The Real Effects of Pay Transparency in Business

Employee compensation has traditionally been shrouded in secrecy. Salaries were rarely discussed in polite company, and employers did not disclose their compensation for job openings until making an offer.

But a series of rapidly expanding laws requiring employers to post salary ranges and prohibiting questions about salary history are offering more pay transparency than ever before, creating a foundational challenge—and opportunity—for company leaders.

Seminal events including the #MeToo and Black Lives Matter movements and the COVID-19 pandemic shined a brighter spotlight on the long-standing pay inequality experienced by women and minorities in the U.S. That led to a flurry of new laws in states and localities that—in an attempt to help end pay disparity—now require organizations to provide salary ranges for open positions. 

“Since wages have been set under a realm of secrecy, when the curtain is lifted, you would expect wages to rise,” says Zoe Cullen, an assistant professor of economics at Harvard Business School. “Why? Because everyone has been negotiating individually. When people who are paid less than their peers suddenly discover that, they will want to renegotiate their salary.”

But three years after those first state laws passed, is the movement accomplishing what it set out to do: shrink the gender pay gap?

The Power of Pay Information

In 1963, Congress passed the Equal Pay Act, protecting women from wage discrimination on the basis of sex. Sixty years later, women in the U.S. still earn only 82 cents for every dollar earned by a man, and the wage gaps for Black women (70 cents) and Hispanic women (65 cents) are even wider.

Research on the wages of remote workers reveals an even more alarming trend: A recent Payscale report indicates that the gender pay gap is 10 cents wider for women who work from home (79 cents) compared with women who do not have the option to work in person (89 cents). Put in perspective, the average woman stands to earn approximately $900,000 less than the average man over the course of her career due to her gender alone.

Enter pay transparency laws.

Multiple states and localities enacted laws in recent years that cover both prohibitions against asking job candidates about their pay history (or basing job offers on that history) and laws requiring employers to post—or reveal upon request—a salary range for specific positions within their companies.

“Information is power, obviously, so if pay transparency laws require salary disclosures, it gives women information on what the marketplace says about what a position is worth,” says Lynne Marie Finn, CEO of Broadleaf Results, a global workforce solutions company in Williamsville, NY. “It helps people decide whether they want to apply for a position, and it gets them information relative to what they’re currently making.”

Finn adds that research indicates women are less likely to negotiate their salary upon receiving a job offer and less likely to ask for a pay raise. “Having knowledge of what the market bears will enable women to better negotiate for themselves,” she explains.

Although Maryland began requiring employers to provide job applicants with salary ranges for open positions upon request in January 2020, Colorado was the first state to require employers to publicly post salary ranges in January 2021. Connecticut, Nevada, Rhode Island, Washington, California, New York and Hawaii followed, bringing the current number of states that require employers to post or disclose salary ranges for open positions up to eight. Illinois has also passed a statewide pay transparency law to be implemented in 2025. The District of Columbia and an additional 15 states—Alaska, Georgia, Iowa, Kentucky, Maine, Massachusetts, Missouri, Montana, New Jersey, Oregon, Pennsylvania, South Dakota, Vermont, Virginia and West Virginia—are considering pay range transparency bills.

Information is power, obviously, so if pay transparency laws require salary disclosures, it gives women information on what the marketplace says about what a position is worth.”
Lynne Marie Finn

According to a recent SHRM survey, 42 percent of HR professionals said their organization operates in a location that requires pay ranges to be included in job postings. When not required by law, however, more than two-thirds of those surveyed (67 percent) said their organization voluntarily lists starting pay in their job openings sometimes, often or always.

Salary Transparency Growing Pains

With these new laws, however, the devil can be in the details. For example, the salary ranges required in the eight states with pay disclosure laws currently on the books provide a lot of wiggle room. The recently enacted New York state pay transparency law, for example, states that “the range may extend from the lowest to the highest hourly wage or salary that the employer in good faith believes at the time of the posting it would pay.”

That “good faith” provision has its detractors, particularly when some companies post ranges that strain credulity. “I’ve seen organizations being called out on posting ridiculously wide ranges that are the equivalent of not having a range at all,” observes Garry Straker, senior compensation consultant at Salary.com, a compensation management company headquartered in Waltham, Mass.

Lulu Seikaly, senior employment counsel at Payscale, a compensation data company in Seattle, recounts seeing a company post a range of $90,000 to $900,000 for an advertised position. “I would put a lot of money on a million-dollar spread not being a good-faith range,” Seikaly says. “When I looked closer at the job posting, I saw that the stated range took into account total compensation. Well, that’s not the law. The law says that you need to post base salary only. The intention of the law is to allow candidates to come into a level playing field to negotiate their base salary.”

