The Complicated Effects of Pay Transparency | Harvard Business Review

Workforce Trends

Pay transparency continues to be a hot workplace topic as various laws are enacted to increase the visibility of organizations’ pay practices. While there are varying levels of pay transparency—ranging from openly sharing information about an organization’s pay scales and compensation policies to allowing employees to see the pay of their co-workers—one goal of pay transparency is to promote greater fairness and equity in the workplace. This new article addresses empirical studies suggesting that pay transparency—while removing inequities—can have unintended and undesirable effects if not managed effectively. These potential impacts include: 1) lowering the overall compensation of the broader population of employees, even though it elevates pay for the inequitably underpaid, 2) pay that is flatter, more equal, and less performance-based, 3) top performers being more likely to exit, as they search for organizations more willing to reward their higher performance. With this as the backdrop, the authors note, “how transparency is enacted, therefore, is critical to ensuring that the organization and its employees all benefit from it.” HR leaders and their teams will need to think through how they help their organizations use pay transparency to generate greater fairness in pay while reducing its unintended impact on other important outcomes. As a bonus, you can also check out the HBR article, The Unintended Consequences of Pay Transparency.