As of 2022 New York-based businesses join a growing number of locations where companies are required by law to disclose salaries on their job postings. With Colorado already on board and Washington to implement the new legislation by 2023, it is expected that others will soon follow suit.
The amendments were proactively embraced by Microsoft, stepping up to publicly disclose pay ranges in all their internal and external job postings across the U.S.
The move is welcomed by employees and job-seekers and supported by some employers. However, many businesses are not as enthusiastic as Microsoft about the mandate. In New York, the new bill is already facing backlash from private employers.
Without a legal push, relatively few companies are keen on offering pay range information to potential candidates. According to Payscale only 12.6% of global companies published pay ranges in job ads in 2021.
Numerous studies have shown that salary transparency benefits employees, new applicants and businesses alike, so why are so many still on the fence about disclosing this information, particularly in their job adverts?
Why companies keep pay information off job adverts
When a company includes pay on a job advertisement it opens itself up to pressures of external competition but also to scrutiny by its current employees. There are several arguments companies use to defend salary secrecy in its various forms. Some claim that such disclosure on job adverts would lead to issues such as:
- Negative social comparison and poor employee relations
- Lower job satisfaction and decline in productivity
- Competition pressure resulting in greater difficulty in (and cost of) acquiring or retaining talent
- Limits to employee or applicant’s bargaining power
Traditionally, most companies kept pay ranges firmly under wraps, while discouraging employees from discussing the topic among themselves and outside of work, and many still do. Many argue that any form of salary disclosure could trigger negative social comparison, tensions or resentment among existing employees. They worry this may lead to lower job satisfaction, decreased productivity and perhaps prompt some resignations. Some related studies have indeed shown reduction in job satisfaction and greater likelihood of resignation. However, it is worth mentioning that those negative outcomes, rather unsurprisingly, came mainly from the relatively underpaid employees.
Another issue companies worry about is competition and increasing cost of acquiring new talent. In the past (and in many places today), this cost was offset by keeping salary info undisclosed. Instead, prospective hires were commonly asked to disclose their last income. Luckily this bad habit is fast going out of style. Keeping applicants in the dark about what the company is willing and able to pay limits the applicants’ (while maximizing employer’s) bargaining power.
Armed with information about a candidate’s prior earnings (or the level they are aiming for), hiring managers often managed to acquire new talent for less than their worth. They could, for instance, present an apparent advantage by offering a fraction more for twice the responsibility, along with a promise of “advancement opportunities”. Sadly, in many companies this “advancement” is often only apparent in title, with remuneration rarely even meeting the rate of rising cost of living for many long-term employees. In other words, company cost savings were maximized but employee benefits, in many cases, merely symbolic.
Keeping salaries off job adverts only helps mask and perpetuate the serious issues it claims to prevent.
The vicious cycle of salary secrecy
We have talked with dozens of companies about their experience and views on salary transparency and identified a vicious cycle that keeps both, companies and employees, stuck in a loop of unrealized potential.
In this loop pay increases for established employees are kept to the bare minimum, meaning that loyal employees are being paid less than their current market worth. Salary disclosure on job adverts would challenge the status quo. Companies don’t want employees to complain about their income or draw their attention to any odd gaps so they’d rather omit salary disclosure altogether. This also ensures competitors and prospective hires are kept in the dark on remuneration, allowing the company ample leeway on negotiations and offers.
Underneath all the debate on the pros and cons of salary transparency lurks one simple but undisputable fact: that an employee and any new applicant may be willing to work for less than what the company is actually able and willing to offer. Companies are reluctant to let this perceived advantage go.
“There’s definitely a mindset that the job of recruiting and hiring is to bring in the best person at not a penny more than needed. And the best way to do that is don’t tell them how much you actually have available.” (Katie Donovan, founder of consultancy Equal Pay Negotiations as quoted in this article in CNN))
The “loyalty discount” trap
On the most basic level, employers want to get and to keep top talent at lowest possible cost. But costs have a habit of increasing so, to offset the ever-rising expense of acquiring new talent, companies rely heavily on “loyalty discount” with their established employees.
” When the worker started 10 or 20 years ago, the salary was relatively low. With only 1% to 2% raises per year, coupled with inflation, the loyal employee’s compensation will be far under the amount of someone who regularly switches jobs receiving a 10% to 20% increase for each move.”
Jack Kelly — Forbes
Capped pay increases
Amazon has recently announced updates to the base salary cap for select positions at higher and more considerable rates than they have done in the past. Outside of Amazon however, salary increases are capped rather narrowly.
