Navigating the Spectrum of Pay Transparency in Your Compensation Strategy

As organizations seek to foster fairness, equity, and trust among their workforce, they have to decide how transparent they want to be regarding pay information. However, many fail to recognize that pay transparency exists on a spectrum. With any pay transparency program, the goal is to create an approach that works for your business and employee value proposition.

This article explores the different approaches to pay transparency, highlighting the benefits, challenges, and considerations associated with each decision. By understanding the range of options available, organizations can make informed decisions and take steps toward creating a more transparent and equitable compensation program for their employees.

Background: What is pay transparency, and why is it important?

Pay transparency is the practice of openly sharing information about how worker compensation is determined, including salary ranges, bonus structures, and the factors that influence pay decisions—such as skills, experience, location, and performance.

In a workplace context, pay transparency can range from publishing salary bands in job postings to sharing how pay decisions are made during reviews. The goal is to promote fairness, trust, and accountability—and to reduce pay inequities based on gender, race, or other protected characteristics.

Pay transparency lets companies build trust with their employees. It’s not a one-size-fits-all initiative and doesn’t sacrifice employee confidentiality. Instead, it’s an evolving program that allows an organization to be proactive about its compensation philosophy and commitment to fairness and equitable employee compensation.

Because of changes in employee expectations and new legislation, pay transparency is also a pressing issue in today’s business landscape:

• Over 10 states and multiple localities, including New York City, California, and Colorado, now require salary disclosures in job postings, with more states considering similar legislation
• Failure to comply with pay transparency regulations can lead to significant financial penalties. California requires employers to disclose this data based on their pay transparency legislation. Penalties range from $100 to $10,000 per violation, and in Westchester County, New York, civil penalties can reach up to $125,000, potentially increasing to $250,000 for willful violations

As organizations respond to changing worker expectations, legal compliance becomes more widespread, and research continues to show that transparency drives better business results, organizations are likely to implement some level of transparency.

However, companies have choices in how transparent they want to be with job applicants. Below, we outline the following “tiers” of pay transparency:

Not all organizations will be at the same level of transparency or even interpret each tier identically. However, it’s important to first understand the requirements and benefits of each approach. This understanding will let you set an organizational aspiration for the pay transparency approach you intend to take.

What a lack of transparency means

Deciding to pursue no pay transparency can negatively impact your company in a myriad of ways, including:

• Providing negative employee experiences
• Creating a culture of mistrust
• Hindering talent acquisition and retention efforts
• Inviting legal risks
• Harming a company’s overall reputation and long-term success

Additionally, in some states, organizations can be fined for not providing basic pay transparency on job postings in pay data reporting. Some states explicitly describe fines for non-compliance, which include:

• Massachusetts: A first offense generates a warning. A second offense may generate a fine of up to $500. The maximum rises to $1,000 for a third offense and $25,000 for subsequent offenses
• Nevada: Violations carry penalties of up to $5,000 per violation
• New Jersey: Employers who violate the law will face up to a $300 fine for the first violation and up to $600 fines for subsequent violations
• Rhode Island: Organizations can be required to pay up to $1,000 for a first violation, up to $2,500 if there has been a prior violation within the previous five years, and up to $5,000 if there have been two or more violations within the prior seven years

Level 0: Baseline transparency (Compliance)

At this level, companies meet legal minimums for pay transparency, which often includes:

• Posting salary ranges in job ads only where required by law
• Responding to pay inquiries reactively and on a case-by-case basis
• Avoiding broader internal disclosure of compensation structures

At this stage, an organization is likely beginning to think about pay transparency and has an immature compensation strategy. Compensation bands have probably been built for external job postings, and band maintenance is a highly manual process with limited repeatability. Additionally, adherence to compensation bands is likely inconsistent across the organization.

At this level, companies typically manage compensation documentation in a series of Excel files or a Google Sheets folder owned by a small group of executives or the HR team.

Level 1: Manager transparency

At level one of pay transparency, managers have access to pay bands, compensation policies, and guidelines to make informed pay, promotion, and career progression decisions and answer employee questions when asked.

• People managers are trained on how pay is structured
• Comp decisions are still made behind closed doors but with clearer guardrails
• No guarantee that employees know their range

Benefits

Managers are an organization’s most effective communication pathway. Giving managers insight into employee compensation and compensation bands is a great start to driving more transparency within your organization.

Additionally, when managers fully understand the potential growth trajectories of their teams, they are better equipped to develop talent. Giving managers access to compensation bands drives a stronger relationship between managers and employees to set clear expectations on compensation to drive better engagement and performance.

