Companies are still keeping compensation a secret. Why that's bad for business

Despite an increased push for pay transparency across industries, states and cities, companies are still withholding compensation reports. But amid economic uncertainty and a challenging talent market, that may not be serving organizations' best interests after all. 

Seventeen states, including New York and California have passed legislation requiring some level of pay transparency, according to a recent study conducted by employee analytics company Perceptyx. However, some of those regulations only go as far as allowing employees to freely discuss pay with colleagues without risking their jobs. Of the companies surveyed by Perceptyx, seven of 10 make salary ranges known to employees, but nine out of 10 acknowledged that those ranges are published only when required by law. 

"Unless people are asking proactively, companies will keep that information in-house, and we know that certain segments of the employee population are less likely to ask that," says  Emily Killham, director of research insights at Perceptyx, referencing women and BIPOC employees. "The domino effect of that is, certain people end up having information that other people do not have."

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That's limiting career growth across populations, and creating retention issues for organizations, too: Perceptyx's research found that 40% of employees who have taken a new job in the last six months are earning the same or less than in their prior role. But companies that hesitate to share information, Killham says, are likely acting from a place of self-preservation rather than ill-intent.

"They aren't necessarily trying to create a lack of transparency, but they know there's a problem [with their pay structures] and they don't have a plan yet," she says. "There has been a bit of a misconception that if you pretend you are unaware of a pay gap then that data doesn't become discoverable. But if you've done a compensation study, the data's discoverable even if you don't publish it." 

But compensation alone isn't the sole driver of turnover. Only 24% of surveyed employees cited their paycheck as a reason for leaving their previous job. Raises can boost an employee's perception of fairness by as much as 25%, but the data also shows that raises rarely impact an employee's willingness to stay at an organization. 

The trouble instead comes down to transparency, Killham explains. Employees are less fixated on an organization's specific pay gap, and more interested in an organization's willingness to talk openly about the issue, even before a plan may be in place to fix it. 

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"What employees are asking employers for at this point is to do two things: build transparency and then build their trust," Killham says. "Employees want their employers to just say, 'We know we have a problem and here are the steps we're taking to fix it.'"

Still, employers are understandably fearful of pointing out pay discrepancies within their organizations: What happens if compensation data is published and it's below market? How damaging might that be on employee trust? 

Killham suggests enhancing other aspects of the company's culture, while maintaining a frank and honest conversation about compensation. For example, 54% of employees cited a lack of career development as the reason they left their previous company — more than twice as many that cited compensation as the culprit. Healthcare, retirement benefits and company stability also ranked ahead of compensation on employees' list of priorities. Creating more intentional career paths and educational opportunities, or finding ways to enhance benefits, may boost an organization's appeal while giving employers the space and time to work with employees to solve pay discrepancies. 

"The truth is that when it comes to employees signing on with an organization, [compensation] takes a lower piece of the pie," Killham says. "When it comes to signing on and staying, it's about things like, did I have a career path that made some sense? Do I get to grow and learn more and become more important and become more knowledgeable and have new experiences and opportunities?"