Posting remarkably wide pay ranges may not just be off-putting to job seekers; it can also stir discontent with incumbent staff. A post that went viral on X (formerly Twitter) read, “My company just listed on LinkedIn a job posting for what I’m currently doing… and now, thanks to salary transparency laws, I see that they intend to pay this person $32K to $90K more than they currently pay me. So I applied.”

Finn says some companies are having trouble figuring out how best to bring their policies in line with the new regulations. “Most companies don’t seek to actively violate the law,” Finn says. “They don’t want to get caught not complying, and they don’t want bad publicity or a negative impact on their brand. As with any new law, it’s going to take time for people to get comfortable with it.”

Still, noncompliance has hit some companies hard, leading to hefty fines and poor publicity.

“We’re hearing some companies saying, ‘We’re just going to roll the dice because we feel that these states aren’t going to enforce these laws,’ ” Seikaly says.

Colorado imposes fines ranging from $500 to $10,000 per violation for failing to include wages in job ads. For now, there is some leeway. If an employer corrects the posting after an initial violation, Colorado will waive the fines. However, in the law’s first two years, Colorado handed out a total of $237,000 in fines against five companies, according to Bloomberg; 14 other companies also received citations.

New York City’s labor department racked up 300 tips from the public about noncompliant companies in the first six months of its pay transparency law. But, like Colorado, New York City currently favors citations and reminders over fines.

Seikaly says she encourages her clients that are inclined to resist these new laws to consider the bigger picture. “If you get caught, it’s costing you employee trust, it’s costing you attracting great talent, it’s costing you a great branding opportunity for you to showcase to your employees that you’re a really good employer to work for.”

Cultivating a Culture of Openness and Equity in Pay

A recent report by Payscale emphasized that the gender gap cannot be closed simply by listing the salary ranges for specific roles.

“Pay equity does not mean that all individuals will receive exactly the same pay, even for workers who occupy similar roles,” the Payscale report reads. “Pay equity is about fairness, and fairness takes into account differences between people that are nondiscriminatory, such as years of experience, education, special skills and location.”

Building and communicating the framework for that fairness takes work.

“It’s not that organizations can’t have pay differences,” Straker says. “They just need to be for legitimate factors. Employees don’t always have the same full and complete information that managers have and that HR has in terms of what would be a legitimate explanation for differences in pay. So, I do think that organizations have to spend a lot more time documenting and ensuring those pay differences can be legitimately explained in a way the average employee would understand.”

For a lot of organizations, Straker says, pay transparency requires no less than a cultural transformation. “There’s a lot to be done in terms of building out salary structures, developing more clarity in their job architecture, and redefining roles for different jobs at different layers of the organization.”

Pay transparency adds a level of trust to the candidate/employer interaction.”
Kristen Howe

Straker adds that while this is essentially HR’s task, executives must play a role in what, for many companies, will be a foundational change. “These types of disclosures generate a lot of discussion and a lot of questions,” Straker says. “Managing the narrative and the messaging around it consistently across an organization is important, and a lot of that should really be the responsibility of organizational leadership beyond HR. It can’t all just land on the HR team.”

Companies that take the time to carefully plan for pay transparency can create a market advantage.

“The biggest benefit of these laws is that they force employers to do the work on determining salary before they talk to any candidate,” Seikaly explains. “Companies, of course, look at pay gaps along gender and racial lines, because that’s where it’s widest. But with pay transparency, you’re truly leveling the playing field for everyone. It forces the employer to do the nondiscriminatory objective work before anyone walks in the door.”

Employees who understand why they earn their specific level of pay are much more likely to trust their employer, and that trust can go a long way toward boosting a company’s ability to recruit and retain top employees.

“Pay transparency adds a level of trust to the candidate/employer interaction,” agrees Kristen Howe, chief product officer at Linkage, a women’s leadership development firm acquired by SHRM in 2022. “When compensation is shared early in the process, we avoid mismatched expectations. Companies are more likely to attract the right candidates for their job openings. Employees feel like they’re well paid for their new role, and companies know they’ve acquired a needed talent for the right cost.”

Does Pay Transparency Bridge the Gap?

Pay transparency laws are popular among job seekers. Recent SHRM research indicates that more than 80 percent of U.S. workers are more likely to consider applying for a position if the pay range is listed in the job posting.

Companies likewise report positive outcomes from posting salary ranges. SHRM research found that 70 percent of organizations that list pay ranges on their job postings say doing so has led to more applications; 66 percent say the quality of their applicants has increased.

But as to whether transparency laws actually decrease the gender pay gap, Cullen of Harvard Business School says yes, pointing to—albeit limited and short-term—academic research on the topic. Research on salary gaps in different sectors indicates that, over time, wage transparency can play a significant role in helping close the pay gap.