Other organizational advantages for sharing compensation bands with managers include:

• Decentralize compensation conversations: Rather than relying only on People and HRPB teams to have compensation discussions, giving managers access to bands frees bandwidth for HR teams to work on more strategic aspects of a People function
• Refine compensation bands: Managers are on the front lines of recruitment decisions while speaking with candidates. Giving managers access to bands shortens the feedback loop on band adjustments to be market-competitive

Requirements for implementing this level of pay transparency

• Develop a compensation philosophy: This philosophy confirms that bands were developed with explainability and consistency in mind, ensuring managers understand the foundations of compensation setup and decisions
• Define your approach to manager access: While managers are critical in compensation communications, they are also employees themselves. Thus, you should define what level of access is most appropriate for viewing compensation bands. Options for manager visibility include:
  • All positions where a manager has a direct or indirect report
  • All positions up to (but not including) the manager’s position within a given career ladder
  • All career ladders where a manager has a direct or indirect report
• Create your leveling framework: This doesn’t need to be a complete competency framework at a position level (but it can be). At a minimum, it should clearly explain the global expectations of levels within the organization
• Implement a compensation platform: It is difficult to administer an advanced manager access policy without proper tooling. A compensation platform would incorporate employee compensation data and support band analysis with standard metrics such as compa-ratio or band penetration
• Train your managers: An effective conversation about compensation bands and leveling with employees is critical. Don’t assume that managers immediately know what (or what not) to say to their employees. Be thoughtful about equipping your managers with the right resources and FAQs

Level 2: Employee transparency

At level two of pay transparency, employees can access information about:

• Their own pay range or salary band
• How their current total compensation aligns with that band
• The factors that influence their compensation (e.g., skills, level, performance)
• How pay decisions are made during review cycles

Benefits

Sharing compensation bands with employees exceeds the growing regulatory requirements for pay transparency in states with legislation. However, it also presents an opportunity to build trust with employees by showing your commitment to fairness and equality in the workplace.

Additionally, it allows your organization to future-proof your compensation strategy and build a culture of transparency and trust.

There are many benefits to rolling out band transparency, including:

• Employees become more confident in their current pay and how the band informing their pay was created
• HR teams ensure a consistent narrative between external job postings (that are typically required by law to include salary ranges) and internal compensation discussions
• Organizations reduce ad-hoc compensation change requests through higher employee confidence in their pay. This can be an important driver for retaining your talent
• Improving retention contributes to reduced talent acquisition costs and builds a more efficient organization

Requirements for implementing this level of pay transparency

Before sharing band data with employees, organizations should consider a phased approach, where they begin with manager transparency (see Tier 1).

Once they have achieved relevant feedback from leadership and managers, they should undergo sufficient preparations for a successful employee-level launch, which includes:

• Refine any compensation bands based on feedback from the leadership and management teams. Ensure the structure is fully developed for all positions (and potential promotions or new departments) within your organization’s job architecture
• Conduct an audit of current employee compensation against their bands. Identify employees that are below, or above, their band and make a plan for addressing those compensation discrepancies either before (or after, if absolutely necessary) the launch
• Define and share a global leveling framework and support that rollout with relevant training for managers and employees. Organizations that share bands without a framework run the risk of employees losing confidence in the compensation bands and leveling decisions. By aligning on a global-leveling framework first, you will equip managers with talking points for leveling and compensation decisions, which will drive consistency and confidence in the company’s compensation strategy

Level 3: Progressive employee transparency

Employees have broader visibility into the organization’s pay structure:

• They have access to their salary band and the band at the level above their position
• Other variations on this transparency might include visibility into their salary band in different locations or all salary bands within the relevant career ladder
• Pay philosophy and internal equity approach are documented and shared

Benefits

Increased transparency around pay helps develop a strong engagement, growth, and performance culture. When employees know what they are working towards, they are further motivated and confident in their desire to stay in an organization.

Requirements for implementing this level of pay transparency

This level of pay transparency requires a more robust leveling framework and equipping people managers to have meaningful conversations around career growth.

• Build department-specific leveling frameworks and competency matrices, and audit employee levels for accuracy. Each department should have specific expectations of their employees along with the categories used for measuring performance. Managers and HR should collaborate to define expectations. Additionally, managers need to communicate them to employees and assess their performance accordingly
• Train managers to explain expectations for employee growth and evaluations. Competency matrices are not enough on their own. Managers need to communicate expectations, support growth, and measure performance objectively and consistently
• Drive consistency in the merit cycle approach. Employees need to understand when their levels are subject to change. Without a consistent approach, employees may view the next level of compensation band as a goal without a target date, demotivating them to perform and grow

Level 4: Full transparency

Compensation is fully open across the organization. Everyone can view:

• The exact salaries of all team members
• Full bonus structures, equity grants, and perks
• All pay-related decisions and rationales

This model, which is common in a small number of companies (e.g., Buffer, and public sector roles), prioritizes radical transparency and full accountability.

