Although more states are requiring employers to include compensation in job ads, the trend of using wide pay ranges could deter applicants and hurt recruitment, according to a study from Washington State University.
For example, in an ad with a large pay range of $58,100-$152,500, study participants expressed cynicism and a lack of trust, with some calling the range “dishonest,” “disingenuous,” and “ludicrous.”
“It’s not just a choice between including a pay range or not — how compensation information is communicated matters, and at least in this study, having a very wide range might send a negative signal to potential applicants,” Kristine Kuhn, the study author and a researcher at the WSU Carson College of Business, said in a statement.
The study, which was published in the Journal of Applied Psychology, included three different experiments to understand people’s reactions to “highly ambiguous” pay ranges. In each experiment, participants saw ads with different ranges — some with a wide gap of $50,000 or more and some with a narrow gap of $10,000 — and expressed their perceptions of the employer.
Overall, the study participants were more likely to respond negatively to job ads with wide pay ranges and see employers as less trustworthy. The trend applied across a variety of study participants, including college students, college graduates and recent job searchers.
Participants also seemed to react differently based on how the wide pay range was explained. For instance, if the wide pay range included a statement that said the amount would depend on the job candidate’s qualifications, participants were even less attracted to the company. However, if the job ad included a more objective explanation and said the amount would depend on the candidate’s geographic location, participants had better impressions of the employer.
“There probably is a goldilocks area of a just right pay range where it gives the employer some flexibility without sending negative signals to prospective applicants,” Kuhn said. “Also, while from a legal standpoint they may be required to advertise an expected pay range, employers and job candidates can still negotiate.”
About half of U.S. job postings on Indeed now feature pay transparency, according to Indeed data from August, which was the highest percentage recorded so far. The number is expected to trend upward as more states and cities enact pay disclosure laws.
In general, pay transparency improves employee retention rates and reduces turnover, according to a Payscale study. To increase clarity around compensation, companies “must also communicate how pay is determined, why it is competitive to the market and how it can be progressed,” according to the report.
Pay transparency principles are particularly important when current employees see their roles advertised in job posts. Employers should be prepared for employees to ask questions and be able to discuss compensation decisions while both attracting and retaining talent.