How Pay Transparency Extends The Pay Equity Agenda

What organizations need to do to pave the way for equity

Pay transparency, in various forms, has been getting much attention recently. In the United States, new regulations from state and local governments require organizations to disclose salary ranges in internal and external open job postings. 

The European Union has also adopted new pay transparency rules, which will be enacted in 2026. This regulatory shift toward pay disclosure and increased transparency follows increasing public support for these rules and shifting social attitudes around pay practices, particularly from younger workers who, unlike earlier generations, have fewer qualms about pay disclosure.  

More importantly, these regulatory changes seek to promote a more level playing field amongst job applicants so that past pay inequities are not perpetuated. New York Governor Kathy Hochul stated as she signed New York's pay transparency legislation into law this year: This historic measure will usher in a new era of fairness and transparency for New York's workforce and will be a critical tool in our efforts to end pervasive pay gaps for women and people of color.

Although the recent surge of laws may seem sudden, pay transparency is connected to a long history of regulatory efforts to encourage fairness and equity in employment and pay practices. Like pay transparency, laws to ban policies prohibiting employees from discussing their pay and banning employers from asking about salary history in applicant interviews seek to create a fair and equal playing field between employers and workers.

In a perfectly competitive market, both parties in a negotiation have access to the same information to arrive at a fair outcome that optimizes success for each. Regarding employment, particularly salary negotiation, market dynamics are not balanced because employers often have much more information at their disposal than applicants. Organizations spend thousands of dollars on compensation market surveys, employ teams of compensation professionals, ask candidates about their prior salaries or salary expectations, and discourage or prohibit pay discussions. In negotiations, the side with more information usually obtains more favorable outcomes.  Imagine trying to buy an automobile without access to pricing information and having to visit multiple dealers to negotiate an agreeable price for both buyer and seller. Salary range transparency optimizes the buyer and seller’s efficiency and effectiveness.

Despite the heightened attention to this topic and the intense scrutiny organizational pay practices are getting, recent Korn Ferry research of HR and Total Reward leaders found that few organizations have actually acted on pay transparency. Korn Ferry's 2023 Pay Transparency Survey (fielded in April 2023) of over 2600 global participants found that only 12% of organizations worldwide have implemented a pay transparency strategy, while the vast majority continue to wait or review their options as organization practices and the legislative environment evolves. US practices are consistent with this, with 17% of organizations having implemented a transparency strategy.  Large publicly traded companies have made greater strides in making their pay practices more transparent, while smaller and privately held firms are lagging behind these average adoption rates. 

Why Are Companies Waiting to Act?

Our survey found a mostly positive perception of the rationale for pay transparency, with respondents agreeing that the measures will benefit applicants (82% agreed), current employees (65% agreed), and the organization's mission and vision (63% agreed). Other research finds that worker expectations are changing, and candidates expect to see salary ranges posted in job ads. A lack of transparency could hinder an organization's ability to attract and retain top talent across all worker generations.

HR and Reward leaders have mixed opinions about the impacts of pay range transparency. An overwhelming majority believe pay transparency will reduce pay inequities (84%). However, at the same time, half of all organizations (50%) believe pay transparency will cause disruptions in the perceptions of pay equity among existing employees. This paradox between long-term positive benefits and short-term internal pain of pay transparency highlights why many organizations are likely waiting to act. Employers recognize the long-term benefits of more robust, consistent decision-making processes and more equitable and consistent pay outcomes. However, exceptions and disparities are easier for management to handle with less transparent practices. Reduced flexibility and agility in pay administration have many organizations holding off until new regulations force their hand. Recognizing this tradeoff, 61% of organizations say pay transparency will cause them to rethink the balance between manager discretion and structure in making pay decisions.

These new transparency laws have also forced organizations to open up and communicate broader aspects of their reward programs, such as their overarching compensation philosophy, market pricing, job grading, and compensation administration frameworks that may have historically been black boxes to managers and employees. Another reason organizations are holding off on implementing pay transparency strategies is that they fear that revealing more details about their pay practices could lead to uncomfortable questions from employees, for which they may not have a credible response. The change will take time to align leaders, equip managers and effectively communicate with employees.

Reward Strategies to Be Reshaped

Open and candid conversations about pay will be a significant cultural shift in most organizations. A history of policies and practices discouraging discussion of pay has made many managers and employees woefully underprepared and uncomfortable in these conversations. As recently as 2020, an Indeed survey found that 21% of workers feel uncomfortable discussing their pay, and 14% are afraid of being punished by their superiors, even though under the National Labor Relations Act (NLRA), most workers are protected and allowed to discuss their terms and conditions of employment, such as their actual compensation. Talking about pay has been taboo in the workplace for so long (particularly with older workforce generations) that transparency has to start at the top with leadership skilled and knowledgeable to provide the psychological safety required to have conversations about pay.

The good news is that most organizations (72%) plan to overhaul their reward communications strategies because of pay transparency, with manager training (70% of organizations) and employee education (66% of organizations) as the primary areas of focus. Managers play a critical role as the first line of communication with employees on their team, and organizations recognize that a significant upskilling effort will be needed to enable them to communicate effectively about pay decisions.

Tom McMullen is a Senior Client Partner, Total Rewards, at Korn Ferry. Tom is accountable for global total reward solution design, thought leadership, innovation and capability development initiatives. His consulting work focuses on developing organization effectiveness and total reward programs including rewards strategy, incentive and performance management systems, work measurement and organization structure design.  He is a leading speaker on total rewards and HR effectiveness issues.

Josh Dahle is a Senior Consultant with Korn Ferry based in Des Moines, Iowa. He has 10 years of experience as an HR and total rewards practitioner and consultant. His consulting work focuses on developing compensation and rewards solutions and advancing the use of analytics and data storytelling. Previously, he worked as an HR practitioner and rewards leader in the healthcare and manufacturing industries.