Pay transparency laws, or laws that require employers to list salary ranges in job postings, are gaining momentum across the country.
To date, eight states have already enacted pay transparency laws, while another 16 and Washington, DC, considered pay transparency during the 2023 state legislative session, according to the National Women’s Law Center.
But not everyone’s on board. “A lot of companies are really afraid of pay transparency for two reasons,” Lulu Seikaly, senior corporate employment attorney at compensation software company Payscale, told CFO Brew. “One, because it takes a lot of work, monetarily [and] manpower-wise, to get it right. Two, they’re afraid of showing their cards to the world of how much they pay.”
They might not want to shy away, though, given the ultimate payoff, according to Jenny Terry, head of finance and director of business operations at social media management platform Buffer. The company enacted transparent pay policies in 2013, which Terry credits to increased accountability at the company.
“That’s been a really interesting side effect of pay transparency,” she said. “It not only breeds trust among our team, but it also holds us to a higher level of accountability in how we pay people, and that…when we say we pay people fairly and equitably, we can actually back it up with the numbers.”
With pay transparency policies on the rise, more finance teams will have to consider demystifying their compensation practices—either to comply with legislation or simply to keep a competitive edge. To that end, it’s helpful to turn to companies, like Buffer, that have been on the forefront of the pay transparency movement for best practices.
Head start. Buffer made a radically transparent decision in the early 2010s. The company was merely a small, scrappy startup, and its co-founders determined on their own how to effectively build their internal pay system, Terry said. In the process of doing so, they realized the information they gathered was valuable enough to share with everyone within the company. Seeing the benefit of transparency, they also decided to share an internal spreadsheet of everyone’s salaries so early employees could understand how pay was being determined.
Soon after, they took things a step further: They made that spreadsheet totally public, so prospective employees could see salary ranges and other startups could use the information to develop their own pay systems. And thus, total pay transparency was achieved at the company.
Applicants & accountability: The payoff was fairly immediate. “We saw a really, really large number of applicants start to roll in after we made all of our salaries transparent publicly,” Terry said. It’s estimated Buffer’s monthly job applications more than doubled—from 1,263 to 2,866—in the month after it first publicly posted salaries.
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And that’s a large part of the reason Terry thinks other finance leaders should take note, particularly in the current job market. The other big one: the aforementioned accountability, which she calls “the effect we wouldn’t have recognized right out of the gate.”
Getting started: Terry knows none of this makes implementing pay transparency policies easy, necessarily. Buffer’s level of transparency, in particular, isn’t going to work everywhere.
For any finance team looking to strengthen pay transparency, she recommends thinking in incremental steps. First up: Pay needs to be equitable. “If that’s not the foundation upon which you’ve currently built your pay system or your pay structure, then you’ve really got to start there,” she added.
Outside of that crucial building block, Terry emphasized the importance of Buffer centering its company culture in pay transparency efforts. From the start, Buffer’s founders and employees considered transparency the cornerstone of their work. Similarly, a solid pay transparency policy should feel in line with existing company culture—so look for ways to align the two.
Next comes communication. Employees are sure to have lots of questions—and Terry found an open-door policy to be particularly effective. That’s been especially helpful for younger employees, who might have a less developed understanding of how pay is calculated, she noted. Per a recent Payscale report, improved pay transparency slashes turnover risk for most employees—with the exception of Gen Z, who were actually 3% more likely to look for another job in light of strengthened pay transparency policies.
Terry said younger employees have been especially curious about Buffer’s salary formula, which is public and incorporates a location-based, cost of living component.
“It’s a component of our salary that we evaluate almost annually,” she explained. When younger employees ask about it, they’re primarily curious about if —and how—the policy might evolve over time. To that end, Terry tells them it’s “our vision and our goal…eliminate the cost of living component altogether” but for now, “it’s…a sheer numbers issue.”
While this kind of open communication has helped at Buffer, Terry and Seikaly stress that the process will never be easy.
“It’s going to take a lot of work,” Seikaly said of implementing pay transparency policies. “You’re going to have to fix compensation philosophy, compensation practices. You’re going to have to level your jobs, benchmark your roles, run a pay equity check, all before you’re ready to post a salary range.”
But there’s an upside. “Everyone’s in the same boat,” she continued. The first year will be “a really heavy lift” but “when you do it once, it’s going to be on autopilot for years to come.”