Companies today face a growing need to reimagine traditional workplace practices amid labor shortages and evolving employment regulations. As the workforce landscape evolves and expectations shift, organizations are discovering that maintaining a competitive edge goes beyond the usual perks and benefits.

Pay transparency has emerged as a powerful tool for fostering employee trust, engagement and long term commitment. By removing any secrecy around compensation, organizations can cultivate a work environment that attracts top-tier talent and nurtures a sense of fairness and equality. In turn, this can increase employee loyalty and satisfaction. However, implementing pay transparency can be a significant change, creating unintended consequences if employers are not careful. As a growing number of states and localities embrace pay transparency, it’s likely that more employers will be affected over the next few years.

More than 1 in 4 workers are currently covered by pay transparency laws, according to the National Women’s Law Center. That number is expected to rise with both Hawaii and Illinois expanding pay transparency legislation in 2024 and 2025, respectively.

The Rise of Pay Transparency

Pay transparency is the practice of openly sharing pay-related information with current and potential employees. This information generally includes the pay scales or salary ranges for specific positions. Pay transparency aims to help ensure fairness and equity in the workplace by giving employees and applicants a better understanding of how they’re compensated compared to other positions and individuals. Employees value pay transparency because it can help them avoid applying for positions they wouldn’t accept due to low pay, negotiate for better salaries and build trust with their current employers.

Pay transparency is not just a passing trend. This practice has risen significantly in the past year, partly driven by more states and localities enacting pay transparency laws. As of October, eight states (including Colorado, Connecticut, Maryland, Nevada, Rhode Island, Illinois, California and Washington), five cities and one county have pay transparency laws in effect. Additional states continue to consider salary range transparency laws, and, most recently, some states’ new laws will go into effect in the new year and beyond.

• Hawaii—The pay transparency law will require employers with 50 or more employees to include the hourly pay rate or salary range in job listings. It became effective Jan. 1, 2024.
• Illinois—The pay transparency law will require employers with 15 or more employees and who make job postings to begin including pay scale and benefits disclosures on Jan. 1, 2025. Furthermore, some states are expanding their legislation.
• Colorado, the first jurisdiction to enact pay transparency laws regarding job postings, will expand pay transparency with a new amendment taking effect on Jan. 1, 2024. This amendment clarifies how the state’s pay transparency law applies to employers with only remote employees in Colorado. It also redefines job opportunities subject to the notice requirements and enacts additional requirements for job notices.

Although more states and localities are enacting pay transparency laws, salary visibility is also increasing in areas without such pay disclosure requirements. Combine these factors, and it’s easy to see that pay transparency is here to stay. As such, employers— whether impacted by laws or not—can work to understand the complexity of pay transparency and how it can align with the organization’s goals and objectives.

Nearly 44% of U.S. job postings on Indeed now include employer-provided salary information—that’s an increase of 137% in the past three years.

Attracting and Retaining Employees

Several aspects of pay transparency can benefit employee attraction and retention. First, pay transparency can help attract more talent since candidates want to know their pay expectations are realistic within a role’s pay ranges early in the interview process. Such transparency can also provide a better candidate experience, which keeps them engaged in the recruitment process and fares well for an employer brand. A potential drawback of pay transparency for attraction is that the candidate pool can actually be reduced if pay ranges are not competitive enough.

From a retention standpoint, pay transparency also has its benefits. Workers who don’t believe an employer’s rationale for denying a raise or aren’t told a reason for the denial are likelier to quit. A survey by compensation software company Payscale found that 72% of workers who don’t believe in their employers’ rationale, and 71% who were given no reasoning plan for seeking new jobs outside their company in the next six months.

When workers perceive their pay as equitable, they are more likely to be satisfied with their employer and engaged in their work. Employers should also consider any downsides of pay transparency for their current employees, such as workforce envy or poaching. Employees may become jealous or resentful of their colleagues’ salaries when that information is out in the open. Other companies may also try to price competitive job offers to poach employees once they know an organization’s pay range.

Employer Takeaways

Pay transparency is not a passing trend and is likely to increasingly impact employers and employees nationwide over the next few years. As a growing number of states and localities embrace pay transparency, it’s likely that more employers will be affected over the next few years. Even if employers are currently unaffected by pay transparency mandates, they must begin developing strategies to address this issue since pay transparency likely already impacts them directly or indirectly as they compete for talent.

Fortunately, pay transparency benefits employers and workers alike, and organizations may see those reflected in their employee attraction and retention efforts. There are pros and cons to any workplace strategy or policy, so it’s important for employers to keep tabs on candidate and employee sentiments about pay transparency. Employers should also be cautious before making any significant organizational changes and be thoughtful about how they roll them out.

Most job seekers (85%) are more likely to apply for a job that lists a salary range, according to a ResumeBuilder.com survey

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