“Companies are also wary of wages coming under pressure and losing their best talent to competitors without transparency,” Obloj says. “But in the data, the opposite is happening: there is no exodus of superstars from organizations that are becoming transparent, and in the midst of the Great Resignation, we cannot apply the lens of the 1970s and 1980s, when it was enough to get high- powerful incentives.”
An example of large-scale pay transparency is taking place in Iceland, where from 2018 companies with more than 25 employees must prove that they pay equal for equal work and correct any pay gaps. If companies can demonstrate that they pay equally, they receive certification, and those who do not pay receive a daily fine. A similar scheme was introduced in Canada at the end of 2021 for companies with 10 or more employees, with the aim of correcting all wage differences by September 2024.
Bryndis Alexanders, a studio manager at Reykjavík-based software development company Aranja, had always questioned her salary before the Equal Pay for Equal Work Act was passed. “I was promoted to middle management and moved up a pay scale, with my salary increasing by 20 percent,” she explains. “I didn’t expect such a big increase and I’m not sure it would have happened without the law.”
Her colleague Sævar Már Atlason moved to Aranja from another Scandinavian IT company, which he claims lacked payroll transparency and where employees did not disclose their salaries. Although he started in an almost identical position as a senior software developer, his salary increased with the move. “The 100 percent transparency was a welcome change — it makes for better team dynamics and you get a better feel for market salaries to make sure you’re at the top for your position,” he says.
Aranja has a transparent compensation system and uses salary scales based on Reykjavík’s market rates, which are close to the high end of the tech market. But wherever employees live, they get paid the same, so there’s no penalty for moving to a cheaper living environment. “An interesting thing we learned with transparent salaries is that it can put undue pressure on new employees to prove that they ‘deserve’ the salary level they negotiated,” said Technical Director Eiríkur Heiðar Nilsson. “This is counterproductive, as it is already a stressful time for new hires, and we want existing employees to help onboard and guide them without toxicity if they underperform.” To avoid this, a lower starting salary is negotiated, with the promise of a performance appraisal after six months when they are brought to the right level.
Gag clauses are widespread in some countries. One in five workers in the UK are not allowed to discuss pay with colleagues, and in Australia pay secrecy clauses are often included in employees’ contracts.
Under US law, employees have the right to discuss benefits, and 21 states prohibit anti-gag clauses, which prohibit employers from requesting salary history information from job applicants to stop past salary discrimination.
