Pay to Play: Can Pay Transparency Help CPA Firms Attract and Retain Talent?

In March 2023, Alex Cheney was laid off from his role as a senior technical recruiter at a global software company headquartered in San Francisco. Having spent more than a decade in the talent acquisition space, Cheney is a seasoned professional who’s well aware of the latest trends impacting the hiring and recruiting landscape—and now he’s leveraging that knowledge in his own job search. One of those trends is the passing of pay transparency laws, which require companies to disclose salary ranges in job descriptions.

“As a current job seeker, seeing the pay range of a role has saved me from spending a lot of time applying to jobs that don’t align with my expectations, skill level, or needs,” Cheney explains.

Currently, about 20 states, including Illinois, have some variation of legislation designed to address wage disparities and promote fair compensation practices in the job market. Additionally, there are several cities that have passed their own ordinances. One of those cities is San Francisco, where the Parity in Pay ordinance requires employers with 20 or more employees to provide pay ranges in their job listings.

“Prior to California passing the ordinance, I worked for an organization where a lack of internal pay equity was uncovered,” Cheney says. “As you can imagine, this news quickly filtered through the entire team, causing multiple individuals to question management.” Cheney says the incident contributed to a significant decrease in employee morale, leading to rapid attrition in a competitive job market, which made it challenging for the organization to backfill its vacated roles.

Of course, CPA firms are no stranger to these types of staffing challenges as retaining and attracting new talent continues to be one of greatest issues impacting the accounting profession today. The National Association of State Boards of Accountancy reports that the number of new CPA candidates has decreased by 33% in recent years, dropping from slightly over 48,000 candidates in 2016, to 32,186 candidates in 2021.

As a result, CPA firms have spent time gambling on ways to expand their hiring pool, and for some, that means being more transparent about their pay—whether they’re required by law or not.

The Game Is Changing

Abraham Singer, assistant professor of business ethics at Loyola University’s Quinlan School of Business, believes secrecy turns wage negotiations into a game of poker. “Without pay transparency, job seekers can’t see the hiring company’s cards and must guess how much to wager,” Singer says. “Pay transparency can help turn everybody’s cards over, so everyone is operating with similar information.”

Shirley Borg, head of human resources at Energy Casino, agrees. She says being open and transparent with employees is a priority for the company; they’ve implemented a system where employees can view their pay grade, along with the minimum and maximum salaries for that grade. “This helps employees understand how their pay compares to others in their position and ensures that there’s no pay discrimination based on gender or any other protected characteristic,” Borg says.

In her role, Borg regularly oversees salary reviews to ensure that employees are fairly compensated based on their experience and qualifications. “This helps us attract and retain top talent by showing that we value our employees and are committed to their growth and development,” Borg explains. “Additionally, we believe in providing a comprehensive benefits package to our employees, including health insurance, retirement plans, and paid time off. This helps create a culture of fairness and transparency and ensures that our employees feel valued and supported.”

Especially in today’s climate, where the demand for CPAs outstrips the supply, pay transparency laws provide job seekers with greater leverage. Neil Dickinson, vice president of compensation services and pay equity solutions for OutSolve, an affirmative action consulting firm, says that applicants who have a clear understanding of a job’s pay range are empowered to not undersell their services. “Pay transparency allows for applicants to apply for a job with confidence the salary range meets their pay requirements and helps them avoid wasting efforts on jobs that won’t pay enough.”

For employers, pay transparency can also drive greater efficiency in the hiring process. If the salary an organization is offering doesn’t align with a candidate’s expectations, candidates will likely drop out of the hiring funnel earlier, reducing the amount of time hiring teams commit to applicants who aren’t likely to accept an offer.

Secrecy Has Consequences

In the past, discussing compensation was considered taboo, inappropriate, and improper in many workplaces. Unfortunately, this cultural norm resulted in negative consequences for employees, fostering a discriminatory corporate environment that led to significant pay gaps based on gender and race. For instance, employer biases against women and minorities could affect hiring, promotions, and salary decisions. Without accurate insight into pay ranges, female and minority job applicants may be unaware that their salaries are being undercut.

The impact of this can be seen in a 2021 income report issued by the U.S. Census Bureau, which shows that women who work full-time, year-round jobs earn 84 cents for every dollar earned by men in the same category. In regards to racial inequity, the U.S. Department of Labor found in 2021, for every dollar earned by white, non-Hispanic men, Black women were paid 67 cents, and Hispanic women (of any race) were paid 57 cents.

Singer stresses that lack of pay transparency disproportionately benefits those that have more access and privilege. “It tends to benefit the savvy, seasoned, and confident when it comes to negotiations over pay and salary,” Singer says. “If it’s not clear what the going rate is for a position, then those who have more experience know what to ask for in a way that someone new to the industry might not, including those from working-class backgrounds or recent immigrants. Similarly, those inclined to be more brazen tend to ask for more and are often rewarded for it.”

According to Singer, this method of negotiating pay can also affect wages in a gendered manner, contributing to the wage gap between men and women in the workforce. Recent research conducted by Linda Babcock and Sara Laschever and presented in their book, “Women Don’t Ask: Negotiation and the Gender Divide,” reports 2.5 times more women than men say they feel a great deal of apprehension about negotiating, and about 20% of adult women say they never negotiate.

Is Pay Transparency the Roadmap to Equity?

