Pay transparency has been a hot topic of conversation lately. Companies based or operating in a number of states, including California and Colorado, have had to adapt their practices to comply with recently enacted pay transparency laws, many of which came into effect at the start of this year.
Although this wave of new legislation has met a bit of a rocky start, there’s no denying that these changes will have a positive impact on US employment practices. In fact, according to SHRM, 79% of employees are in support of this initiative to improve pay equality. However, despite all this, many employers are still not prepared for pay transparency.
Here’s everything you need to know about pay transparency, including how it’s going so far and how this approach can benefit your business.
Table of Contents
Table of Contents
Pay transparency in 2023
Pay transparency isn’t a new concept. In fact, there are around 30 states with some form of pay transparency law in place, many of which go as far back as 1945 (the Massachusetts Equal Pay Act, for example). At a federal level, there is also the Equal Pay Act of 1963 which was designed to ensure that all employees receive equal pay for equal work. However, although these laws cover a range of issues relating to pay transparency, most are limited to the prevention of pay discrimination and an employee’s right to discuss salaries during job interviews.
Thankfully, this is changing. Increasing numbers of states are now enacting laws that include salary disclosure and transparent pay reporting. 17, in fact, covering a fifth of all U.S. workers. And this figure is growing.
Pay transparency laws
The Colorado pay transparency law was enacted to address salary disparities after research in 2020 highlighted that women in Colorado earned 86 cents for every dollar men earned, while Latinas earned 53.5 cents and Black women earned 63.1 cents. The law attempts to address this pay gap by requiring employers to openly disclose salary or pay ranges for all open positions.
The California pay transparency law also promotes pay transparency in the workplace. The State’s pay disclosure legislation has one primary objective: to promote equal and transparent pay for all. With this law, the state hopes to build on the existing work it has done to identify and eliminate wage disparities.
The New York pay transparency law, which the city enacted in 2022, has similar objectives. The law requires employers to disclose minimum and maximum pay ranges in good faith for all jobs, promotions, and transfer opportunities based in New York City.
Several more states have passed similar laws since, including Washington, and Rhode Island. And many more states are in the process of launching new pay transparency laws, including Massachusetts and South Carolina. It’s only a matter of time before pay transparency becomes the norm in all US states.
Pay transparency’s rocky start
Although pay transparency is a fantastic initiative that can benefit both employers and employees, it has had a rocky start.
Here are some of the issues that we have seen so far:
- Disappearing job listings and a drastic reduction in the number of publicly posted job ads.
- Listings with missing salary information.
- Open positions listing meaningless pay ranges (for example, “a pay range of between $0 and $2 million”).
- Confusion relating to the definition of “good faith salary ranges”. According to the New York City Commission on Human Rights, A “good faith” range is one the employer “honestly believes at the time they are listing the job advertisement that they are willing to pay the successful applicant(s)”.
- Certain companies have tried to avoid state requirements to disclose pay by advertising remote, out-of-state positions only.
- Issues with reviewing pay scales and making internal pay adjustments.
- Questions and concerns from existing employees once salaries are disclosed, especially in cases where the nuances of pay scales haven’t been clearly explained.
- Tension in the workplace and disgruntled employees.
- Violations for non-compliance.
- Reputational risks when salaries have been disclosed as being uncompetitive or, in worst-case scenarios, unethical.
Struggles of pay transparency
Let’s take a look at some of the struggles behind pay transparency’s rocky start in a bit more detail. The following are some of the most common issues that you might encounter when you implement pay transparency in your business. We’ll explain which issues might arise, and how you can overcome them.
Exposing salary ranges can impact turnover and performance
Exposing your salary ranges can cause issues within your workforce if employees discover that salaries aren’t fairly distributed. For example, if there are obvious examples of a gender pay gap or favoritism then it could have a notable impact on turnover and performance. And if employees share this information publicly then it could negatively impact your employer brand and recruitment efforts.
The best way to overcome this issue is to conduct a pay equity audit to ensure that there are no unfair or unsupported pay gaps or discrepancies in your business. If your employees feel that you are paying them fairly, they will be less likely to quit. They will also be less likely to become disengaged when you disclose your pay ranges.
Pay transparency can cause internal conflict if not managed well
Similarly, if you don’t manage the process of disclosing salaries in a transparent and informed way then it can cause internal conflict in your organization. For instance, if you are not clear about the way you calculate your pay grades and how you define higher and lower earners working similar positions, then tensions could rise within your workforce.
To overcome this issue, it’s important to define a clear compensation policy with defined guidelines for your salary ranges. Make sure your managers understand how qualifications and experience impact these salary bands. And train your hiring managers to negotiate salaries within these established guidelines.
Once you publish your data, make sure you communicate clearly and transparently with all your employees so that they understand how your compensation policy works and how salaries are fixed. You could even hold a Q&A session to address any questions or concerns.
The growth of compliance
One of your most important roles as an HR manager is to ensure your organization meets all legal requirements established by US HR compliance laws. That’s why maintaining and following an up to date HR compliance calendar is so important. It helps you keep on top of all compliance deadlines so that your company adheres to all standards and legal obligations.
With this in mind, let’s take a look at how compliance is evolving since the introduction of pay transparency laws including the NYC pay transparency law, the California pay transparency law, and the Colorado pay transparency law.
- According to a report by the Institute for Women’s Policy Research, only 17% of private organizations claimed that wage and salary information was public in 2017. However, according to Willis Towers Watson, this figure has risen sharply since the introduction of recent pay transparency laws. In fact, 62% of organizations now claim to be planning to disclose pay rate information in the future. And this doesn’t just apply to states like California and Colorado where it is a legal requirement. According to WTW’s 2022 Pay Clarity Survey, 17% of companies are already disclosing pay range information in U.S. locations where not required by state or local laws.
