By Katrina Meigs
New pay transparency laws in several parts of the country require (or will soon require) employers to publish a salary or hourly wage range in their job postings. Policymakers believe the up-front disclosure adds a new fairness measure for employees. If companies approach it correctly, it also presents an opportunity for you: It makes the hiring process far more efficient.
What is Pay Transparency?
At its core, pay transparency is a strategy for talking about employee salaries within the organization. It’s up to each employer to define how transparent they should be within their organization. Ultimately, the goal of pay transparency is to give workers an understanding of why they’re paid what they are — and what they need to do to reach the next step on the ladder.
Aligning compensation expectations helps job candidates as well as employers. In the short term, compensation alignment ensures neither side is wasting their time conducting interviews and negotiations if their pay expectations are misaligned. Over the long term, it can protect against low morale and attrition by helping to ensure that employees are paid similarly to their peers.
An organization’s approach to pay transparency can also guard against claims of pay discrimination. Even at companies that do their best to comply with laws against discrimination, unintentional biases in the hiring process can generate unequal outcomes. A growing body of research shows that one reason for these disparate outcomes is that women are often less successful in negotiating higher salaries. Racial biases may have similar effects for people of color. Limiting negotiations to a published range reduces the opportunity for unequal outcomes.
By making wage and salary ranges more transparent, lawmakers believe they can make recruiting and hiring more efficient—and make compensation fairer. A fixed salary range helps candidates make informed decisions about what job openings they’ll pursue and how they’ll negotiate an offer. It also helps make sure that employers fit the salary range to the role—not to the more subjective (and often biased) process that unfolds during the interview process.
Current Laws (money.com 6/21/2022):
- The New York City Council adopted a law requiring employers with four or more employees to publish a pay range—the position’s minimum and maximum salary or hourly wage at the time of hire effective November 1, 2022
- Colorado requires employers with even one employee in the state to post compensation ranges and general benefits in all Colorado-based job postings.
- Nevada requires employers to provide applicants with a wage and salary range once a candidate has interviewed and prohibits employers from inquiring about applicants’ prior wage histories.
- Connecticut mandates that employers provide the wage range to the applicant upon the applicant’s request or prior to the time the employer makes a formal offer—whichever comes first.
- Maryland, Washington, and California pay transparency laws mandate employers to disclose compensation ranges upon the applicant’s request.
- These are the laws already in effect, but more are coming. Rhode Island, Massachusetts, South Carolina, and New York State are also considering legislation to push employers to disclose more information about compensation.
How can you prepare?
- Compensation analysis:
Pay Transparency is not a solution to wage disparity on its own. An internal review of wage inequalities across your organization is important.
- Salary ranges (bands) and levels:
Developing fixed salary bands (a compensation range) that correspond to defined levels for roles across the organization can help you make fair and competitive compensation offers. A banding and leveling system prepares your organization to comply with evolving compensation disclosure laws: Your bands will provide guardrails for pay negotiations to a fixed range that you can publish in your job listings. This transparency can prevent discrimination claims by collecting your organization’s pay practices in written documentation.
- Compensation Philosophy and Plan:
A compensation philosophy documents your approach to compensation; it should go hand-in-hand with your overall business strategy (mission, vision and values) by identifying your target labor market, how competitive you plan to be with salary, your approach to incentives, and your views on pay.
Establishing a strong compensation philosophy is the first step to creating a compensation plan, which also outlines your organization’s job architecture (roles and levels), your approach to performance management, and the structure of compensation-based incentives. Comp plans can help cultivate pay equity through transparency and can help you win top talent by establishing a clear framework for promotions.
To avoid these costly problems—and to help keep your hiring and recruiting efficient and competitive—you’ll want to remain up to date on legal requirements and industry best practices in pay transparency.