Is Pay Transparency the Answer?

For decades, workplace culture has treated salary discussions as taboo, with managers routinely advised to maintain secrecy around compensation decisions. This conventional wisdom suggested that transparency would inevitably lead to dissatisfaction amongst employees who discovered they earned less than their colleagues, whilst those earning more would simply feel their compensation was justified. The result, according to traditional thinking, was that firms faced only downsides from increased transparency about pay.

Recent research, however, challenges this long-held assumption and suggests that pay transparency may actually be the strategic advantage many organisations have been overlooking. As legislative requirements sweep across jurisdictions from the European Union to individual US states, companies are discovering that transparency is an opportunity to transform workplace culture and employee satisfaction, not just a compliance box to tick.

The Research

Groundbreaking research from academics at Boston College, Tulane University, the University of Arizona, and Tsinghua University has fundamentally challenged conventional wisdom about pay transparency [1]. Using employee ratings of compensation satisfaction from more than 1,300 publicly traded firms, the researchers examined what happened when the Securities and Exchange Commission mandated CEO-to-median-employee pay disclosures in 2018.

The findings were striking. Rather than creating widespread dissatisfaction, “the transparency brought on by the new disclosure made employees more satisfied, on average, with their own pay” [2]. The study analysed approximately 300,000 individual compensation ratings across firms in 62 different industries, providing robust evidence that transparency can enhance rather than undermine employee satisfaction.

The key insight lies in understanding how employees form perceptions about fair compensation. As the researchers explain, “Employees develop beliefs about what their colleagues are paid whether or not a company discloses salary information” [3]. In the absence of accurate data, employees rely on gossip, visible signals of wealth such as expensive cars in company car parks, or holiday photos on social media. They may also consult anonymous online sources like Glassdoor, Monster, and Indeed, though this information may be incomplete or inaccurate.

Crucially, other research demonstrates that “employees overestimate what their peers make” [4]. When managers fail to provide accurate and trustworthy information, they leave employees to “guesstimate what a fair wage is for them — and that self-determined wage is likely inflated” [5]. The SEC’s CEO pay ratio disclosure provided employees with a more realistic reference point, allowing them to recalibrate their expectations based on actual data rather than speculation.

The Legislative Landscape

The momentum towards pay transparency extends far beyond individual research studies. The EU Pay Transparency Directive, formally adopted in 2023, represents “a landmark law aiming to ensure that workers of all genders receive equal pay for work of equal value” [6]. Applying to EU-based companies with 100 or more employees, the directive focuses on two critical areas: pay transparency and pay equity.

Under this directive, employees gain “the right to request average pay levels for their job category, broken down by gender” [7]. Employers must publish salary ranges in job postings and provide clear criteria for pay progression. Companies with more than 100 employees will be required to report gender pay gaps, and if gaps exceed 5%, they must conduct joint pay assessments [8].

Across the Atlantic, several US states have implemented their own transparency requirements. New York, California, Colorado, Washington, and Illinois now mandate that employers include salary ranges in job postings [9]. Some jurisdictions, such as New York City, have implemented particularly detailed disclosure rules that extend even to internal roles.

The voluntary adoption of transparency practices suggests that companies recognise the strategic value beyond mere compliance. According to the Society for Human Resource Management, 67% of organisations voluntarily include starting pay in job postings, even in states where such disclosure isn’t legally required [10].

The Business Case for Transparency

Despite the growing recognition of transparency’s importance, many companies remain unprepared for this shift. A survey of more than 1,100 companies across 45 countries found that whilst nearly seven out of ten employers acknowledged that pay transparency is now an expectation of job candidates, only 32% of organisations felt prepared to meet global transparency requirements [11].

This “readiness gap” is particularly pronounced when examined by region. Only 19% of US companies have developed a pay transparency strategy, whilst among EU-based employers, a mere 7% have implemented such strategies despite the looming 2026 compliance deadline [12].

The business benefits of transparency, however, are becoming increasingly clear. Research indicates that organisations with transparent compensation practices experience lower employee turnover, with “each incremental increase in perceived pay transparency correspond[ing] to a 30% decrease in the likelihood of an employee seeking a new job” [13]. After job security, fair pay ranks as the second most commonly cited reason why workers remain in particular roles [14].

Companies implementing transparency initiatives report enhanced employee engagement and improved retention rates [15]. These outcomes suggest that transparency functions as both a talent attraction tool and a retention strategy, addressing two of the most significant challenges facing contemporary employers.

