The Entirely Predictable Impact of Salary Transparency

“Firms are also wary of wages getting compressed and losing their best talent to competitors without transparency,” says Obloj. “But in the data, the opposite happens—there’s no exodus of superstars from organizations that become transparent, and amid the Great Resignation, we can’t apply the lens of the ’70s and ’80s, when it was enough to offer high-powered incentives.”

An example of large-scale salary transparency is taking place in Iceland, where, as of 2018, companies with more than 25 employees have had to prove they pay equally for equal work and correct any pay equity gaps. If companies can show they pay equally, they receive certification, and those without will incur a daily fine. A similar scheme for companies with 10 or more employees was implemented in Canada at the end of 2021, with a view to correcting all pay equity gaps by September 2024.

Bryndis Alexanders, a studio manager at the Reykjavík-based software development company Aranja, had always questioned her salary before the equal-pay-for-equal-work law was introduced. “I was promoted to middle management and went up a pay bracket, with my salary increasing by 20 percent,” she explains. “I wasn’t expecting such a big increase, and I’m not sure it would have happened without the law.”

Her colleague Sævar Már Atlason moved to Aranja from another Nordic IT company, which he claims had no pay transparency and where employees did not disclose their salaries. Although he joined with an almost identical position as a senior software developer, his pay increased with the move. “The 100 percent transparency was a welcoming change—it creates a better team dynamics, and you get a better feel for the market salaries to ensure you are top end for your position,” he says.

Aranja has a transparent pay system and uses salary bands based on Reykjavík market rates, which are close to the top end of the tech market. But no matter where employees live, they get paid the same, so there’s no penalty for relocating to a cheaper-cost-of-living area. “One interesting thing we’ve learned with having transparent salaries is it can add undue pressure on new employees to prove they ‘deserve’ the salary level they negotiated,” says technical director Eiríkur Heiðar Nilsson. “This is counterproductive, since it’s already a stressful period for new employees, and we want existing employees to help onboard and mentor them without toxicity if they underperform.” To avoid this, a lower starting salary is negotiated, with a promise of a performance review after six months when they are moved to the right level.

In some countries, gag clauses are widespread. One in five UK-based workers are banned from talking about pay with colleagues, and in Australia, pay-secrecy clauses are often written into employees’ contracts.

Under US law, employees have the right to discuss compensation, and anti-gagging clauses are law in 21 states, prohibiting employers from requesting salary history information from job applicants to stop previous salary discrimination carrying forward.