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Salary Transparency in the Workplace: How it Affects Recruitment and Retention

In Human Resources — by Samantha Stauf

office building at night

Let’s break the wall of silence and talk about salaries. How much employees are paid is vitally important to a company’s bottom line. Pay employees too much, the company might not be profitable enough to stay financially viable. Pay employees too little, the company may have a hard time retaining employees.

Determining the right level of pay for the various positions within a business is a balancing act. In order to stay afloat, managers must successfully decide what they can afford to pay for talent, how pay attracts talent, and how much of a raise employees are granted on an annual basis.

Once those wages are determined, then there’s the question of whether companies should make them public – both to external applicants and among current employees. There’s no clear-cut answer, so let’s explore the different perspectives on salary transparency in the workplace and in job ads.


Should You Post a Starting Salary Range?

Career expert Liz Ryan, founder and CEO of Human Workplace, submits that including a salary range with every job ad is the “sensible and ethical” thing to do. She asserts that this practice is beneficial to employers and applicants alike. “That way, people who don’t want the job at the salary you’re willing to pay won’t waste their time and your time applying for the position.” While she makes a great point, it’s not always that cut-and-dried for many companies.


NO:

There’s a small chance that by including a salary range in your job ad, you lose out on qualified candidates who are seeking a higher salary than the one posted. If you’re willing to go higher than you originally budgeted in the event that the perfect candidate – a bonafide purple squirrel – comes along, including salary information may not be in your best interest. An advertised wage can be interpreted as This is the wage, take it or leave it, we don’t negotiate.

YES:

If the wage your company offers employees is higher than average within your industry or region, you can leverage that to encourage high-performing candidates to apply.

Additionally, if hiring for diversity is a priority, posting a salary range with your job opening is an excellent way to boost your efforts. Women are far less likely to negotiate salary, which contributes to the wage gap (currently, women earn 79 cents on the dollar compared to men). Linda Babcock, author of Women Don’t Ask: The High Cost of Avoiding Negotiation – And Positive Strategies for Change, found that while 46 percent of men always negotiate following a job offer, just 30 percent of women do. By broadcasting a salary range up front, you’re effectively leveling the playing field.

[Tweet “46% of men negotiate salary, compared to 30% of women”]

MAYBE:

Jobs with a posted wage get a higher application submission rate. In their study Wages, Job Queues, and Skills, economists Ioana Marinescu and Ronald Wolthoff found that job openings with a posted wage received 7.8 percent more applications than job openings without wages. After social media sharing app Buffer made its salary formula, as well as its employees salaries, available for anyone and everyone to see, applications soared. They received 2,886 applications in the 30 days following its disclosure of salary information – more than double the 1,263 applications they’d received the month before.

More applications could very well mean a higher possibility of finding the right employee. It could also mean a lot more time screening resumes in search of the right employee. Even with the resume-parsing power of an applicant tracking system, if you double the number of applications you collect, you’re inevitably going to have to spend more time reviewing them.

Plus, broadcasting a salary with your job ad won’t necessarily affect the caliber of candidates you receive. In their study, Marinescu and Wolthoff found that there was no relationship between posting a wage and the quality of applicants. They speculate that applicants take other cues from the company or the industry to determine the likely salary range. With resources like Glassdoor, Salary.com and PayScale.com, this information isn’t difficult to deduce.

[Tweet “Job ads that include a salary range receive 7.8% more applications than job ads that don’t”]

The way I see it, it boils down to this: If you have a firm idea of the price you want to hire someone for and aren’t worried about missing out on hidden gems, I would recommend that you do post salary ranges. But if you want the potential to net an exceptionally well-qualified candidate who’s over-budget but would do wonders for your company long-term, I would recommend not posting a salary range.

Should You Have Salary Transparency?

Remember the first rule of Fight Club? You don’t talk about Fight Club. Similarly, one of the main (though usually unspoken) rules among workers is that you don’t talk about salaries. Salaries are important to people. Earnings affect lifestyles, daily choices and even identities.

NO:

If employees discover that someone makes more than them they may begin to wonder Why don’t I make that amount? How is that fair? That can be a hard conversation for the manager to have, and a hard concept for the employee to swallow. Too many instances of this may negatively affect a company’s vibe and lead to high employee turnover.

Salary transparency can also make it difficult for companies to onboard purple squirrels who are hired at a higher-than-normal rate. Most employees have no way of knowing every detail of a candidate’s background, they don’t know the full range of their skills, and they weren’t present for the interview. It can be hard for them to fully understand why the new kid on the block was paid more.

YES:

You know the saying “Rules are made to be broken?” Well, that’s especially true with unspoken rules. People talk. And sometimes that talk involves salary. And then talk, as it does, spreads. And before you know it a good deal of the office knows Bob is making more than Bill. And everyone’s wondering what the heck the hiring managers were thinking.

How does management prevent that sharing of information? You can write it into a contract, but then again it’s not really enforceable. And trying to do won’t have a positive effect on the company in the long-run. After the first known offender is punished, employees will develop a mistrust of management and know they have to surreptitious when exchanging information. You’re unlikely to hear any complaints, but it will ultimately affect your ability to retain employees.

Furthermore, knowledge of colleagues’ wages can actually encourage high performers to stay, especially if your company doesn’t pay as much as others within the industry. In their study Who Leaves, Where to, and Why Worry? Employee Mobility, Employee Entrepreneurship, and Effects on Source Firm Performance, business professors Benjamin Campbell, Martin Ganco, April Franco and Rajshree Agarwal found that employees often weigh pay differentials among their coworkers more heavily than differentials in the labor market. If high performers know they earn more than their lower-performing co-workers, it “increases employees’ perceptions of distributive and procedural justice.” It makes it clear that they are valued. That validation can help companies retain their superstars a little longer.

[Tweet “Employees often weigh pay gaps among their coworkers more than pay gaps in the labor market”]

Ultimately, salary transparency hinges on the ability of management to make fair decisions concerning salary and raises. Before adopting salary transparency in the workplace, companies should ensure that they quantify what actions and attitudes will earn the percentage of the set raise given each salary review period, and communicate this to employees. Companies should also develop satisfactory guidelines for employees to challenge a review decision.


Salary matters. How you talk about (or don’t talk about) salary in job ads and within the day-to-day operations of your company can have a direct effect on your ability to recruit and retain employees. Carefully consider your company’s culture, seek input from employees, and decide whether salary transparency in the workplace is the right choice for your organization. An informed decision can allow you to tap into your company’s hidden potential.

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