Practical Implementation Strategies

For organisations seeking to champion pay transparency, experts recommend a systematic approach that addresses multiple stakeholder needs. The foundation lies in conducting regular salary audits to identify and address existing disparities based on gender, race, or other factors [16]. These audits provide the data necessary to ensure that compensation systems are both transparent and fair, making it easier to explain salary ranges and justify pay decisions.

Building trust between leaders and employees represents another critical component. This involves communicating reasonable pay ranges, educating employees about what pay transparency and equity mean, eliminating corporate environments where pay conversations are taboo, explaining how salary decisions are made, and conducting regular salary reviews [17].

The approach requires careful consideration of the existing information environment. Managers should assess what salary information employees already access through job search websites and determine whether this information is accurate. If online information is wrong and inflated, providing accurate salary information can improve employee morale and correct misconceptions.

Understanding current employee sentiments proves equally important. Many firms conducting anonymous surveys discover that employees believe they are underpaid, with some demographic groups holding this belief more strongly than others [18]. When employees hold these perceptions despite fair pay practices, increased transparency can benefit the organisation by correcting incorrect assumptions and potentially increasing employee satisfaction.

The competitive nature of the labour market also influences transparency strategies. In tight labour markets where employees can easily secure offers from other firms, workers likely understand market wages already. However, employees in less competitive markets or specific geographic locations possess more limited information, and research suggests that “these employees’ pay satisfaction levels will likely benefit the most from the accurate disclosure of rank-and-file employee pay information” [19].

Transforming Workplace Dynamics

The implementation of pay transparency fundamentally alters workplace dynamics across all organisational levels. For employees, transparency shifts the balance of power in compensation discussions. Rather than entering negotiations with limited information, workers can approach conversations with concrete data about pay ranges and progression criteria.

Managers face new levels of accountability in pay decisions. Vague explanations and generic responses to compensation questions become insufficient. When employees can access salary ranges and understand pay structures, managers must provide clear, policy-aligned explanations for compensation decisions. Responses such as “that’s just what we offered” no longer suffice in transparent environments [20].

Human resources business partners assume coaching roles, guiding managers through pay policies and helping identify potential bias in compensation decisions. They conduct pre-review checks to flag pay decisions that don’t align with established policies, embedding fairness into daily practices rather than treating it as an occasional audit exercise [21].

Compensation and pay equity teams drive data-backed action, developing grading systems, tracking analytics, and guiding corrective measures. These professionals create dashboards showing unexplained pay differences by gender and job category, providing tools that help managers spot and resolve inconsistencies in real-time [22].

Executive leadership sets the tone by actively modelling transparency and equity. This involves setting clear pay equity goals, investing in necessary tools and training across departments, and speaking openly about pay structures and criteria. Some companies publish pay equity goals and host internal question-and-answer sessions where leaders explain pay philosophy and criteria [23].

Strategic Opportunity

Salary transparency in 2025 offers a strategic opportunity to build trust, improve fairness, and enhance employee satisfaction. Companies leading this transformation aren’t simply posting salary ranges. They’re training managers, empowering employees, and building systems that support fair, consistent, and data-driven pay decisions. Major employers including Meta, Microsoft, Salesforce, Deloitte, and PwC have already introduced global pay banding frameworks, recognising that transparency helps attract talent more efficiently whilst building trust and improving retention. [24]

For individual employees, transparency provides new tools for career advancement and compensation discussions. Knowledge of pay ranges enables more strategic negotiation approaches, allowing workers to tailor expectations realistically whilst confidently advocating for appropriate compensation. Rather than demanding immediate parity when discovering pay disparities, employees can use transparency data to frame development conversations and demonstrate their value alignment with higher compensation levels.

Moving Forward

As we progress through 2025, the question isn’t whether pay transparency will become standard practice as legislative trends and voluntary adoption already suggest it will. The critical question is whether organisations will approach transparency reactively, implementing minimal compliance measures, or proactively, using transparency as a tool for cultural transformation and competitive advantage.

Success in this environment requires moving beyond the assumption that transparency inevitably creates problems. Instead, organisations must develop the systems, training, and cultural foundations necessary to make transparency work effectively. This means ensuring that pay decisions can withstand scrutiny, that managers can explain compensation rationally, and that employees have access to accurate information about their compensation relative to market standards and internal equity principles.

As the regulatory landscape continues evolving and employee expectations shift, the organisations that thrive will be those that view transparency not as a burden to manage but as an opportunity to build the trust and fairness that modern workforces demand.