The Dark Side of Pay Transparency — And What to Do If You Find Out You're Being Underpaid There are many reasons employers and workers advocate for pay transparency — it can build trust, lead to fair compensation for historically underpaid individuals and eliminate the stigma surrounding money talk. But as the practice becomes normalized, honesty can backfire.
By Madeline Garfinkle Edited by Jessica Thomas
Opinions expressed by Entrepreneur contributors are their own.
Beatrice* had just graduated when she landed an internship at one of the top PR firms in the D.C. area. From the start, transparency — especially regarding pay — was the norm. At first, Beatrice thought it was refreshing. Then, when she was hired full-time in the fall of 2019, the so-called refreshing honesty began to backfire.
Beatrice became close with Gina,* who had the same role in the company. They were seated mere feet away from each other pre-Covid, and their conversations — both in and out of the office — almost always revolved around who was up for a promotion, if they got it and how much they got paid.
Because of their similar positions, Beatrice began to get grouped with Gina when it came to promotions and raises, something that only accelerated throughout her nearly four-year career at the firm. Everything came to a head when the pandemic struck and the firm, like so many others, scaled back on hiring, raises and hundreds of anticipated promotions.
"The day before Thanksgiving break in [2020], I got a phone call from my manager, who said unfortunately because of Covid budget cuts, you are not getting promoted," Beatrice recalls. "Then he was like, 'Please, don't tell the others, I don't know when they are learning if they've gotten theirs or not, but I will tell you that three people on our team did get a promotion.'"
Needless to say, Beatrice's mind instantly jumped to Gina, knowing that the disappointment would likely turn to resentment if her peer was chosen and not her. "I was just gutted and it became a survivor game of numbers: Three got promoted. I know my manager was one of them; I don't know the other two."
Gina didn't get promoted, which offered Beatrice temporary relief. But as the months went on, her career at the firm became less about her individual growth and more about her differentiation from Gina.
Because the two were on the same "level," Beatrice recalls how it became akin to The Hunger Games — if they could only promote one of them, who would it be?
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"I remember conversations with my manager when we talked about this, and it would almost always include a comparison to Gina," she says. And although her manager did his best to steer her focus back to her individual journey, his candor with Beatrice revealed another reality.
"He would be like, 'We need to focus on your career journey, your story.' But in a different meeting, he would say, 'Between you and me, I know they will not give you more money because it will make Gina upset.'"
For Beatrice, that was the final straw — she knew she had to make a choice, and she felt the only way to escape the toxicity was to leave.
"I knew I needed to get out because I thought I could spend 15 more years here, working my way up this ladder with Gina at my pit," she says. "There was no way to break the cycle."
Related: How Salary Transparency Empowers Employees -- and When Not to Use It
In 2021, Beatrice decided to escape not only the firm but also the industry. She applied to law school, got in and gave her two weeks' notice.
Looking back, Beatrice considers the experience an example of when transparency goes too far and says nearly "all" the drama and stress surrounding promotions could have been avoided had the level of transparency been scaled back even slightly.
"Never play the end game unless you're prepared to go along with it."
The concept of pay transparency isn't exactly new. The minimum wage has been around for decades, so hourly workers often know how much their peers make — as do customers and the general public.
But in salaried industries, pay transparency is a newer phenomenon, with companies adopting the model by choice or because the law requires it. In 2019, Colorado became the first state to uphold wage transparency requirements by passing its Equal Pay For Equal Work Act, which went into effect in January 2021 and applies to any employer with at least one employee. Following suit, seven other states and several cities across the U.S. have adopted pay transparency laws in some capacity. Those who argue for complete pay transparency say it can help build trust among peers and minimize wage discrepancies for those who have been historically underpaid.
"Typically, when people think about the effects of pay transparency, they have in mind someone who might have previously been underpaid, either a minority worker or a woman who's essentially been facing discrimination in the workplace and doesn't realize it," Zoe Cullen, an assistant professor at Harvard Business School, says on The Economist's Money Talks podcast, "and then upon hearing what their coworkers are being made, they can use this information and negotiate a raise so that we see fairer pay in the workplace."
Related: 5 Examples of Companies Succeeding Through Transparency
However, when employees with similar skill sets, backgrounds and roles discover pay discrepancies, problems arise — not only for the employees themselves but also for the overall financial health of the company.
When firms choose to adopt a pay-transparent model, it prompts them to "rethink how they're setting wages in the first place," Cullen says on the podcast. In essence, if employers anticipate new and current hires will consistently fight for higher pay, they might initially set a far lower bar for salaries.
"An extra dollar to somebody means they also have to pay an extra dollar to many other employees," Cullen says. "On average, across all workers, we see approximately a 2% decline in wage overall."
Things get even more complicated in a tight labor market.
Julia Pollak, chief economist at ZipRecruiter, explains that when employers are vying for top talent, it might mean that new hires start at a much higher salary than contemporaries who started even one year earlier.
Pollack recalls a conversation she had with a nurse manager at a major health company. When word got out that new hires in the nursing department were being paid more than experienced nurses, it predictably caused upheaval. The nurses asked their managers to be paid the same amount or more in recognition of their additional experience, but nothing happened. In retaliation, a group of nurses banded together, quit and then reapplied for the new roles. "That sent a very clear message," Pollak says.
Although the nurses' plan succeeded, Pollak warns that such a move should be the last resort, and you should "never play the end game unless you're prepared to go along with it."
It's wise to be strategic rather than impulsive, even in an unfair situation.
"Unless you have a backup plan and some financial security in case they let you go and don't rehire you, this is something to consider when all other options fail," she says.
The nurses had strength in numbers, and it paid off. But for those who feel isolated and cheated when they discover what others are being paid, Pollak suggests a softer approach: Ask questions.
"Try something like: 'It came up that the so-and-sos running this job are making this much, and I feel we perform very similar roles. Can you tell me how I could get the same wage or the reason for the difference? Is there something I've missed?'" Pollak says. "Which is a subtle way of saying 'this is not really fair' without putting them on alert that you're going to bring a lawsuit or create an adversarial relationship."
Related: Financial Empowerment Means Asking for the Salary You Deserve. Many Don't Know How.
Pollak has found that employers are increasingly receptive to this approach — and it's in their best interest to be, because when workers discover a discrepancy in pay, morale takes a nosedive — as was the case for Beatrice and so many others with similar experiences.
"It's a no-brainer," Pollak says. "When workers are paid different amounts and do very similar jobs and they find that out, productivity declines among the people who feel cheated. It's wise for employers to be proactive and get ahead of these issues."
*Names have been changed.
