The salary conversation: How pay transparency can improve hiring and retention
2 in 5 HR leaders in the UK say that they often lose candidates because salary wasn’t discussed soon enough in the hiring process. With the majority (70%) of workers knowing how much they should be paid for a job, discover how salary transparency can improve hiring and retention.
Salary negotiations have always been a tricky part of the employment process for both employers and candidates. For the past few years, labour and skills shortages put candidates in a favourable position to negotiate higher salaries and a better work-life balance.
Movements and accompanying laws around fair pay and pay equity pushed businesses to implement policies that ensure fair compensation regardless of the employee’s age, gender, race and nation. These policies also promote a company culture of fairness and belonging, both key in employee engagement and retention.
But is salary transparency really effective in retaining candidates and employees?
First, let’s start with what salary transparency means.
What is salary transparency?
Salary transparency has recently become a global workplace trend following new salary transparency laws coming into effect in some states in the US and countries in the EU, as well as in Japan.
Meanwhile in the UK, the rise in cost of living has prompted more discussions around salaries. Wage growth has reached record levels throughout 2023, as businesses increased salaries for workers to contend with rising costs.
Totaljobs’ Salary & Benefits research found that 70% of UK workers know how much they should be paid for their job. The majority also support salary transparency (85%) and feel comfortable sharing how much they earn with their peers (72%).
So, looking at the sentiment on salary transparency, we can see jobseekers and employees overwhelmingly vote in its favour. But what are the implications for employers?
The role of salary transparency in candidate attraction
Candidates are increasingly looking for explicit salary information or a salary range on job ads. We found that 3 in 5 people decided not to apply for a suitable job because it lacked salary information. This is a significant loss before the hiring process can even begin.
Since 73% of UK workers cite salary as the biggest influence on their decision to apply for a role, including a salary range in the job description can contribute greatly to candidate attraction. Most candidates (93%) feel more positively about companies that share salary information. It indicates that the company values transparency and puts efforts into addressing gender and ethnicity pay gaps.
So, salary transparency can improve a company’s image from an employer branding perspective too. At the same time, sharing salary information so early in the hiring process helps recruiters, talent acquisition teams and candidates save time as they are more likely to be aligned on salary expectations.
Why some employers prefer not to advertise salaries
Despite the positives of including salaries on job ads, we found that only 1 in 5 businesses are planning to provide a salary range in their job postings in the near future. There are good reasons as to why employers prefer to discuss salaries later in the hiring process.
Sharing salary information on job ads can sometimes deter otherwise suitable candidates who don’t think their skills match the advertised salary. Some employers might prefer to be more flexible and evaluate candidates more holistically and decide to train someone with less experience. However, when the salary is predetermined; a re-negotiation isn’t always possible.
Then when should salary discussions take place in the hiring process?
Discussing salary with candidates
According to 2 in 5 HR leaders in the UK, candidates drop out of the hiring process because salary isn’t discussed soon enough. Approaching the topic of salary during the candidate screening or the first interview can save time for hiring managers and candidates.
Ideally, hiring managers should start an open conversation about what the company offers depending on the expectations around the candidate’s skills and experience. The candidate can then decide if the offer is attractive enough to continue with the process.
Discussing salary and pay rises at work
Our latest Hiring Trends Index found that staff retention is the number one workforce priority for businesses in Q1 2024. This comes as no surprise as the market conditions challenge employers in making new hires. In the latest quarter of 2023, the main reason for workers to quit was being offered a higher salary elsewhere (29%).
We know that 3 in 10 workers expect at least a 3.7% rise, and they’ll look for a new job if their expectation isn’t met. To stay competitive and be an attractive employer, it’s important to keep benchmarking salaries and benefits as well as reviewing rewards, assessing training opportunities and career progression plans, investing in new technologies and offering flexible working.
Conducting fair salary reviews and making sure managers are trained to have objective and open discussions around compensation can keep employees engaged and informed about salary processes.
We found that a third of businesses are planning to increase salaries and bonuses in the first quarter of 2024. This is an important step in staff retention, as salary is an important factor for people to feel more valued (74%) and more loyal to their employer (69%).
Salary transparency’s role in overcoming pay gaps
Salary transparency is a step in the right direction to identify and close a variety of pay gaps such as the gender, ethnicity and social mobility pay gaps. In the UK, companies with 250 or more employees are required to report on gender pay gap since 2018.
More transparency and reporting around salaries can pave the way in closing pay gaps and boost pay for disadvantaged groups. However, there are still inherent biases that prevent these pay gaps from closing.
For example, our 2023 Salary and Benefit research showed that men with kids are significantly better paid compared to women with kids, and men and women without kids. In the case of mothers, this was largely due to their career progression slowing down after they have kids.
According to our research on working mothers with The Fawcett Society, 84% of new mothers face challenges returning to work after maternity leave and a lack of support from employers causes 11% of them to quit.
The way companies approach salary transparency is very important. When businesses are better equipped with salary data and analyse it to level the playing field, they can create more equal and inclusive workplaces.
Find out more about our research on gender and pay