Many experts believe that pay transparency can lead to greater equity in wages by forcing employers to be more thoughtful and equitable about salary decisions. 

Jon Hill, CEO and chairman of The Energists, an executive search and recruiting firm, advises companies to consider pay transparency as an opportunity to recognize and address potential biases, and to develop more open communication about equitable compensation across the organization. By doing so, organizations will not only build credibility with current employees, but also with potential new hires.

“In my experience, most companies that have inequitable pay practices didn’t establish them intentionally,” Hill says. “Instead, these practices are the result of unconscious biases and/or a lack of communication between leadership and employees.”

Hill stresses that pay transparency sends a message that a company has nothing to hide when it comes to their salary rates, giving candidates more trust and faith in the organizations they’re applying to: “Transparency has additional benefits for companies that pay a competitive rate because it can help entice qualified professionals to join your organization when they know you pay your team members in accordance with industry standards.”

Neema Parikh, the recruiting manager at Topel Forman LLC, a tax and accounting firm with a presence in Chicago and Denver, says disclosing a pay range creates more equality between genders and minorities. “It enables you to be as least biased as possible, which opens your potential hiring pool up as much as possible,” Parikh says. “Because when you put in a salary range, you’re not thinking about whether you’re targeting a man or a woman.”

While Illinois pay transparency laws require employers to provide equal pay to employees for work that requires equal skill regardless of sex or race, employers aren’t specifically required to disclose salary ranges in job descriptions. Colorado’s pay transparency laws are stricter, however, and require all employers regardless of size or industry to disclose the salary ranges for open positions in job postings and in discussions with job applicants. Although Topel Forman has offices in both states, the company opted to include salary ranges for job postings in both regions.

“Pay equity laws give us an opportunity to understand the market as a whole, without necessarily tying salaries to regional trends,” Parikh says.

Parikh notes that pay transparency in Colorado allows for the examination of salary ranges at competing firms, providing market-informed insight into pay parity. In fact, a recent new hire salary negotiation led to a salary analysis, which resulted in an increase in base associate pay at the firm.

“We thought we were competitive until one of our candidates countered our offer. So, we analyzed our competitors’ job descriptions and salary ranges and compared them to our internal salaries,” Parikh explains. “We discovered that our base pay was a few thousand dollars lower, so we adjusted our base associate pay across the board to align with the market.”

Challenge Considerations for Firms

Of course, being transparent can present some challenges for firms to consider. One potential challenge is that it could result in a market-wide increase in salaries as workers are more likely to initiate informed negotiations, and as employers start responding to market conditions.

“For CPA firms, pay transparency laws will create greater visibility to market pay within the industry,” Dickinson explains. “This may lead to more accounting applicants having higher expectations for pay and gravitating to employers that pay above market rates.”

Dickinson adds that another likely outcome of pay transparency is wage compression, which occurs when higher competition for new talent drives smaller differences in pay between new hires and long-term employees.

In anticipation of this market shift, many firms are exploring alternate methods of enhancing their compensation packages. “We’re seeing an increase in demand for collaborative work environments, flexibility in working hours, and an emphasis on the type of work and responsibilities associated with the positions,” Parikh says. “Culture, benefits, remote work, and flexibility are all huge benefits that candidates are looking for.”

Another challenge associated with pay transparency is that it only serves to regulate the quantitative aspect of wages. In reality, wages are also tied to an employee’s perceived value or worth within a company or industry. Higher wages may indicate that an individual is more highly skilled or experienced in their field, or that their contributions to the company are particularly valuable. Conversely, lower wages may suggest that an individual is less skilled or experienced. Additionally, wages are more than just a tool for compensation. Wages are also often used to motivate employees, which adds a psychological component to pay transparency.

“Wages mean different things in different contexts,” Singer emphasizes. “If we’re trying to incentivize hard or innovative work, for instance, we want to ask whether some wage effectively accomplishes that. If we’re trying to give people the market price for their skill sets, we’ll want to figure out how relatively scarce their capabilities are relative to someone else, and whether the wage reflects that.”

Firms should also anticipate the potential negative consequences that may arise when salaries are released internally. “Transparency can breed resentment. If I know what everyone else makes, I may start making unflattering comparisons, which may undermine the effectiveness of the wage as an incentive,” Singer explains. “Someone may be happy with their wage until they learn they’re the lowest paid in their unit, and then they feel underappreciated.”

Singer also says that it can get tricky when firms reward long-standing, loyal employees by increasing their compensation. These wage increases aren’t necessarily tied to their specific skill sets or to the market rate for the position, yet they’ll impact the salary range disclosed in job descriptions, thus driving market salaries higher and making future negotiations with new talent more challenging.

While there are many important implications that companies need to consider when implementing pay transparency, the long-term societal and market benefits certainly outweigh the challenges.

“The equity and efficiency that pay transparency enables is worth these management difficulties,” Singer acknowledges. “One way to navigate such difficulties is to actually follow the logic of transparency all the way down. Companies shouldn’t just be transparent about pay ranges, but also with how and why pay can sometimes depart from the market rate.”

Pay transparency laws will undoubtedly shift the balance of power between job seekers and employers and intensify the hiring process in competitive fields like accounting. However, CPA firms willing to play the game may see pay transparency as an opportunity to not only correct systemic bias and create a path to pay parity, but also use it as a beneficial recruiting tool to attract and retain talent.

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