US pushes for pay transparency

Zhao points out that there are other potential benefits of pay transparency beyond narrowing pay gaps. When hiring, for example, being open about salaries eliminates information asymmetries — situations in which a potential employee’s expectations of compensation differ wildly from those of an employer. “Salary transparency can help make the job search more efficient for job seekers and employers, allowing both parties to skip interviews when compensation expectations are too far off,” he says.

In the short term, he believes, increased pay transparency could lead to higher turnover by showing employees what their skills are really worth in the open market; it could give some workers who find they are underpaid more confidence to quit. But in the long run, adds Zhao, a less opaque market will likely lead to less turnover and more stability due to higher retention rates, which will benefit everyone.

No quick fix

However, for all the potential benefits of wage transparency regulation, experts also warn that it should not be seen as a panacea for making the labor market overall fairer.

On the one hand, publishing salary ranges could still lead some groups of applicants – such as minorities – to be offered a salary at the lower end of a set range and other applicants – such as white men – to negotiate a premium salary. In the United Kingdom, where since 2017 all companies with 250 or more employees have been required to publish an annual report on the gender pay gap, some institutions have exploited loopholes to minimize their pay disparities.

Nor is there conclusive evidence of causation: all companies that accurately report their pay gaps are necessarily all more effective at making their workplace fairer and more equitable. “For organizations, this could be a catalyst for positive change,” says Mabel Abraham, associate professor of business at Columbia Business School in New York. But the reality, she adds, is that this will not uniformly lead to the closing of all pay gaps and the eradication of inequalities. Moreover, the closing of a pay gap should never be taken as a perfect indicator of creating a more equitable workforce.

Abraham’s ongoing research shows that one of the biggest predictors of whether or not a company will close a pay gap is whether leaders have actually taken the time to understand why a gap exists in the first place. “Those who do are significantly more likely to improve — or narrow — the gap,” she says.

Organise’s Draganova agrees. “[Salary transparency is] a step in the right direction and may well help solve long-standing issues of equal pay and fairness among workers,” she says, “[but it’s] is only one piece of the puzzle – on its own, it cannot guarantee a good workplace for employees or a successful business for employers.

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