Pay Transparency, The Benefits and The Downsides

pay transparency is a key to recruiting in today's market

Applying and interviewing for a job can be long and tedious for job seekers and employers. This process is necessary for each to get acquainted with one another. However, it can sometimes end in disappointment when expectations by either party are not met.  This disconnect is usually in the realm of pay and salary expectations. How many of us have gone through the interview process only to be met with a salary well below our expectations? 

It’s safe to say that feelings of frustration are an understatement for both parties. This can lead to disrupted prospects, the inability to retain a new hire, and a disconnect between the employer and the potential employee. 

So, what’s being done about this?

Simply put: Pay transparency. Pay transparency is a hot topic for both job seekers and employers alike, and it comes with its share of pros and cons. 

Recently, many provinces and countries have taken action for better pay transparency. In particular, the Government of Prince Edward Island enacted an addendum to their Employment Standards Act which establishes that effective June 1, 2022, employers who publish a publicly-advertised job posting must include information about the expected pay or the range of expected salary for the position. 

Who wouldn’t want to see a pay range when applying for jobs? It shows respect to jobseekers and gives them the information necessary to make an informed career choice. Although even after researching the market salary based on the job and location, it’s still not as cut and dry as you might think. Knowing the pay range before the interview process is more efficient so one can see if it can sustain their cost of living. This can also ensure that the employer is getting the exact sort of candidate they are seeking.

Before diving into the pros and cons of pay transparency, we’d like to look at what the Canadian and Provincial governments have done to date. In particular, we will break down Ontario’s Pay Transparency Act to give a thorough review of the critical components. 

 

The Pay Transparency Act

The Ontario Pay Transparency Act was first passed in 2018 as part of a larger legislative amendment, and it was then implemented in 2019 and came to full fruition in 2021. Through the proceedings of this movement, the Ontario government requires:

All publicly advertised job postings to state salary rates or ranges. Potential employers to not ask candidates what they earned at previous jobs. Employers to not reprimand employees who discuss or disclose their compensation. Employers with 100 or more employees to track compensation gaps based on gender and other characteristics and post these reports somewhere that can be accessed by their employees.

This is to raise awareness of wage gaps experienced by minorities, women, disenfranchised, and marginalized employees. The hope is that through these measures, employers can help reduce wage gaps, shift business culture, and create greater equality within the workplace.

In addition, the Government of Canada also released new pay gap reporting measures that will ensure “federally regulated private sector employers…are required to report their salary data in a way that shows aggregated wage gap information.” This means the wage gap information will be collected in 2021, and reporting can begin in 2022. This will be an effective process to ensure  the Government is doing its part in reducing wage gaps and creating more impartiality. 

Federal private sector jobs that may be impacted by this include: 

  • Air transportation, including airlines, airports, aerodromes, and aircraft operations
  • Banks, including authorized foreign banks
  • Grain elevators, feed and seed mills, feed warehouses, and grain-seed cleaning plants
  • First Nations band councils and Indigenous self-governments (certain activities)
  • Most federal Crown corporations, for example, Canada Post Corporation
  • Port services, marine shipping, ferries, tunnels, canals, bridges and pipelines (oil and gas) that cross international or provincial borders
  • Postal and courier services
  • Radio and television broadcasting
  • Railways that cross provincial or international borders and some short-line railways
  • Road transportation services, including trucks and buses, that cross provincial or international borders
  • Telecommunications, such as telephone, Internet, telegraph and cable systems
  • Uranium mining and processing and atomic energy
  • Any business that is vital, essential or integral to the operation of one of the above activities
  • The federal public service
  • Parliament (such as the Senate, the House of Commons and the Library of Parliament)

 

More information about these acts can be found here and here.

Across the country, more provinces are enacting their own Pay Transparency Acts. To date, British Colombia, Alberta, Saskatchewan, and Newfoundland are the only provinces without pay transparency or pay equity legislation. Recently, British Colombia announced that they are now pursuing pay transparency legislation which is a big move to minimize their gender wage gap, which StatsCan found in 2018 to be the widest in the country. 

It is clear that pay transparency is a trending topic right now. But what are the benefits or potential downsides?

 

The Pros of Pay Transparency

The call for pay transparency is more popularized with more attention to gender and racial wage gaps. The benefits of this can include established trust, happier employees, greater equality in the workplace, and hiring the right people for the right roles. This transparency can release preconceived expectations and showcase a realistic view for both employers and job seekers.


Pay transparency is a gateway to better engagement and trust.

68% of employees would switch employers

Pay transparency is so important among employees that one study found that 68% of employees would switch employers for more pay transparency – even if the pay were the same. This tells employers that transparency is sought after and almost a necessity in this day and age. It is a gateway to better employee engagement and trust. It is worth noting that trust is one of the most important pillars of a relationship between employer and employee. Willingness to show pay transparency tells an employee or jobseeker that the likelihood of other “secrets” being kept within a company is minimal. Employees feel more comfortable and willing to be productive without barriers of trust in the way.

