As laws and employee demands around pay transparency change, employers must face the conundrum of how to respond.
In this article, we'll explore the issue of pay transparency from all angles.
What is Pay Transparency?
Pay transparency is the practice of making employee compensation and salary information available to all prospective and current employees. This can include base pay, bonuses, and other forms of compensation such as stock options.
According to a Joblist study, 53% of companies chose not to disclose salary information to attract candidates driven by passion rather than money, while 49% kept it private to maintain negotiation leverage. Additionally, 38% refrained from sharing salaries due to concerns about rivals undercutting their offers or causing internal strife with existing employees earning less. New laws now mandate organizations to reveal compensation data, marking a shift in transparency.
The goal of pay transparency is to create a level playing field so that all employees may understand how their compensation compares to others in the organization. Naturally, this information can cause a dispute, unless the company has a fair and transparent pay band.
Why Workers Care About Pay Transparency
Generally, workers want equal pay for equal work. If there is a perception that some employees are being paid more than others for doing the same job, it can create feelings of resentment and unfairness.
Pay Transparency Reduces Opportunities for Discrimination
When workers don’t have access to salary information of other people in similar roles, they may suspect that they are being underpaid. This is especially true of workers who have historically been affected by the race or gender pay gap. These feelings of being undervalued can easily lead to frustration, demoralization, and disengagement.
Pay transparency, when it unveils unequal remuneration, helps to identify potential problems with discrimination. In contrast, when employees can see a fair organizational pay band and equality across salaries, it sets their minds at ease.
Because new laws around pay transparency reveal how organizations value women and minority groups (equally or not), the bargaining power shifts. In that way, pay transparency prevents discriminatory wage gaps from becoming the institutionalized norm.
Secrecy Around Salaries Puts All the Power with Companies
Workplace culture usually entails that salaries are kept confidential and people only have a general idea of what others in their field are earning.
This lack of information makes it difficult for professionals to negotiate fair pay. Junior employees are especially vulnerable in this sense. They may settle for a salary below industry par, simply because they don’t have access to an accurate payscale, or they lack the experience to leverage in bargaining. Consequently, whatever the company offers seems fair.
Without knowledge about what peers earn, workers find that their employer holds all the cards when it comes to determining their value. While employers generally don’t encourage workers to discuss their salaries, they legally can’t stop them.
Good Faith Pay Ranges Help Job Seekers (and Companies) Save Time
Applying for a position, preparing for an interview, and taking time off work to attend that interview is a huge time investment. When a job seeker devotes this time to pursue a job opportunity, only to find the salary offered is below their acceptable range, both their time and the interviewer’s time have been wasted.
It’s understandable that organizations want to keep specific salary information private until they’ve secured a candidate.
A quote from Tom Harmsworth, the UK managing director at property-technology company WeMaintain sums it up nicely: “In traditional corporate environments, the salary is often hidden because it’s a game of cat and mouse trying to figure out what salary the candidate is currently on, what they’re expecting, and what the company is willing to pay.”
Additional to keeping the candidate in the dark, non-disclosure prevents the organization’s competitors from swooping in with marginally higher pay and scooping up top talent. It also keeps existing employees from comparing their salaries with what a new hire might get. Good faith pay ranges, which are increasingly becoming a mandated requirement for job listings, are a means of compromise here.
Although a salary range gives job seekers an indication of what the company is prepared to pay, publishing a pay range (as opposed to a set salary) leaves some wiggle room for the employer to negotiate their offer based on the candidate’s experience.
Source: Statista
Why Should an Organization Divulge Salary Information?
There are many benefits to organizational pay transparency.
- It can help reduce wage disparities between employees.
- Transparency about wages sets employees’ minds at ease about inequity. This improves morale by increasing trust and fairness within the organization.
- A reputation of fairness and disclosure around remuneration can help attract job seekers, and retain the talent you already have.
- It can save time in the recruitment process by reducing the number of applicants demanding a greater salary than the company is willing to pay.
There are, however, a few challenges to implementing pay transparency.
- Disclosed data on employee compensation needs to be accurate and kept up to date.
- Communication matters. You need to be careful about how you relay pay band and salary information to employees so that you don't create jealousy or resentment.
- Employees who have access to compensation data will rightfully ask why some people within your organization make more than others. It can be hard to answer questions about pay equity. Any answer you do offer here needs to be data-driven.
Despite the challenges, more and more organizations are moving towards pay transparency— whether willingly or forcibly due to new salary transparency laws.
How Pay Transparency Affects Recruitment and Employment
As recruitment puts increasing emphasis on the candidate experience, recruiters should seriously consider publishing salary information with job ads, even in the states where this is not mandated by pay transparency laws.