For example, in a study published in 2022, researchers examined the effect of university pay transparency rules on 100,000 U.S. academics, and they found “evidence that pay transparency causes significant increases in both the equity and equality of pay.”

Multiple studies of the impact of pay transparency laws beyond the U.S. have found that they’re accomplishing what they set out to do. A 2019 study of the impact of public-sector salary disclosure laws on university faculty salaries in Canada found “robust evidence that the laws reduced the gender pay gap between men and women by approximately 20-40 percent.”

U.S. researchers also point to the lower wage gap among men and women who work in the public sector—where transparent pay structures have long existed—as further evidence that transparency will have a similar impact in the private sector. The U.S. Office of Personnel Management reports that women earn 94.4 cents for every dollar men earn in the federal workforce—far higher the 82 cents earned by all U.S. women.

There is a similar experience for union members, who have a narrower gender wage gap compared with nonunion members, perhaps in part because unions help procure transparency in wages, including greater access to salary information.

For many employers, particularly smaller ones, the biggest fear is that wage transparency will hurt recruiting—and speed up turnover—when employees and candidates see how much more they could earn elsewhere. In these cases, employers that cannot pay as much as their competition should highlight the other ways they provide value to their employees.

“We hear clients say they can’t compete with big companies,” Seikaly says. “If you’re a smaller company, post that you offer pet insurance, fertility benefits, unlimited PTO and remote work. … Those other fringe benefits are really important, especially for younger employees who may not be hunting for base salary as much as they are the total package.”

Cullen says her own research at Harvard Business School makes her optimistic that transparency laws will go a long way toward bridging the gender pay gap—and will benefit employers, too.

“The papers I’ve worked on have shown that when employees gain access to more market-level data about wages, we see greater equality in pay across firms for a given position. We see wages and retention for lower-wage workers rise,” Cullen says. “When we experimentally introduced pay into the career path, we saw employees increase their efforts, their motivation, their pay and their measures of satisfaction.”

When Colorado’s pay transparency law took effect in 2021, Children’s Hospital Colorado was fully prepared to post, explain and defend its salaries, because its HR team had just finished a multiyear effort to define its compensation philosophy.  As a hospital, Children’s hires large numbers of clinical staff for the same job, such as nursing. The hospital shares with job candidates hiring grids that list the amount of compensation that corresponds to years of experience. “Our hiring grids have helped us a lot,” says Children’s CHRO Betsy Rodriguez, “We post those as part of the hiring range we advertise. People know that when they have two years of experience, they’re going to get this much, and there’s very little room for negotiation.” However, explaining wage ranges to current employees has been more challenging, even though Children’s was already informing employees of its pay ranges—and where those employees fell in those ranges—as part of the annual customized compensation statement that each worker receives. Those statements did not prevent workers from expressing surprise when they saw the upper limits of their wage ranges included in job postings. “Even though we were already doing that, I don’t know if people were paying attention to it,” Rodriguez says, “because when they saw posted pay ranges for new employees, they said they had no idea that their position went up to the maximum of that range. So, we had to do a little bit of management around that.” Before salary posting was required, Rodriguez says Children’s was already conducting training for employees on how the hospital’s compensation strategy works and how to determine where employees are in their pay ranges. “We really focus on team leaders, because we don’t want leaders to throw those questions back to HR,” Rodriguez says. “Employees feel closer to their team leaders, so we want them to be able to explain how we’ve arrived at their salary.” The downside? The hospital has also seen some negative effects from Colorado’s posting requirements. “The bad part is that when you post a range, everyone looks at the top end of the range and thinks, ‘That’s how much I can make in that role,’ ” Rodriguez says. “We’ve had to do a little education about where in the range we’re going to pay. That was easier to do when we didn’t post the range ahead of time and possibly set unrealistic expectations. But we’ve found ways to manage that.” The biggest benefit of Colorado’s law was one that hospital officials did not anticipate. “We’ve told employees that our salaries are in line with the market, but they never believed us,” Rodriguez says. “But now everyone in Colorado posts their salary ranges. So, when someone says they want to work elsewhere for more money, we can show them that the pay range for that job is no different. I’ve been able to solve a lot of issues with leaders, in particular, who have argued they’re losing people because they can get more money elsewhere. I can pull publicly posted data that shows our ranges are not different.” Rodriguez says the next step is to think about internal salary transparency. “We have pay transparency for people we haven’t hired yet, but we don’t have it internal to the organization,” Rodriguez says. “If I’m an administrative assistant, I can’t look at what an executive assistant’s range is. That’s our next [decision]. Are we going to go to that place? And what culture changes have to take place for us to handle that?” —B.G.

Barbara A. Gabriel is a managing editor at SHRM.

Explore Further

SHRM provides information and resources to help business leaders make pay transparency work in their organizations.

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