Pay ranges generally increase by around 3% every year, adjusted for market evolution and rising cost of living, while the budget that companies allocate to individual increases is around 4–5%. This means that, compared to the updated range, employees receive only 1 or 2% in actual increase. If the upper band of a salary range is 25% more than the lower band, it means it would take more than 10 years on average for an employee to go from the lower to the higher band.
On average, a person’s starting salary doubles by the time they cross the 10 years experience mark. This is much more than the 4–5% that people get if they stay at the same company. This creates a “loyalty discount”, where people who just joined a company are paid more than employees at the same level who have been in the company for years.
In an article for the BBC, Eddy Ng, the Smith Professor of Equity and Inclusion in Business at Queen’s University, Canada mentioned “Employers don’t want to publicize how much they pay, in part, because it’s going to create resentment among organizational members”
In fact, data suggests that 75% of companies not open to publishing pay ranges on job adverts believe they are preventing salary disputes. This raises two issues: why is there so much room for such dispute and what’s the cost of keeping it secret?
Hidden cost of “loyalty discount”
“Loyalty discount” may sound like an easy way for companies to save money, but the reality is much different. For one thing, secrets have a habit of emerging and, when that happens, any gaps and discrepancies will result in dissatisfaction, tensions and losses.
A study by Payscale revealed that employees at companies with no salary transparency were 183% more likely to leave than employees at a workplace that shared this information.
A separate 2021 survey suggests that “job listings which include a salary range got 75% more clicks than job listings that don’t”. Fewer applicants means fewer hires and a bigger need for external recruitment agencies, which costs around 20% of the annual salary per hire.
Even if a company successfully obscures salaries their competitors may opt to disclose theirs, causing loyal but undervalued employees to leave in search of better opportunities.
In other words, loyalty discount nested inside salary secrecy is a ticking time bomb. More than just being unfair on established employees, it also fosters other serious discrimination issues such as the gender pay gap.
Impact of salary range secrecy on gender pay gap
Is the gender pay gap still a thing? According to this paper, in the USA, a woman earns around 77 dollars for every 100 dollars earned by a man.
It is even more acute when broken down by race or various other discriminatory socioeconomic slots.
“While white women in the U.S. on average earn 79% of what white men make, black women earn 63% of what white men make, Native American women bring in 57%, and Hispanic women — 54%, according to a 2018 report from the American Association of University Women.”
Salary secrecy does not cause the gender pay gap, but it very likely perpetuates the issue.
“A hypothesis gaining traction among academic researchers and policymakers is that the gender gap in earnings persists, in part, because it is hidden (Trotter et al., 2017)” (“Pay Transparency and the Gender Gap”, NBER Working Papers)
Entrenched practices, stereotypes and gender bias all add up to women often being shortchanged during hiring (and employment in general) compared to male counterparts.
Social change and mentality shifts take time. On the other hand, disclosing salary information on job adverts can be accomplished today. Over time this can help change the narrative, weeding out gender bias and stereotypes and fostering equal and fair pay.
In fact, various studies confirm that greater salary transparency reduces the gender pay gap by up to 50 percent.
Key benefits of publishing salary ranges in job adverts
Studies have found that salary disclosure has numerous and lasting benefits for employees and job seekers but also employers and overall company performance. Some of the key benefits for employers or companies include
- Faster hiring process — you get 75% more clicks on job ads that contain salary range information
- More effective hiring thanks to better job matching and greater number and diversity of applicants
- Improved talent retention
- Notable and long-lasting productivity boosts
There are many benefits for the applicants and employees, such as:
- More effective job search and selection
- Reduction in unemployment spells
- More successful pay negotiations
- Narrowing gender pay gaps and other entrenched discriminatory practices
- Ultimately, greater job satisfaction
Salary range transparency on job adverts fosters informed decision making, fair negotiations and helps set clear expectations.
We believe this will ultimately lead to more productive, stable and mutually beneficial relationships between companies, their hiring prospects and existing employees.
“In the longer run, it is possible that making information on salaries available may lead to endogenous changes in wage-setting policies and employee composition that ultimately affect the distribution of wages” (From: Inequality at Work: The Effect of Peer Salaries on Job Satisfaction)
Take the next step
If your company is including salary ranges in their job postings, you can help by signing the Salary Range Transparency Pledge: https://jobwiz.net/pledge.