Why Labour's plan to expose everyone's pay is bad news

Telegraph

01-07-2025

When Pimlico Plumbers' staff revealed their salaries to each other for a reality TV show in 2012, it turned things upside down.Colleagues had assumed people doing the same jobs would be paid the same, but that wasn't the case at all. The exercise revealed pay discrepancies of up to £9,000.
To restore order, managing director Charlie Mullins had to reluctantly agree to foot the bill for pay rises.
'It cost me a few quid once people found out what their colleagues were making. I had to put more money into the wages pot, and we did uncover some huge pay differences between people doing similar jobs. There was even a spectacular resignation from one guy who didn't get a pay rise,' recalls Mullins, who sold the business in 2021 and launched home repairs service WeFix last year.
This social experiment may be about to take place in workplaces across Britain. Labour may force employers to publish salary bands, and make pay information available to employees.
The idea is that by requiring employers to be more open about pay structures, salary ranges, and progression criteria, it becomes easier to identify and correct inequalities where people are doing the same or similar jobs.
But this could have side effects, experts suggest, such as forcing business owners to hand out pay rises they can't afford, sparking resentment among colleagues and even pushing down high earners' salaries.
Mullins believes salary transparency laws are really about the Government 'meddling' in how businesses are run.
'I'm all for transparency,' he says. 'But this government has no clue about running a business, so they should leave well alone.'
Nearly half of employers now anticipate they will have to stump up for unexpected pay rises as a result of the Government's proposed changes, with 60pc expecting more requests for pay negotiations, according to a survey by HR and financial advisory WTW.
Nyree Ambarchian, who runs communications agency Jack & Grace, introduced a transparent pay system in 2022. But she hadn't anticipated that this would lead to the company paying some of its staff more. She had to offer a higher salary to a prospective employee to match her previous one, but that had a knock-on effect.
'It wasn't just that person we needed to worry about, because we already employed somebody at exactly the same level,' she adds. 'So in making that hiring decision, the real cost to us wasn't just the extra that new person was looking for, but also the uplift in an existing member's pay.'
Wages getting pushed up like this is an added burden for small businesses that are already feeling a huge crunch. From April this year, employers began paying National Insurance contributions at a higher rate of 15pc, starting at a lower threshold, while the minimum wage for those aged over 21 was increased.
Environmental consultancy Tyler Grange introduced a fully transparent salary structure last year for its 85 employees. As a result of the process, the company had to give out a number of additional pay rises, says managing director Jon Berry.
'It was often as an inconsequential result of someone joining us from another organisation or because we'd needed to attract a key recruit within a highly competitive market,' Berry explains. He says that introducing salary transparency cost the business around £30,000.
Despite the unscheduled pay rises, Berry believes going transparent has made the recruitment process more streamlined as salary expectations are clear. Current team members know what they need to do to get promoted and what future salaries might look like. In Ambarchian's case, the agency conducts yearly reviews and has funds put aside for when unique situations arise.
Mullins says of his experiment: 'At times I wished I'd never given the go-ahead for the project, but things settled down after a few weeks, and I think once everything was out in the open, the company was better for the transparency. People stopped being suspicious of how much their mate at the next desk was making.'
Lost talent and lower wages
Yet, having transparent salaries can cause confusion and create resentment if bosses don't properly communicate, says Justine Woolf, of Innecto Reward Consulting.
For example, an employer can publicise that a role falls into a certain salary bracket, but employees don't always understand why they are paid an exact amount within the band, and are frustrated when they don't move up.
'Say the salary band for a role is £30,000 to £50,000. The market rate for your job might be £35,000, but a high performer in the same band might earn £45,000. Employers don't always clearly explain the difference. This can lead to a feeling of unfairness,' says Woolf.
In the US, where 15 of its 50 states have mandated some form of salary disclosure, organisations have lost talent, and wages of some high earners have actually fallen. For example, a law in California introduced in 2010 requiring municipal salaries to be posted online led to a 7pc drop in salaries for top managers, and a 75pc increase in the resignation rate, according to the US National Bureau of Economic Research.
For others it could mean their salaries increase at a slower rate. In 2006, Denmark began requiring companies to be transparent about pay bands, leading to a reduction in the gender pay gap – at the expense of salary increases for men.
High performers can also be impacted when salary transparency prompts an employer to pay two people a similar rate to avoid conflict, even if one deserves more, according to a study published in Nature Human Behaviour, a journal.
'People could become demotivated if they feel, 'I've put in all that effort, and I've got very little return in terms of internal movement. Am I really valued for my contribution?'' says Woolf. 'And that's when people will start to think about going elsewhere.'
Lee Holmes, chief of NFINOX Global, which has transparent salary bands, predicts that the rise of salary transparency will spotlight the disproportionate number of people in the finance industry earning unexplainably high salaries. It could see many of them jump ship to protect those large figures, rather than risk a pay cut.
London-based Holmes believes that transparency shouldn't hold genuinely high performers back. Companies which set salary bands and make them known across the company should still reward people based on what they've achieved rather than what a salary band dictates, he says.
He has suffered from this himself, he adds. 'I was once doing a job that encompassed four or five different roles, and when I asked for more money to reflect that, I was told that my job title was linked to a certain salary, and that was it.' He left that role not long after.
Holmes' observation overall is that it is often the most vocal people who end up on higher pay, whereas those who quietly get on with their job often don't get recognised.
'I do think that once [salary transparency] comes out these people will get found out, and if they do, then great,' he says. 'It creates a better working environment for everyone else.'