Embracing pay transparency in the recruitment and hiring process yields numerous advantages. Employers can attract top job candidates and foster equity and inclusion through knowledge and trust.-By Lisa Trumbull

Pay transparency during the recruitment and hiring process builds trust between the organization and job candidates in the labor market, and also delivers a plethora of benefits. Sharing salary ranges, bonus, and incentive programs attracts serious top job candidates and qualified candidates who appreciate the organization’s culture of openness. Moreover, pay transparency has the potential to reduce wage disparities and recruitment costs, and promote equity and inclusion.

As a global trend, an increasing number of countries are moving towards requiring pay transparency, making sharing salary ranges a compliance issue. As organizations strive to improve diversity and equity and foster a more honest and accountable work environment, the practice of disclosing salary information upfront is gaining momentum.

Openly Sharing Salary Ranges and Other Compensation

The practice of disclosing salary information upfront has gained momentum for many good reasons. Pay transparency, which refers to the practice of openly sharing salary ranges or exact pay figures in job postings, during interviews, or throughout the hiring process, is increasingly recognized as a key strategy for promoting fairness, reducing wage gaps, and improving employee satisfaction.

Traditionally, salary discussions have often been veiled in secrecy. Many employers withhold specific salary figures until the final stages of the hiring process. This lack of transparency has been cited as a significant factor in wage disparities, particularly across gender, race, and ethnicity. Women and people of color, for example, have historically been paid less than their white male counterparts for the same roles. Without transparency, they may not even realize they are being underpaid. This pay disparity is worsened when companies base new salary offers on candidates’ previous pay, perpetuating existing inequalities.

In response to these systemic issues, some countries are introducing legislation requiring pay transparency in job advertisements. The European Union Directive 2023/970 applies to private and public sectors and all job applicants and employees. It establishes requirements for employers to provide information on entry-level compensation during hiring processes, and employees have the right to request and receive information about their pay and average pay levels. In the U.S., there is a growing trend among states to enact laws requiring employers to disclose salary ranges for job postings.

Benefits of Pay Transparency for Employers

Historically, employers have resisted pay transparency, believing it will cause employee problems and harm competitiveness. Now, younger generations of workers support pay transparency as important to their job decisions. This is not surprising, given that they are avid social media users who share information like their compensation. Numerous surveys have found that the majority of Generation Z will not consider a job unless the salary range is disclosed in the job posting.

Communicating the salary range in job postings becomes a recruitment strategy for attracting talent because it eliminates the guesswork about whether the compensation meets applicants' expectations. This transparency saves job candidates and employers time by ensuring that applicants who engage in the hiring process find the salary range acceptable. It also promotes trust in the employer and conveys the message that the organizational culture is based on trust and openness.

Pay transparency is a powerful tool for job seekers, empowering them to make more informed decisions throughout the job search process. By knowing the salary range, candidates can evaluate whether a job is financially viable for their personal circumstances before investing time and effort in applications or interviews. It also equips them to make better decisions about career progression, as they can more easily assess the financial value of various opportunities. This transparency also allows job seekers to engage in more equitable pay negotiations, as they are armed with the same information as the employer, shifting the power dynamic and making the negotiation process less adversarial and more collaborative.

Disclosing salary ranges early in the hiring process streamlines the recruitment process. Candidates who find the compensation package unsuitable will self-select out, allowing recruiters to focus on qualified candidates genuinely interested in the role. This reduces the time spent in negotiations or post-offer rejections due to salary mismatches, making the overall hiring process more efficient. It also allows companies to have more productive conversations about benefits, company culture, and growth opportunities.

Narrowing the Gender and Racial Wage Gaps

Pay transparency plays a crucial role in narrowing the gender and racial wage gaps. When salary ranges are public, there is less room for implicit biases to influence pay offers. Without transparency, employers may unconsciously (or consciously) offer lower salaries to women and minority candidates, perpetuating wage inequality. By making pay ranges visible, employers are held accountable. This benefits those who are traditionally underpaid and contributes to a more equitable labor market overall.

Total Compensation Transparency

When discussing pay transparency during the hiring process, it is crucial to provide a complete view of what a potential employee can expect to earn. This includes both base salary and all bonuses, commissions, stock options, and other incentives. This total compensation transparency presents a complete picture of the role's financial rewards. If pay transparency only focuses on the base salary without considering bonuses, candidates may be misled about the overall value of the position. By disclosing potential bonus amounts, employers offer a more comprehensive understanding of the role’s financial rewards, helping candidates make informed decisions.

However, the employer must be transparent about calculating bonuses and the job performance required to achieve them. It also sets realistic expectations around potential earnings, reducing the likelihood of frustration or dissatisfaction later when the bonus doesn’t match initial expectations. Some bonuses are calculated using complex formulas tied to performance metrics, revenue targets, or individual goals. For transparency to be effective, companies must clearly explain how these calculations work so that employees understand what they need to achieve. Just as pay transparency helps close wage gaps in base salaries, bonus transparency also ensures they are distributed equitably. If bonuses are kept secret, there is room for bias. Transparent bonus structures ensure fairness in how additional compensation is awarded, reducing gender and racial disparities in total earnings.

Pursuing Equity

By ensuring transparency in both base pay and bonuses, companies can reduce wage disparities and attract top talent with a clear and compelling compensation package. This leads to additional benefits like increasing the likelihood of hiring people who will remain with the employer. As more organizations embrace this practice, they contribute to a more equitable labor market while enhancing their reputation as fair and forward-thinking employers. In the long run, pay transparency is not just good for business — it is essential for creating a more just and inclusive society.