Benefits

This is one of a company’s strongest signals to show its commitment to pay equity. Organizations that have rolled out full transparency with compensation bands have found significant cultural improvements in trust, fairness, equitability, and employee performance, according to studies published in the Academy of Management Review.

In this environment, employees are motivated to perform to their full potential, and it becomes easier to attract new talent by highlighting a strong culture of transparency and compensation visibility.

Requirements for implementing this level of pay transparency

Organizations that adopt a fully transparent approach to compensation bands need adequate planning and preparation. This is typically a CEO-led decision, so once you have achieved leadership alignment, you can get started by doing the following:

• Run a full pay equity analysis to identify any inequities that exist in the organization. Take action on these before rolling out your transparency program. Additionally, you should define a regular cadence for running pay equity analyses in your compensation philosophy (this is typically on a semi-annual or annual basis).
• Define a consistent approach for refreshing compensation bands. It’s vital to ensure market swings in compensation are addressed but don’t cause organizational whiplash. Create an approach for handling these factors and stick to your approach when refreshing bands
• Develop a culture of transparency and psychological safety to support this transition. In any organizational change, it’s critical to think through the levers to effectively implement change. This might include:
  • Role-modeling what it means to be transparent from the leadership team
  • Clarify why this level of transparency is important for the organization and what it represents in terms of an organization’s commitment to equity
  • Train managers and employees about what it means to operate in a more transparent organization
  • Reinforce this level of transparency with regular manager and employee feedback

How to determine the right level of pay transparency for your organization

Finding the right level of pay transparency for your organization will involve balancing legal compliance with company culture, industry culture, and employee expectations. You can do this through:

Legal requirements

In the U.S., certain states (e.g., California, New York, Colorado) require disclosure of salary ranges in job postings.

Similarly, the EU Pay Directive introduces similar requirements for employers. They need to provide workers with relevant information about pay levels and progression and the objective criteria used in setting them. Additionally, workers have the right to request and receive in writing information about their pay and that of their colleagues doing the same work or work of equal value, broken down by gender.

The EU Whistleblowing Directive asks companies to implement protections for employees reporting pay violations.

Conduct a legal audit to ensure compliance with applicable laws.

Company culture and leadership readiness

Start by looking into how leadership feels about openness and transparency and how it relates to company values. As an extra step, preparing managers to share pay-related decisions should be an important part of training. Don’t forget to reach out to your entire team by starting internal conversations on how pay is structured before any external communications.

Industry norms and competitive positioning

Industries take different stances on pay transparency based on their competition, regulatory environment, and own company culture.

The tech space, for example, opts for a more transparent approach where some even transparently share their salary formulas or promotion opportunities. In contrast, industries like finance and legal avoid transparency because they believe keeping wages or salaries confidential will keep employees from leaving and discourage competition amongst employees.

Employee expectations and feedback

Fairness in the compensation structure is what more employees demand as early as the hiring process. Plus, it’s what ultimately builds trust with them. One way to understand whether employees feel their salaries are fair and competitive is to conduct anonymous surveys. Also, using focus groups and open forums can create a place for employees to express concerns.

However, the appropriate level of disclosure depends on employee preferences and your organizational structure. For example, some companies issue general pay bands that allow some flexibility. Other organizations disclose salary ranges in detail to demonstrate salary equity.

Manage compensation and global compliance with Deel

From new legislation to continued changes in employee expectations, pay transparency is an initiative that companies can no longer ignore. Organizations that are thoughtful and intentional about how pay transparency fits into their compensation programs will be better equipped to attract, retain, and motivate talent.

Use Deel Compensation for automated compensation management and to continuously comply with dozens of pay transparency laws without additional spreadsheets, needless back and forths, or hiring additional team members.

Choose Deel to:

• Get expert support for setting up compliant salary bands for different roles, regardless of location
• Access real-time salary insights to maintain competitive and fair pay across markets
• Use location-specific data to adapt salaries based on different regions
• Stay compliant with local pay disclosure laws without additional manual work
• Automate payroll adjustments to meet country-specific regulations seamlessly

Request a demo to simplify pay transparency and compliance with Deel Compensation.