Is an Open Compensation Policy a Good Idea?

At some point in their careers, most people wonder if they’re being paid fairly for the job they’re doing. It’s common to speculate about what coworkers make. Companies are frequently sued for discriminatory practices; businesses may be accused of paying one worker a higher wage due to external factors like gender, for example. To increase trust and improve transparency, some companies adopt an open compensation policy. This clearly states what salary to expect at every position. This new-ish concept works for some companies, but it could also backfire depending on how it’s implemented. Here’s what to consider before you implement an open salary policy.

What is an open salary policy?

79% of respondents want some form of pay transparency.

An open salary policy makes salary information for each position public to your employees and the general public. It means posting salary information on job descriptions. Some companies create a spreadsheet that details the pay for each position and share it among the workforce. Some companies go even further with salary transparency at work. For example, social media software company Buffer publishes salary information for all positions. The information also includes the name of the person in that position and the city, state, and country in which they live. This supports one of the company’s core values: “default to transparency.” Salary transparency can be very specific, such as the exact salary of the exact person at a company. It can also be more general, providing a salary range for each role. Some companies are legally obligated to post salary ranges. For example, as of 2022, employers in New York City must include a salary range for any advertised job.

Employee preferences on knowing salary ranges

Most employees want to know, at a bare minimum, a salary range for positions. An April 2022 survey of 1,000 United States full-time employees by Visier found:

• 79% of respondents want some form of pay transparency.
• 32% want total transparency, where all employee wages are public.
• 68% of employees would change employers for greater pay transparency, even if they’d make the same wages.

Research shows mixed results for keeping salaries secret vs. making them available for all workers. When your company doesn’t have an open pay policy, the secrecy could negatively affect productivity. But in some companies with salary transparency, lower-paid workers may be more likely to use unsavory methods to advance their position and earn more. As you consider what would work best for your company, compare the pros and cons of salary transparency and how they might affect your workforce.

What are the pros of salary transparency?

Here are a few of the big advantages that come with an open compensation policy.

Increased equity

When you make salaries public, it eliminates speculation that factors like gender or race influence salaries. Salary transparency can help you diminish wage gaps. It evens the playing field for your employees. For example, AAUW reported in 2021, women still made only 83% of what men earn. Salary transparency can help your business avoid a lawsuit or discrimination accusations.

Better performance

If an employee knows how much more they can earn, they may be more motivated to improve their performance. Hard numbers in the form of an open compensation policy give employees something to work toward.

Streamlined hiring

You could decrease the time to hire and streamline your recruitment process by using an open compensation policy. When a job has a clearly stated salary, applicants know exactly what they’ll make. That eliminates negotiation time. You also know you won't lose talented applicants due to salary since it’s transparent from the beginning of the application process.

Clear career paths

Another potential benefit of open compensation is that your current employees know what to expect along their career journeys with your company. There’s less negotiation required for workers you want to promote. For workers outside your company you’re interested in hiring, clear salary expectations can help you attract and hire them more quickly.

Less speculation

Salary transparency increases, well, transparency at your business. There’s less speculation and guessing by employees. Your workers don’t have to assume the worst because salary information is available to them at any time. That can decrease gossip and negative speculation.

What are the cons of salary transparency?

Open salary policies have some potential downsides, too. Here are just a few.

Lack of privacy

Some workers won’t feel comfortable knowing that their coworkers and the public have access to their salary information. Salary transparency could decrease employee engagement for workers who aren’t satisfied in their roles. Access to salary information could motivate them to look elsewhere.

Data for competitors

Transparent salaries provide information to other employers, including competitors. If another company wants to recruit your employee, they’ll know how much to offer to exceed your compensation.

Reputation issues

If you low-ball your employees, open salary information could tarnish your reputation as an employer. Consumers may be less inclined to buy from you. Attracting top talent could become more difficult for your company.

Retention risks

When you publicize salaries, you also run the risk of disengaging your current talent. For example, you may have a new hire with fewer years of experience who makes more than one of your long-term workers. That long-term worker could feel resentment and look for work elsewhere. Workers who perceive they’re putting in more effort at work than higher-paid workers may also feel resentful and want to leave your company.

Less flexibility

Salary transparency could make an employer feel locked into offering a certain rate, even when an employee brings more to the role than the job description or requires extra training to get up to speed. Companies that want to reward workers with salary increases due to a job well done may feel unable to when a coworker in a similar role would be earning less.

Consider your company culture before you introduce open compensation

Whether you build your company around pay transparency should depend on your unique business culture. For example, the Visier study found Generation Z respondents are much more likely (89%) to be comfortable with salary transparency than baby boomers (53%).

Generation Z respondents are much more likely (89%) to be comfortable with salary transparency than baby boomers (53%).

You can gauge interest in an open salary policy by surveying your employees. You may learn that the majority of your workforce prefers to keep salary information private. If you’re a new business, you may choose to implement open compensation from the start. Continually gather feedback from employees to make sure your policy works for your business. Since open compensation can help or hurt your business, you should track the results of your policy by listening to your employees. When you want to start an open compensation policy, you can use compensation management software to monitor salary data. That helps you ensure you’re offering fair wages for each role so you can stay competitive in a tight labor market.