“I’m the first to admit this whole salary thing is getting out of control. In the final analysis, it’s still about the work.”

Jim Carrey, Comedian

Pros and Cons of Salary Transparency

advantages and disadvantages of salary transparency

Salary transparency is a rather controversial topic. This concept basically aims to reveal the salaries of employees in order to make salaries more transparent within the company and the industry.

Even though there are many advantages related to pay transparency, there are also some problems with this concept. In this article, the pros and cons of salary transparency are discussed.

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Advantages of Salary Transparency

  1. Less exploitation of workers through salary transparency
  2. Revealing salaries can help to remove wage gaps
  3. Employees will have better positions when it comes to raises
  4. Employees may be more satisfied
  5. Concept of same wages for same work is encouraged
  6. Candidates have a better impression regarding what to expect
  7. Fewer salary negotiations will be necessary
  8. Employees can focus on their work
  9. Employees will have more trust in the company they work in
  10. Salary transparency can attract highly-qualified workers

Less exploitation of workers through salary transparency

One important advantage of salary transparency is that fewer workers will be exploited. If salaries are not revealed, it is quite easy for companies to pay some people much more than others, even if there is no difference in their performance. In fact, good connections to company leaders can often greatly help to get a decent raise and a high salary.

Therefore, while some employees may benefit from those connections, others who don’t have these connections will be harmed at the same time. Through the introduction of salary transparency, we can solve this problem to a certain extent since everyone will know what the other person will earn and people who currently earn relatively low wages can talk to their boss and demand higher raises.

Therefore, it becomes much more difficult to really exploit workers in a company.

Revealing salaries can help to remove wage gaps

In general, if all employees know how their peers earn, they will also likely have more courage to demand a higher wage in case they are currently in the lower salary range. Over time, this can lead to a state where those people get more money and the overall wage gap inside a company or even inside a whole industry can be closed in the long run.

This can be especially beneficial for people who belong to certain minorities who often earn far less. In turn, also the overall living conditions of those people may improve as well.

Employees will have better positions when it comes to raises

Another benefit of salary transparency is that employees will also be in a much better position when it comes to raises. In most companies, there will be an opportunity to talk to your boss on a regular basis regarding your future income prospects.

Hence, if you know that your peers earn much more and you do a better job and have a better output, chances are that your boss will have to acknowledge that and grants you a higher salary.

Employees may be more satisfied

In general, due to the potential higher salaries for many workers due to salary transparency, chances are that these employees who got more money will also have a higher motivation in their jobs since they will be able to afford more things they like.

In turn, the productivity of those workers may increase significantly and therefore, revealing salaries may not only be beneficial for workers, but also for companies since higher productivity of workers also implies higher overall revenues and a better market position in general.

Concept of same wages for same work is encouraged

Salary transparency is also in line with the concept that employees who do the same job also earn the same money from it. This is considered to be fair by many people and therefore, employees may also feel much better since they feel that they are treated much fairer.

In fact, if you know that your peers don’t earn more than you, you will often get a better feeling since you will not feel to be exploited by your company.

Candidates have a better impression regarding what to expect

Another upside of salary transparency is that also candidates who apply for a job will have a much better knowledge of what to expect regarding their potential salary. In turn, candidates can be pretty confident that they know their market value and can make claims according to that.

This may lead to higher average wages for entry positions in a company since fewer people will have to work for wages below the market level.

Fewer salary negotiations will be necessary

Through salary transparency, also fewer salary negotiations would be necessary. In fact, companies could just determine the salary of every employee according to a certain distribution and reward special accomplishments with extra payments.

Since everyone will know what their peer will earn, there will be not too much room for discretion and the distribution of wages may also become fairer due to this procedure.

Employees can focus on their work

Many employees also spend significant amounts of time to prepare for meetings with their boss in order to get a better salary. Quite often, people also spend excessive amounts of time to figure out how much their colleagues are earning in order to determine their own value.

However, this can be considered as significant waste of time and this time could be much better used to be productive for the company. Therefore, salary transparency can also make processes more efficient in this regard.

Employees will have more trust in the company they work in

In general, if wages are more transparent, companies may also have much more trust in their company since they know that they earn a fair wage and don’t have to work for far lower wages than their colleagues. In turn, the overall motivation of many workers may improve as well.

Salary transparency can attract highly-qualified workers

Another advantage of revealing salaries in a company is that it may attract highly-skilled workers. For instance, imagine a state where most companies don’t reveal the salaries of employees and your company does.

This may be a positive signal for people that they can trust you as an employer and therefore, you may be able to attract better workers over time compared to other companies that don’t reveal salaries.

Disadvantages of Revealing Salaries

  1. Privacy concerns regarding salary transparency
  2. Some employees will be shocked when they see how much their colleagues make
  3. Employers may become envious
  4. Overall work climate may suffer
  5. Salary transparency may require further action
  6. Individual performance may no longer be rewarded in a sufficient manner
  7. Good employees may leave the company
  8. Quality of work may actually decrease
  9. Mandatory salary transparency takes away freedom from companies
  10. Some companies may leave the country
  11. Additional administrative work for companies
  12. Government regulations may be needed

Privacy concerns regarding salary transparency

Although the concept of salary transparency has many important advantages, there are still some problems related to it. For instance, one disadvantage of salary transparency is that there are serious privacy concerns to it. Especially in case the data of every individual employee is published, employees may sue their company since they simply don’t want to disclose how much they earn to their peers.