 

Pay transparency fosters happiness and job satisfaction.

Happiness is a key factor in transparency. Employees are more willing to feel appreciated, recognized, and satisfied with their work, knowing they are being paid fair market value. It removes the assumption that they may be underpaid, especially within an organization, as this insecurity or speculation can lead to less collaboration or inter-employee connection. By being more honest about pay, there is space for open communication and the ability to increase employee engagement — thus increasing the overall culture within a company.

 

Pay transparency supports equity and safety.

It is almost common knowledge that women, BIPOC, disabled, and LGBTQIA2S+ employees statistically make less than employees that do not fall into these categories. According to the American Association of University Women, white women make 79% of what white men make, and that number only decreases as race, sexuality, or disability are included. This is so much so that Hispanic women make 54% of what white men do — as a comparison. These numbers reflect history-long inequalities that are slowly trying to be rectified. The equality piece of this has only been called even more into focus through recent movements like Black Lives Matter and the Trans-inclusionary Movements — two communities that are primarily underpaid or have an increased chance of living in poverty. 

By being transparent about pay, those that are more marginalized can have opportunities to receive more fair compensation than their non-marginalized counterparts do. In turn, this closes the pay wage gap and empowers those that may not feel empowered otherwise. Whether this is to receive higher wages, speak up more at meetings, or be more involved in their work environment. Pay transparency creates more safety in the workplace and, to bring it back to the other points made earlier in this article, increases employee happiness and trust.

The attitudes and moods of jobseekers in the workplace are impacted by pay transparency

Pay transparency supports better hiring practices.

The way that this impacts the hiring process is just as important. There are fewer chances of someone else making more or getting hired based on their gender or race, leveling the field for anyone who is qualified. This sort of transparency also helps the employer by ensuring that all expectations are met without disappointments on either end. The employer and jobseeker know precisely what is being asked for and what the job entails, thus promoting the opportunity to find a more “perfect match” for an open position. Statistically speaking, companies that show their target salary on a listing have an increase in job applications. Pay transparency may also help weed out those who may be out of budget for the posted job. 

 

The cons to pay transparency.

Of course, pay transparency has drawbacks. These can overshadow some of the better points but are just as important in the grand scheme of understanding the matter at hand. Some of these may include pay comparison or jealousy amongst employees, pay differences being misinterpreted, and the need to have hard conversations. The reality is transparency doesn’t always mean a pay increase because other factors also contribute to pay differentiation.


Employees may have negative reactions to pay transparency.

Generally speaking, one of an employer’s biggest fears or pain points around pay transparency is employee reactions to pay transparency. Some may find out that they do, in fact, make less than others. This can incite jealousy or comparison between employees, creating more tension than needed in the workplace. This can only be combated with evidence and honesty on the employer’s part. Assessment of the roles and the compensation will need to be considered, along with work history, length of employment, and productivity. If an employee has a more negative reaction, the employer can speak to clear points based on job performance and history that may impact compensation.


Employees can misinterpret pay differences.

The misinterpretation of pay differences follows the theme of comparing salaries. Where one employee may not fully understand why they may make less than another. This is where having criteria or key points in pay differentiation can be helpful (i.e., work experience, education, employee contribution, etc.). This will help give the employee a perspective on why the pay differs. However, it is worth noting that keeping pay relatively close can make this less of an issue and help the employer from having more difficult conversations. 

 

Difficult conversations may be required.

Difficult conversations are never fun, but they may be necessary. If an employee has difficulty with pay differences through transparency, it could be job performance related. This is where having conversations or dialogue around their work ethic or output will be necessary. This could shed some light on the employee and spark them to possibly increase their productivity. However, it may also end in the employee feeling underappreciated and leaving the company. The outcomes of those conversations are difficult to predict, and losing them may create more work and use more resources than anticipated. Yet, it can also open the door for a new employee that may have what the previous one did not.

 

Pay transparency is a new reality.

In summary, pay transparency is a new reality, especially with legislation like the Pay Transparency Act being enacted in provinces across the country. Pay transparency will have its pros and cons within the working world. It may increase employee trust and equality and foster better hiring processes. It can also make tension more likely or result in employees playing the comparison game. The more prepared an employer is to tackle these issues, the better off they will be.

Moreover, the more pay remains comparable, the less likely there will be issues at all. Pay transparency is becoming a new normal, and it can significantly change how employees see their roles and value, for better or worse. It is hard to say how things will pan out, but knowing that proper and careful solutions will be needed to navigate pay transparency is essential. 

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