Photo: RetailWire
February 14, 2023
Is pay transparency good or bad for retail labor?
California recently passed a law requiring employers with at least 15 workers to include pay ranges in job postings following calls for increased visibility to reduce gender and racial wage gaps.
Employees can ask for the pay range for their own position and larger companies have to report more data to the state.
Washington, Rhode Island and New York City enacted similar laws this year, joining Colorado, with more expected to follow.
“In terms of enabling people to make informed choices about where they should be working and what jobs might be rewarding, it makes the labor market search a lot easier,” Wharton management professor Matthew Bidwell recently told Wharton Business Daily on the laws.
Beyond the major goal of closing the gender pay gap, salary transparency forces companies to be “a bit more systematic” about pay. Mr. Bidwell elaborated, “When people in the same job are being paid radically different amounts, which aren’t necessarily tied to their performance, it gets quite awkward for managers.”
In a column for Harvard Business Review, Tomasz Obloj, a professor at Indiana University’s Kelley School of Business, and Todd Zenger, a professor at the University of Utah’s Eccles School of Business, wrote that studies show pay transparency is helping to reduce pay inequities.
On the negative side, however, the professors found:
- Downward wage pressures: Pay transparency tends to reduce overall wages because forcing employers to publicly disclose current pay or pay ranges discourages individual pay negotiations and reduces employees’ bargaining power.
- Turnover risks: Pay transparency leads to “flatter, more equal,” pay but a less performance-based structure can cause high performers to exit. With more transparency around pay drivers, individuals may also obsess over individual performance metrics rather than teamwork attributes (e.g., cooperation, helpfulness, mentoring).
- Productivity risks: One study showed that when enhanced transparency revealed a worker had been underpaid, that individual’s productivity declined.
The professors don’t see a return to secrecy, especially with the gains already being made in equitable pay. However, they wrote, employers and employees alike must understand its potential downsides and “choose the type of transparency that will generate the outcomes they seek.”
- Research: The Complicated Effects of Pay Transparency – Harvard Business Review
- Will Salary Transparency Become Standard – Knowledge At Wharton
- Pay transparency is here. Corporate America is still catching up. – The Washington Post
- Making salary ranges public may shrink pay gaps but slow wage growth – CNBC
- Pay-transparency laws do not work as advertised – The Economist
Discussion Questions
DISCUSSION QUESTIONS: Will greater pay transparency force retailers to make major adjustments in how they manage their workforces? How do you see such laws affecting employee productivity and turnover?
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A lot of shop-floor jobs often come advertised with wage rates, or at least starting wage rates, attached. Senior positions don’t always carry this information. Laws might help a bit, but all that happened in New York City is companies have posted extremely wide ranges which are rather meaningless.
I’m not sure if it’s bad or good, we’ll soon find out — but I don’t like it. Reminds me of my dad’s take on voting; none of your business. We do live in a meritocracy, right? Now, that said, if you’re consistently paying groups, like women, less than men, that’s a different, macro issue — but in my opinion should still be solved individually.
It kind of doesn’t matter though as all the Millennials that have worked for me openly share their salaries anyway so, perhaps it’s a moot point.
How stupid would a company be to post separate scales by gender? This is smoke and mirrors – the company makes the ranges as wide as they need to, making them meaningless. And if necessary, gives someone a new title so they can make more doing the same job. If a company published my actual salary, I’d be looking for a job the next day.
“However, they wrote, employers and employees alike must understand its potential downsides and ‘choose the type of transparency that will generate the outcomes they seek.’”
No one is going to “understand the potential downsides” before “choosing the type of transparency” that “generates the outcome they seek.”
Typical government/academic response. So many laws and regulations with good intentions. And so many of them cause other problems not forecast by the lawmakers and the academics.
I believe what will happen is a flattening of the wage curve, especially for entry-level retail positions. And I also believe that this will have an insidious effect on worker productivity. If everyone is getting paid the same or nearly the same, what incentives are there for workers to go above and beyond?
I can see pros and cons to this. Cons because you don’t want the people you work with to know your salary, and pros that make pay more equitable.
When I worked in corporate a woman in the store planning department found out she was paid considerably less than her male counterparts. It was ugly and wouldn’t have happened had the company been transparent about pay ranges.
This will be a mixed bag. Some retailers, Costco comes to mind, can benefit by using their wage structure and benefits package as a recruiting tool — which, honestly, they already do. In the meantime, retailers who offer low-wage positions with no benefits and crummy hours will continue to struggle to fill positions. These players will, however, continue to complain that the labor shortage is affecting their business. If they’re required to post salary ranges, I suspect they’ll obscure the data with huge ranges and fuzzy math about their compensation packages.
It’s really unfortunate that we still need this kind of law to force employers to be fair, honest and consistent in how they treat their employees.
It seems that transparency would be better than how companies obfuscate their pay policies.
I found explanation #1 to be quite bizarre, honestly. (And while I didn’t read the study, and can’t be sure of their biases, if any, it sounds like they’re confusing transparency about overall pay ranges, and individual compensation, which is presumably protected under privacy laws).
As for the law, while I’ve no doubt many companies have inconsistent, poorly designed, and poorly implemented — aka “unfair” — pay practices, this merely reflects that they are poorly run (and while you might think I’m referring just to small firms, think again). No law is going to fix that; and seldom can a law satisfy the (usually opposing) goals of both simplicity and equity.