Therefore, salary transparency can be quite problematic from a privacy perspective and companies may therefore just give an overview of the average salaries in the respective grade instead of displaying individual information.

Some employees will be shocked when they see how much their colleagues make

Some employees will also be quite disappointed when they finally realize how much less they earned for many years compared to their colleagues.

In fact, this can lead to plenty of trouble inside a company and many employees may even feel that they have been exploited for a quite long time.

In turn, those employees will lose all their motivation and may no longer work in line with the best interest of the company.

Employers may become envious

Some employees may also become quite envious when they see how much more their boss earns and may feel quite frustrated. In fact, the confidence of many people still depends on their income levels. In turn, this can lead to serious tensions between your boss and yourself since you will always remember how much more your boss will make.

Overall work climate may suffer

Another problem with salary transparency is that the overall work climate may suffer quite a lot. People may always think about how much more their colleagues will earn and this can lead to serious levels of frustration. It may also lead to a state where employees may no longer who up at work since they feel that they are treated in an unfair manner.

Salary transparency may require further action

Since many people will complain when they finally see what their peers earn, this will also lead to significant additional work for companies since they will have to raise the wages of many employees. In turn, plenty of work time will be wasted in a rather unproductive manner which could be much better used for other things that could really move the company forward.

Individual performance may no longer be rewarded in a sufficient manner

Salary transparency will also increase the pressure on companies to close the salary gap within the respective grades. However, while closing those income gaps can be regarded to be a good thing in theory, it can also lead to a state where employees lose their motivation to work hard since they feel like individual performance does no longer matter since everyone will have equal pay anyway.

In turn, the overall productivity of workers may decrease and so will the revenue of many companies.

Good employees may leave the company

If the income gap between excellent and mediocre employees becomes too small due to the introduction of salary transparency and the related raises, good employees will likely leave a company since they feel that their excellent work is not rewarded too much anyway.

In turn, if too many good people leave the company, this can lead to a loss of competitiveness for the respective company in the long run.

Quality of work may actually decrease

If too many good people leave the company since they feel that good work is no longer rewarded with appropriate income differences, the overall quality of work may decrease as well. Good employees may just lose all their motivation to work hard and may rather do the bare minimum and wait until the workday will be finally over.

Mandatory salary transparency takes away freedom from companies

Another issue with the concept of salary transparency is that it also takes away significant levels of freedom from companies. If salaries have to be revealed according to certain laws or regulations, companies will no longer have a choice to evaluate whether revealing salaries is good or bad for them since they will be forced to do so by law.

Some companies may leave the country

Opponents of salary transparency also often claim that companies may leave a country if they are forced to reveal salaries. Hence, if this is really the case, many jobs may be lost in the long run due to mandatory salary transparency policies.

Additional administrative work for companies

Salary transparency may also imply additional work for companies. In fact, there have to be additional statistics regarding the income distribution in companies and in order to produce those statistics, additional workers will have to be employed, which in turn implies additional labor costs for companies.

Government regulations may be needed

The concept of salary transparency may also only be efficient if governments set proper rules and regulations. If there are no official rules, companies would get a great level of discretion and the concept of salary transparency may even become useless since there would be too many loopholes for companies.

Top 10 Salary Transparency Pros & Cons – Summary List

Salary Transparency ProsSalary Transparency Cons
Salary transparency can increase wage levelsSalary transparency may lead to frustration
Fewer workers will get exploitedPrivacy concerns related to revealing salaries
Revealing wages can increase fairnessSalary transparency may lead to envy
Salary transparency helps to remove wage gapExceptionally good employees may leave
Better position for employeesPeople feel like performance doesn’t matter
Candidates have better wage insightsMay need some government regulation
May increase worker satisfactionWork climate may suffer
May attract highly qualified workersMay imply some administrative effort
Employees may have more trust in a companyMay take away freedom from companies
Employees can focus on their actual workCompanies may leave the country

Should Companies Reveal Salaries?

As we can see from the previous discussion, there are numerous advantages and disadvantages of salary transparency. In my opinion, the pros of revealing salaries outweigh the cons and companies should give employees more insights into the overall salary structure so that fewer workers will get exploited in the future.

Sources

https://www.forbes.com/sites/kimelsesser/2018/09/05/pay-transparency-is-the-solution-to-the-pay-gap-heres-one-companys-success-story/#7797e0225010

https://recruiterbox.com/blog/the-three-levels-of-salary-transparency

https://www.wellandgood.com/salary-transparency/

About the author

My name is Andreas and my mission is to educate people of all ages about our environmental problems and how everyone can make a contribution to mitigate these issues.

As I went to university and got my Master’s degree in Economics, I did plenty of research in the field of Development Economics.

After finishing university, I traveled around the world. From this time on, I wanted to make a contribution to ensure a livable future for the next generations in every part of our beautiful planet.

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