- According to Zippia, the number of job listings with salary ranges in the U.S. increased from 8% in 2019 to 12% in 2022. Moreover, pay transparency laws have reduced the gender pay gap by 20-40%.
How Comprehensive helps with pay transparency
So how can you keep track of market pay ranges? How can you ensure that your salaries are fair and competitive? How can you avoid potential issues and disputes when your salaries are published publicly as a result of the pay transparency laws?
Well, if you work in the tech industry then there’s already a great solution for this.
Comprehensive.io is a recently launched website that tracks and publishes tech salary ranges daily. The aim of the site’s founders, Roger Lee and Teddy Sherrill, is to advance pay transparency and eliminate pay inequity. You can use the site to look up the salary ranges that similar companies are posting for similar roles. This can give you a better idea of the salary structures you should be following in your business.
To achieve this, Comprehensive collects job posts from over 700 tech companies and extracts salary ranges daily. Comprehensive also provides users with pay transparency compliance rates for California and New York City.
Is pay transparency good for business?
The most obvious advantage of pay transparency is that it promotes pay equity and fair hiring practices. And this is a big plus for both employers and employees.
However, the benefits don’t stop there.
Here are a few more reasons why pay transparency can give you a competitive edge.
Streamlines your recruitment process
Many organizations find that one of the hardest parts of writing job descriptions is aligning skills and qualifications with the right salary bracket. You need to make sure that you offer a fair salary in exchange for the skills that you are looking for. You also need to ensure that the salary you offer is in line with market averages. And this means that you need to do a lot of research.
If you conduct a pay audit and clearly define your salary ranges in advance, then it is much easier to do all this. And this can help the recruitment process run much more efficiently. Plus, with clear guidelines for salary ranges, your hiring managers will know exactly what limits they need to stick to when they negotiate salaries with new hires.
Helps you attract top talent
Job seekers these days are looking for honesty and transparency, especially in terms of salary and benefits. Employees want to work for fair and ethical companies; for organizations that will provide them with a positive working environment. This is especially true in the case of Generation Z. In fact, studies have shown that Gen Z candidates are more likely to apply for a job if they see a salary range.
As a result, promoting yourself as an equal opportunities employer that values pay transparency can be a great way to attract candidates and build a strong talent pipeline. It gives you a competitive advantage and access to a much wider pool of candidates.
Enhances equity and diversity efforts
Pay transparency can be a great tool for enhancing your equity and diversity efforts. Disclosing your salaries can show the world that you are an equal opportunities employer and that you pay your employees in line with the skills and qualifications that they can offer, not their gender, age, or race.
It’s not a direct route to success. However, including a pay transparency statement in your company’s published values can be a great way to boost your employer brand as a fair and equitable organization.
Most employees value opportunities for growth and development. When you define clear guidelines for how you pay employees and which skills and qualifications would qualify them for a payrise, it can be a great incentive to stay at the company. Employees can see a clear path for progression. They understand what they need to work on in order to rise up in the company. And this can have a direct impact on your retention levels.
Increases performance and job satisfaction
Pay transparency also has a positive effect on how your workforce perceives you as an employer. If an employee feels you are paying them fairly, they will feel valued and appreciated. And this can have a positive impact on job satisfaction, engagement, and performance.
Helps you build a culture of trust and transparency
Finally, pay transparency can help you build a culture of trust and transparency. When employers are open about their compensation policies it builds trust between employees and managers. And this is essential for nurturing an environment of collaboration, communication, and innovation.
In contrast, if you are secretive about your salaries then it can lead to speculation and suspicion. Employees might wonder if you are paying them fairly. Or if you are giving one of their colleagues preferential treatment. And this can have a negative effect on employee relations and morale. If the culture of mistrust spreads, then you could find yourself with a demotivated and unproductive workforce.
What employees think about pay transparency
So, what do employees think about pay transparency? What feedback have they shared since states like California enacted the law?
You probably won’t be surprised to find out that the vast majority of employees support pay transparency. They believe that it promotes fairness and equality. That it’s not just desirable – it’s necessary. Much of this is down to the effects of #MeToo and Black Lives Matter. Employees want to work for fair, ethical, and transparent organizations that promote equal opportunities for all.
Here are a few statistics to demonstrate just how strongly employees feel about pay transparency:
- According to Monster, 98% of surveyed employees are in favor of employers disclosing salary ranges in job postings. Moreover, 53% would not apply for a job that doesn’t disclose pay scales.
- Most employees believe that recent salary disclosure laws will have a positive impact on the future of work. They believe that pay transparency will help in the fight against the racial and gender pay gap. What’s more, compared to only 47% of Gen X, 81% of Gen Z workers believe that disclosing their salaries will lead to more pay equality.
Pay transparency predictions
Let’s finish today’s post by looking at a few pay transparency predictions.
- More pay transparency laws will be passed in 2023. Massachusetts is already poised to sign off on its own law, and South Carolina and New Jersey aren’t far behind. We believe that this trend will continue as more states see the benefits that pay transparency can offer.
- Employers in states without pay transparency laws will begin disclosing salaries without any legal obligation. This is especially true in the case of businesses that operate in multiple states.
- Employees will become more comfortable with discussing salaries and they will begin demanding fair and equitable pay. As a result, companies will have to review their salary practices in order to stay competitive.
- Pay transparency laws will drive greater pay equity. This will have a direct impact on existing wage gaps in the US.
Whether your state has already enacted a pay transparency law or not, now is the time to act. Implement policies and strategies that demonstrate your commitment to pay equity and transparency. This will help you gain a competitive edge and attract top talent to your business. As we said at the start of this post, it’s only a matter of time before pay transparency becomes the norm in all US states.