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If pay transparency is not closing pay gaps – why even considering it?

Aktualisiert: 13. Okt. 2022

Author: Sarah Maximilian, Pictures: unsplash


In 2021, an Austrian based institute for market research conducted a survey with focus on compensation satisfaction and pay transparency and found out that most of the German (64%) and Austrian (70%) workforce is satisfied with their salaries. Nevertheless, many still wish for more transparent and innovative compensation models. They would like to link pay to performance and at the same time take into account rather subjective factors that are not easy to measure, such as creativity or team spirit.


More than half (56%) of the German and Austrian employees would also like a discussion about compensation models in an effort to reduce salary injustice. They assume that more transparency will lead to reducing or even closing the gender pay gap. As to compensation and career opportunities, more than quarter of those surveyed assume that men have a clear advantage over women, though only 32% know the salaries of their colleagues. With those presumptions about other employees’ salaries in mind, participants believe that transparency will have overall a positive impact on one’s own compensation (32%).


 
Benefits of Pay Transparency

Transparent process

  • Leads to a better understanding about criteria that determine salary levels

  • Leads to a higher sense of justice and fairness

Transparent internal salary levels

  • Reduces myths and gossip about injustice

  • Strengthen trust between employees and employer

  • Prevents to some extend negotiations and demands for excessive salary increases

Transparent financial situation of employer

  • Creates an understanding what might be financially feasible for their employer

  • Reduces speculations that individuals can bargain for higher compensation to other’s disadvantage

Salary ranges in job posts

  • Positive impact on the employer brand, with a clear and strong communication towards candidates

  • Reduces negotiations and time to hire, as salary expectations are shared early on


 

So, what’s the deal with pay transparency anyway?


A strong argument for more transparent salary processes is that employees can make better sense of the compensation philosophy and their own mix of reward elements. Employees seek for answers how their own work and contribution is being valued and compensated compared to their internal and external peers. If companies provide clarity about their salary processes and can deliver their intentions right, employees will obtain a wider understanding of the salary levels and the reward structure in their organization. This may sound easier said than done. And in reality, a solid process and best intentions might be overshadowed by many historic exceptions, favorism and biased treatments by leaders, as well as an unbalance in salary distributions caused by inherited salary decisions.


Transparency opens the door for more participation and creates a better balance in the partnership between employee and employer. But will this also lead to perceived fairness by employees? And more importantly, will transparency lead to a run for salary corrections and alignments, and with that, ultimately to equal pay? Andreas Gulyas, Professor at the University of Mannheim (Germany) claims that pay transparency does not automatically affect gender pay disparity. In his recent study, soon to be published in the American Economic Journal: Economic Policy, the effect of pay transparency was examined among Austrian companies with more than 150 employees. With the intention to reduce gender pay gaps, Austrian companies of that size, are obliged to be more transparent about their salaries by publishing their salary data internally. Gulyas compared them to smaller businesses that are not required to prepare income reports. He found out that pay transparency has no effect on the gender pay gap, nor on renegotiating one’s own salary, whatsoever.



The first thing that comes to mind is that transparency alone does not automatically lead to action. Companies often fear that disclosing salary data may increase costs and cause discontentment, or even envy, among its employees. But are those hesitations based on actual experience or are they just fearful anticipations in order not to rock the ship? And if so, what can be done about it?


Gulyas purports that gender disparity, cannot be fixed by pay transparency alone. Pay gaps also ensue because women tend to work for lower-paying companies, possibly because they lack adequate networks. If employers share salary ranges publicly, women attain more adequate means of comparison and are better prepared when entering salary negotiations. Thus, companies exposed to critical scrutiny, may very well be compelled by public opinion to correct their salary allocations. Another approach could be urging employers to react to salary discrepancies between the genders. Nowadays, a woman facing an unjust remuneration is forced to renegotiate, but several studies have shown that women are more reluctant to take risks during salary negotiations and only take the initiative if the pay gap is sizably unjust. Instead of sending women to negotiation trainings to toughen up in salary converations, do we not - as a society - want to fix the problem collectively instead of leaving this responsibility to "few" individuals?


Gulyas also wonders whether the implemented pay transparency measures failed to reduce the gender pay gap, simply because within Austrian enterprises, the pay gap was not very large in the first place. The internally published salaries displayed those "smaller" gaps to the employees and so eradicated preconceptions about unfair wage distribution. Apart from that, one doesn’t automatically stay or leave the company because of the salary, anyway.


This study shows that simple pay transparency, as a political measure, is not closing gender pay gaps automatically. However, pay transparency can be considered a first and important step towards equal pay. In the end, pay transparency should be considered as an organization’s own journey, which requires the right motive and execution to create an impact. Eventually, besides the attempt to reduce inequality, it will significantly reduce rumours about unjust salary decisions and also prevent excessive compensation. If in fact employees get to understand their employer’s compensation philosophy, and the salary processes clearly, it can water down speculations about those presumed enriching themselves at the expense of others and at the same time discourage excessive salary demands.


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