Pay Transparency: 1 Simple Change to Help Reduce the Gender Pay Gap

In fact, ELMO’s most recent Employee Sentiment Index found the vast majority of workers in Australia and New Zealand believe there should be greater pay transparency in organisations. 

In the US, pay transparency laws are gaining traction. Eight states have now enacted laws, with 15 more states considering them. For example, in Colorado, New York City, Washington and California, job postings must include the compensation ranges. This movement has spurred businesses in many other states to voluntarily include salary ranges.

Similarly in Australia and New Zealand, the inclusion of pay ranges is becoming more common.

A recent research study conducted in the US goes to show the positive impact of pay transparency within job ads, highlighting this relatively simple, cost-effective action businesses can take to help reduce their gender pay gap. Best of all, it costs nothing for a business to implement.

About the study

The study aimed to examine the impact of disclosing salary ranges within job applications and in particular, differences between men and women. They used three variations within the experiment – job applications with no ranges, with a broad pay range, and with a narrow pay range.

The study used a US Census targeted sample of 600 people from an online labour market. Participants were shown a hypothetical job posting for a project manager role and asked about their likelihood of applying for the job. In the next stage, they were offered the job and told their salary would be at the midpoint of the range ($60,000). Next, they were asked about their likelihood of negotiating their salary.

The job postings contained either no salary information, a broad range, or a narrow range. According to the study, the broad range was: $50,000 – $95,000 USD per year, while the narrow range was $50,000 – $70,000 USD per year.

While some US states require employers to include salary ranges within job ads, they don’t state how narrow or broad the ranges should be. This study aimed to explore whether the range itself (and including none at all) has an impact on jobseeker behaviour.

The findings

The experiment found women were more likely to apply for the job if a narrow pay range was included in the description, compared to those with no range or a broad range. Why? The study found that a narrow range provided a greater perception of pay fairness among female applicants. 

The opposite was true for male applicants. They found no significant effect of any of the pay range disclosures on the likelihood of male candidates applying for the job. 

The study also found women, but not men, were more likely to negotiate when salary ranges were given and that trend was stronger when narrow pay ranges were included.

The researchers wrote: “Our study indicates that mandating pay range disclosures in job postings is more likely to achieve a gender-diverse workforce and reduce the gender pay gap when such disclosures contain narrower pay ranges than when such disclosures contain broader pay ranges.”

The study provides a useful piece of evidence for HR or recruitment leaders wanting to introduce pay ranges within their job advertisements. It shows the importance of narrow pay ranges rather than broad ones, and the positive impact on female applicants.

If organisations want to drive more gender-equal outcomes, including narrow salary ranges is one simple, cost-effective way to encourage more applications and better salary outcomes for female applicants. 

The benefits of pay transparency 

For job seekers, the inclusion of a salary range fosters a sense of mutual respect and sets a positive tone for the recruitment process, underscoring an organisation’s commitment to fairness and open communication. Given that women are most likely to be negatively impacted by pay inequality, it makes sense that including pay ranges within job descriptions leads to more applications and an increased likelihood of negotiating for female candidates. 

For businesses that genuinely want to close their gender pay gap, encouraging all applicants to negotiate their salary is vital. If only one gender is likely to negotiate, inequality will always be the result.

Secondly, salary range disclosures can enhance a job seeker’s engagement with an advertised role. It saves them from committing time to lengthy application processes for jobs that may not align with their financial goals, creating a more efficient job search process.

Finally, the inclusion of salary ranges minimises the opportunity for unconscious bias during the recruitment process, ensuring those hired are done so based on their skillset, experience and aptitude, rather than other factors such as gender, age, or ethnicity. 

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