Glassdoor’s chief economist: ‘Pay transparency rules are solving age-old workplace problems–but the gap in employee experience should alarm us’

Pay transparency was typically part of an effort by companies to improve employee experience. In many jurisdiction, it is now becoming law.
Getty Images

A new wave of transparency is sweeping across America’s workplaces–and there’s no looking back. At the beginning of the year, California, Washington, and New York joined Colorado to require pay transparency for most open jobs. Several other states and localities–including Illinois and Massachusetts, are now considering their own laws to require employers to disclose what they are willing to pay for open roles.

These laws were motivated, in part, by stubbornly persistent gender and racial pay gaps–but also by the pragmatic recognition that wages and salary information were only accessible to companies via salary benchmarking services, and to the lucky individuals blessed with well-positioned friends.

The hope was that transparency would reduce–or better yet, eliminate–these well-documented market inefficiencies that have consequences for workers’ lifetime earnings.

By most evidence, the hope was justified. Early research on the effects of pay transparency laws, as well as research on similar rules in other countries, suggest that they often lead to meaningful reductions in gender pay gaps and level the playing field for job candidates.

Despite the occasional social media screenshot of a comically wide band or anecdote of a company deciding not to consider candidates in a state with pay transparency rules, these stories attract attention precisely because they are the exception. The overwhelming majority of companies posting job listings in pay transparency states are complying with the rules.

Since its founding nearly 15 years ago, Glassdoor has been at the forefront of making salary information more broadly available to those who don’t have the right connections. We have witnessed firsthand the magic of pay transparency–but we are also aware that it’s no miracle pill for all the ills of the labor market. There are many reasons to be hopeful about the new wave of pay transparency laws–and important reasons to be vigilant of their unintended consequences.

To understand the new risks and emerging challenges, it is helpful to understand recent enthusiasm for pay transparency in the context of a longer lineage of open information laws dating back nearly a century: Public company financials in the 1930s, food ingredients and nutrition in the 1960s (expanded in the 1990s), donations to federal election campaigns and mortgage lending practices in the 1970s, and public school performance in the 2000s, among many others.

While at the onset, many of these new disclosure milestones had their share of critics, today, it’s hard to imagine a functioning stock market where investors could not access critical company information or where consumers are forced to wonder what ingredients (and potential allergens) may be lurking in their food.

The professionals who are responsible for implementing and grappling with new pay transparency laws on the frontlines seem cautiously hopeful about their potential. More than half (55%) of senior people leaders employed at some of Glassdoor’s Best Places to Work 2023 “disagree” or “strongly disagree” with the suggestion that greater pay transparency will make it harder to retain talent, and only a third (34%) “agree” or “strongly agree” that open roles with salary information or pay bands attract a higher quality applicant pool. In general, they view pay transparency as a best practice regardless of whether it is legally required.

In the past, pay transparency worked in part because it was a signal for a broader set of investments in a good employee experience: Companies that shared pay ranges were likely signaling to job seekers that they cared more broadly about fairness and transparency with their employees.

That won’t necessarily be the case moving forward. Job seekers are going to have to look for new signals that indicate an employer is genuinely vested in compensating–and treating–their teams equitably. For employers seeking to distinguish themselves in the ever-competitive market for talent, they will have to discover new ways to communicate that virtue.

While sunlight may be the best disinfectant, funk inevitably blooms in the shifting shadows. Requiring transparency can shift rather than eliminate the market dysfunction it aims to fix. Inequities could emerge on more difficult-to-measure dimensions such as benefits use, career advancement, and employee experience. Glassdoor research found that–beyond pay–men and women report meaningfully different day-to-day experiences at nearly a fifth of companies. We also identified meaningful experience gaps across race/ethnic groups at nearly a third of companies. We are only beginning to discern the contours of the workplace equity challenges in these emerging areas that have long been in the shadow of pay.

When access to information depends on network, connections, or the ability to pay to play, access to information disproportionately benefits insiders and perpetuates long-standing inequalities. The new wave of pay transparency laws aims to tackle these age-old problems–and a growing body of evidence suggests they are doing exactly that. We can be both hopeful and open-eyed about where it will lead us.

Aaron Terrazas is chief economist at Glassdoor.

The opinions expressed in commentary pieces are solely the views of their authors and do not necessarily reflect the opinions and beliefs of Fortune.

More must-read commentary published by Fortune:

Subscribe to Well Adjusted, our newsletter full of simple strategies to work smarter and live better, from the Fortune Well team. Sign up today.

Read More

Great ResignationClimate ChangeLeadershipInflationUkraine Invasion