are calling the “humanization” of work, which also has employees demanding more: more flexibility, more understanding of individual needs, and maybe more transparency on pay.

So far in the Great Reorganization, salary transparency is in the mix, but what isn’t yet clear is where that desire for information will take us. Younger workers, people of color, and women may well be incentivized to demand that wages be made transparent in a bid to stamp out structural inequity. Anyone building a company from the ground up could reasonably choose total transparency as a sensible new norm to impose on their fledgling business.

But there are also plenty of reasons why colleagues and employers at existing companies might feel worried about disclosing pay. Yes, it could make things fairer—but at what cost? Huge personal embarrassment might be one, as Insider boss Nich Carlson discovered when he asked readers to disclose their salaries but quickly refused to reveal his own. Losing “superstars,” or the business edge of offering higher pay, is another, according to forthcoming research. More senior employees, those with probably-higher paychecks, and men, may well pull against the trend—and that’s a lot of employees.

It could be that rather than individual companies publishing lists of worker-by-worker pay packages, legislation takes over: New York City will soon require job listings to include salary bands. In the meantime, many more people are examining the norm of secret salaries and asking: Who exactly does this benefit?

The backstory

  • Many workers have more leverage. ​​With employers struggling to attract and retain staff, more workers are leaving jobs because of inadequate pay or poor work-life balance. White-collar workers are insisting on flexible hours​ and ​​the right to work for home​,​ ​​and are prepared to leave companies that won’t accommodate them.​​
  • Salary transparency has benefits. A recent large study of US academic institutions found that, over time, the gender pay gap in organizations that shared salary data was reduced by 45%. In transparent organizations, employees who did similar jobs were also more likely to make comparable wages, with fewer outliers.
  • Locales are pushing transparency, too. ​In May, ​New York will become the first US ​city where employers are legally obligated to include a minimum salary on job postings. Several states have also adopted or are debating new salary-range disclosure laws. In Germany, employees at large companies have been able to find out how much their coworkers earn​ since 2018, and salary transparency is already common in Sweden, ​Finland, and Norway.

What do *you* think?

Surveys show that salary transparency is a popular concept, especially for Gen Z employees, but one 2020 study (pdf) found that 80% of employees at a multibillion-dollar company said they’d prefer not to share salary details, and 70% said it was “socially unacceptable” to ask coworkers how much they earn.

We want to know what you think—salary transparency, yay or nay?

What to watch for

  1. Pay transparency in the European Union. The EU is weighing a proposal that would require employers to disclose pay in a job posting or before an interview. Workers would also have the right to request information from their current employer on average pay for employees at their level.
  2. The impacts of NYC’s law. Economist Teresa Ghilarducci predicts the new rules, which go into effect May 15, will have a big impact on unequal pay. Employers will be outed if they’re underpaying women and people of color, and companies will have a stronger incentive to fix inequities.
  3. Equal pay reports in Illinois and California. In Illinois, a rule taking effect in March requires private businesses with more than 100 employees to demonstrate that they do not have racial and gender wage gaps. California has a similar law, enacted last year, which requires large businesses to submit annual reports to the state.
  4. Some companies getting ahead of legislation… Proactively improving policies could attract new workers: One recent survey found that 58% of US employees would consider switching jobs for more pay transparency.
  5. …while others look for loopholes. Employers may also find creative ways to circumvent laws requiring them to disclose salaries to job applicants. Johnson & Johnson, for example, dodged a Colorado law by specifying that even its remote positions were not open to workers in the state.

One 👨‍👧 thing

Here’s something to think about: Women at companies that share salary information may see even higher salary gains if their firms’ male managers have more daughters than sons.

That surprising difference emerged in a 2019 study that examined the effects of a salary disclosure law enacted in Denmark in 2006. Researchers found that at companies required to share pay data, the gender gap shrank from 18.9% to 17.5% over five years. But when male bosses were raising girls at home, wages for their female colleagues rose more sharply, closing the gender pay gap by another 2.4%.

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Thanks for reading! And don’t hesitate to reach out with comments, questions, or topics you want to know more about.

Best wishes for a transparent weekend,

—Cassie Werber, Lila MacLellan, and Sarah Todd, senior reporters with Quartz at Work

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