Pay transparency refers to the practice of openly sharing salary information within an organisation or to the public. This may include posting salary ranges in job adverts to disclosing the pay scales of current employees.
It’s also about explaining why compensation decisions are made, and ensuring that pay policies are equitable and consistent.
The level of transparency varies among organisations, from those that provide broad figures to those that disclose exact salaries for every role.
The goal of pay transparency is to:
The short answer is because successive pay equity laws, court cases, and more have not solved the problem of gender pay gaps.
While pay gaps have generally fallen over time in Europe and the US, since pay inequalities began to be tracked in the 1960s, inequalities still remain.
Pay transparency stats
ONS figures show the gender pay gap among full-time employees in the UK at 7% in April 2024, down from 7.5% in April 2023. The pay gap for all employees fell to 13.1% in April 2024, down from 14.2% in April 2023.
The gender pay gap is higher when we look at all employees as women fill more part-time jobs, which have lower hourly median pay.
In the US, women who were full-time wage and salary workers had median weekly earnings of $1,005 in 2023. That was 83.6% of the $1,202 median for men.
In the European Union, women continue to earn less than men, with the average gender pay gap at 13% in 2023. For every €1 a man earns, a woman will make only €0.87.
The introduction of pay equality legislation over the past decades has helped to reduce inequality, though lengthy court battles have often been required to make progress, the recent case against Next, which took six years, being one such example.
One reason inequality has persisted for so long is that discussions around pay have often been shrouded in secrecy, with employees discouraged from sharing their pay details with colleagues.
When pay negotiations take place in secret, pay inequality becomes more likely. For example, studies show that women ask for, and are offered lower salaries than men. One study found that women ask for an average of 6% less than male counterparts in salary negotiations.
This culture of secrecy also reduces the number of challenges, as pay discrimination often goes undetected due to a lack of pay transparency, which means that victims are prevented from bringing claims.
The good news is that this culture is changing. This is thanks to the introduction of pay transparency laws, and companies choosing to adopt more progressive compensation policies. Another key factor is the number of pay discrimination cases being brought.
High profile examples, such as the actions against UK public sector organisations, as well as the cases against Asda and Next, raise awareness of the issue, and force organisations to consider their own compensation policies against such risks.
Although legislative requirements may differ in each location, they have one overall aim in common, which is achieving equal pay for equal work for employees from under-represented groups.
10 US states have already introduced pay transparency laws recently, with many others in the process of following suit.
The New York State bill came into effect in September 2023, and all employers with four or more employees are now required to include the compensation, or a range of compensation, when advertising for a job, promotion or transfer.
In California, the Equal Pay Act has been in law since 2016. This prevents employers from asking about candidates' previous salaries. The state introduced additional legislation in 2023 that requires all employers with at least 15 workers to include the hourly rate or salary range on all job postings.
More than one in four employees in the US are now covered by pay transparency legislation with that number due to rapidly increase over the next few years. Either fines or the risk of civil action and punitive damages are the typical consequences of non-compliance.
In the UK, companies with more than 250 employees are already obliged to disclose pay information under the Equality Act 2010 and report annually on their gender pay gap - the difference between the average (mean or median) earnings of men and women across a workforce.
In March 2022, a pilot scheme was launched by the UK government to tackle pay transparency. Those taking part in the pilot listed salary details on job adverts and purposefully didn’t ask about salary history during recruitment.
However, this pilot scheme was paused pending further research in May 2024, with a note of caution on the potential negative effects of pay transparency, and the intention to observe how pay transparency legislation plays out elsewhere in the world.
This means that the UK is currently lagging behind much of the world in terms of pay transparency legislation, though a change of government in 2024 may change that.
However, UK organisations will still need to consider their approach if they operate in territories that already have, or are planning to introduce, pay transparency legislation.
There is also nothing stopping organisations from going above and beyond the current legislative position in the U.K. to prepare for any future changes.
Current pay transparency laws vary in their scope and strictness, but the EU Pay Transparency Directive promises to be the most far-reaching yet, especially as they affect any company around the world with a certain number of employees based in the EU.
The European Parliament and Council adopted the Directive in 2023. All EU countries must implement the directive into their national laws by June 2026.
The Directive will force employers to carry out thorough assessments of employee’s pay, which includes basic pay, benefits, bonuses, and any other incentives.
The key difference with this new legislation is that companies must show that they are actively complying with equal pay legislation.
The EU Directive contains seven key requirements for employers:
The Directive will have far-reaching implications for organisations. It will increase the focus on organisations’ compensation and talent management practices. As these processes and practices are often disconnected and not always robust, this will be a challenge for many companies.
The Directive requires organisations to provide clarity on pay progression criteria and have clear, transparent and equitable practices around how work and skills are valued and paid.
There are arguments for and against greater pay transparency, and concerns even for those organisations that have opted to become more transparent.
Potential challenges
Pay transparency benefits
Rather than simply viewing pay transparency as a legal requirement, it’s important to look at the benefits pay transparency can bring to an organisation.
One key benefit is of course the reduction of gender pay gaps, and the development of more inclusive workplaces.
It can also have some positive knock-on effects on productivity and more:
Several companies have adopted various levels of pay transparency, often publishing annual reports on gender pay gaps within their organisations.
Notable examples include:
Before you can implement pay transparency, it’s important to think about the overall pay philosophy of the organisation before making it more visible to employees and applicants.
A starting point for some organisations will be to determine and communicate their pay philosophy.
A coherent framework is needed which can then guide all subsequent pay decisions and make them easier to communicate and explain to employees. These may be principles such as paying market rate, rewarding performance, and creating internal equity.
This coherent pay philosophy becomes the foundation for transparent pay practices as it articulates the organisation's fundamental beliefs and principles about how and why people should be rewarded.
Between pay secrecy and full transparency, there are various degrees of transparency. For example, for organisations to prepare for the EU Pay Transparency Directive, it isn’t necessary to reach full transparency.
The aim is to find out where you are now and where you want to get to along this scale:
One potential negative impact of increased pay transparency is that, if pay inequality issues exist, they are clear for employees to see. This can have a negative effect on employees’ satisfaction levels, staff performance and retention.
For this reason, it’s vital to identify and address any possible issues before pay information becomes more visible and accessible.
At the very core of pay transparency, and pay equity, is the ability to look across the organisation at the landscape of jobs, pay and reward, and make comparisons between the compensation for similar roles and dive deep into roles to ensure equal pay for equal work.
For many companies this landscape is still very chaotic, with individual teams and departments having their own job structures, titles and pay scales with little governance in place to manage and align.
To prepare for pay transparency an essential first step is to put in place a comprehensive skills-based job architecture.
Organisations need the ability to fully analyse their job architecture and pay structures in order to have confidence in their pay equity position. The underlying structures, job evaluation processes and levelling frameworks must all be in place to support pay decisions.
Innovative organisations are investing in technologies that create automated, flexible, future-proofed job architectures that help govern job creation and pay bandings, manage scope creep and provide instant access to job and pay inequalities.
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