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When pay transparency laws started going into effect about five years ago, employers had to decide what level of transparency was right for their organizations.
A common fear was that disclosing too much information—beyond the stated requirements of publishing expected salary ranges for open roles—could prompt employees to become dissatisfied with their pay, and lose motivation in their jobs.
But recent research suggests that learning what the typical employee earns at a firm actually boosts pay satisfaction among average rank-and-file workers.
The findings. The research analyzed public firms’ compensation and benefits ratings on Glassdoor in the years after they were required to disclose how CEO pay compares to the median employee pay due to an SEC rule that took effect in 2018.
Disclosing the CEO-to-employee pay ratio resulted in a “significant increase” in pay satisfaction at these firms, according to the study. After one year the average compensation rating rose from 3.31 to 3.39. The average work-life balance rating on Glassdoor also rose, from 3.23 to 3.28.
But HR leaders shouldn’t take this to mean that workers are happy to find out what the CEOs of their companies make, said Lisa LaViers, an assistant professor of accounting at Tulane University's A.B. Freeman School of Business, who co-authored the research. CEO compensation rose by an eye-popping 1,085% from 1978 to 2023, and the growing gap between CEO pay and worker pay has been a central focus of union campaigns in industries like automotives and entertainment.
Instead, the disclosure of what the median employee earns seems to be driving the uptick in workers’ satisfaction with their pay, she explained. While public companies have long had to disclose what they pay their CEOs, workers only started finding out about median employee pay once the 2018 mandate took effect.
That doesn’t mean they didn’t have their own ideas about how their pay compared to peers prior to the SEC rule. Most workers believe they’re underpaid, LaViers told HR Brew, and they are likely to make assumptions about how their firm pays its workers from other sources.
“You’re developing ideas of what [peers] are being paid,” she said. These ideas are likely to come from the Internet—sites like Glassdoor and Indeed include salary data for the companies they track, and many firms now include salary ranges for open roles. Workers’ perceptions about pay may also be shaped by their colleagues’ behavior, LaViers added.
“So companies are letting you develop your ideas of pay based on the Mercedes you see in the parking lot, because that’s what gets your attention; information that you see on Glassdoor that may or may not be accurate,” she said.
When workers were given information about rank-and-file pay for the first time in 2018, “that median employee pay was so much lower than any other reference point employees ever had that it made them happier,” LaViers said.
The case for more transparency. These findings may be helpful for HR teams at organizations that are weighing whether to make additional salary information available to their employees. Most employers are complying with laws requiring them to include salary ranges in their job postings, but sharing more than that with the workforce is a different question, HR Brew previously reported.
When considering how transparent to be about pay, “employers should try to get an understanding of what their employees think already and what information they have access to,” LaViers said. “If you know that your employee is getting on Glassdoor and seeing salaries for their role that are not accurate or are inflated, this might be a place where more transparency is better, because you’re correcting the misunderstanding.”
Of course, if additional transparency will reveal that your company is paying employees unfairly, that is unlikely to make workers more satisfied with their pay. Compensation experts typically recommend employers perform a compensation analysis to correct for any unexplained inequities before going public with salaries.
“If you don’t know if your pay is fair or unfair, find out,” LaViers recommended. “There are lots of ways of doing benchmarking.”