Pay transparency essentially eliminates the issue of unequal pay. There are definitely benefits when companies are transparent about pay, but there are also some downsides to it.

The Good

1. The potential for employees to be exploited is reduced

A minimum wage has helped eliminate extreme salary exploitation but it still exists. Pay transparency across all industries, functions and levels gives everybody the opportunity to know the market value of their skills, experience and abilities. Pay inequality due to ‘nepotism’ and ‘favoritism’ can also be eliminated if everyone knows what everyone else is earning.

2. Gender and racial wage gaps can be revealed and removed

Whether bias is conscious or unconscious, pay transparency reveals the discrepancies in pay between genders and other demographics. Employers have the opportunity to correct their unconscious bias and employees have the data to confront employers about conscious bias. Transparency brings us one step closer to real pay equality.

3. Stronger cohesion between employees can increase productivity

When employees know their colleague’s salaries (assuming they believe the salary is aligned with their skills, experience and ability) it can create cohesion by aligning performance expectations. Employees on higher salaries should be expected to have a higher work output vs lower paid employees in similar positions. Performance expectations become more aligned and poor performance is not tolerated.

4. Less suspicion between employee and employer helps build a culture of trust

With less reasons to believe they are being exploited or earning less due to favoritism, the trust between employee and employer can increase. Employees become less suspicious of each other and generally the culture of trust can be strengthened by eliminating opportunity for deception.

5. Companies can control the flow of information about their salaries and benefits

Websites such as Glassdoor already provide employees and candidates with the salary levels of their peers. However, it is anonymous, unverified and can be inaccurate, negatively impacting the company’s reputation. If the employer is not transparent about their salaries, someone else will make it transparent anyway. When the employer is transparent, they control their own story and narrative.

The Bad

1. Differences in salary can easily be taken out of context

It’s not always easy to measure performance. Some roles have clearly defined, measurable and relevant KPIs, whilst others do not. Employees are often not aware of the full contribution/performance of their peers and may not understand why there is a pay difference. Without the accurate context of how performance is measured, pay transparency can create tension between employees.

2. Salary transparency may increase competition between employees

Social comparison is present in all walks of life, pay transparency brings it into the workplace and can contribute to a fall in teamwork and cooperation between employees in the same team who receive different salaries. Employees who want to have their pay increased to the same level as their peers can tend to focus on their individual performance rather than the team performance.

3. Personal Data Protection laws might be violated by salary transparency

In some countries, Personal Data Protection laws will restrict what information about their employees a company is able to publicly release. In some cases this includes salary. Companies must thoroughly research what information they can and can not legally release or potentially face their own employees suing them.

4. Your high performers can be the most affected

The squeaky wheel gets the grease. Sometimes the employees who get pay bumps are not the happy, high performing, motivated ones, but the ones who are the most verbal. High performers can often be overlooked specifically because they seem happy and motivated and there is no perceived need to motivate them further with a pay rise. But they quickly lose motivation if they discover they are paid less than their colleagues whom they outperform.

5. Employee jealousy over salary introduces toxic emotions to company culture

Knowing that you are being out-earned by your colleagues can be a constant source of jealousy, especially amongst those who are ‘salary obsessed’. There is a natural tendency to direct the negative and toxic emotions at those who are out earning you rather than at the company itself.