According to Julia Pollak, chief economist at ZipRecruiter, only about 12% of postings from U.S. online job sites include salary ranges. But this is not what job seekers want. Data published by G2 notes that job listings that include a salary range get 75% more clicks than job listings that don’t.
Bear in mind, there’s a huge incentive for job seekers to locate this data when you opt not to supply it. Statistically, 67% of job seekers look for information about salaries when researching a company or looking at job ads. They get this information through user-generated data posted by current and ex-employees on sites like Glassdoor or Salary.com. This aggregate data may or may not be a reflection of what you’re willing to offer. By posting a salary range on a job ad, you’re relaying accurate information about this opportunity.
When salaries are made public, employers are less likely to low-ball job applicants. A set salary expectation decreases the chance of an offer being affected by the candidate’s race or gender and it also negates the tendency for companies to pay based on the candidate’s previous salary history.
In the long term, pay transparency in job postings and within organizations will create better equality in the labor market. A more level playing field in terms of salary leads to employers spending more time and effort on determining fair and competitive salaries. If they don’t, workers may simply leave.
Where Pay Transparency Laws are Enforced
There are a number of states and cities that have implemented pay transparency laws. Some of these laws are general laws that require all employers to provide employees with their payscale and salary information. Others are specific to certain industries or types of employers.
Generally speaking, employers who are subject to pay transparency must disclose a “good faith” salary range either in advertising a position or at the time of interviewing a candidate. “Good faith” refers to what the employer reasonably believes would be the minimum and maximum fair wage offered to fill the position.
Here are some essential insights. We do recommend looking into the detailed wording of laws that pertain to your organization.
California
In 2016, California passed the Equal Pay Act that requires all employers in the state, regardless of size or industry, to provide employees with information about their pay. It also states that companies must disclose the salary of an advertised position to candidates upon request, if the candidate asks for it after the first interview.
This law has recently come under review. From the start of 2023, employers in California with a workforce of 15 or more employees must include a position’s salary or hourly wage range in any internal or external job posting. This requirement extends to job postings published by a third party at an employer’s request. However, it does not include information on bonuses or equity-based compensation.
Furthermore, employers in California may not request a candidate’s salary history.
Colorado
In effect since January 2021, Colorado’s Equal Pay for Equal Work Act requires employers to list a good faith pay range for every job opening. In addition, job ads in Colorado must provide a general description of any bonuses, commissions, or other forms of compensation and a general description of employment benefits.
This includes health care, retirement, paid days off, and any other benefits that are reportable for federal tax purposes, but not minor perks (like office yoga or coffee vouchers).
Employers may later deviate from the posted pay range as long as the range was in good faith, a reasonable estimate of the range of possible compensation at the time of posting.
Connecticut
Since October 2021, Connecticut requires employers to provide a salary range for all extended offers, or before then, if the candidate asks for it.
This applies to new hires, transfers, and promotions— any instance where someone is moving into a new role.
Maryland
Maryland passed its Equal Pay for Equal Work Act in 2016 with an update in 2020. The revision requires employers to provide pay ranges to candidates upon request. Employers in Maryland are also prohibited from asking candidates about their salary history.
New Jersey
Employers in New Jersey must disclose the minimum and maximum salary, or hourly wage, and benefits for each job, promotion, or transfer opportunity they advertise.
The range may extend from the lowest to the highest salary that the employer in good faith believes at the time of the posting it would pay.
New York City
New York City’s pay transparency laws took effect on November 1, 2022.
According to this law, employers must disclose the minimum and maximum salary, or hourly wage, and benefits for each job, promotion or transfer opportunity. This is based on what the employer in good faith believes at the time of the posting they would pay.
The law does not cover remote jobs that cannot or will not be performed, at least in part, in the city of New York.
New York State
As of September 1, 2022, employers in New York State must disclose the minimum and maximum hourly or salary compensation for each job, promotion, or transfer opportunity they advertise.
As with New York City, the range is based on what the employer in good faith believes at the time of the posting they would pay. Notably, the law does not cover advertisements for temporary employment at a temporary help firm.
Nevada
As of October 2021, it is compulsory for employers in Nevada to provide a salary range to candidates after the first interview.
Rhode Island
Starting in January of 2023, to adhere to the Rhode Island Equal Pay Law, employers must provide candidates with a pay range if the interviewee requests it. This will apply to transfers and promotions as well.
Oregon
Oregon's law is similar to California's, in that it requires all employers to provide employees with information about their pay. However, Oregon's law goes one step further and requires employers to post this information in a conspicuous place in the workplace.
Washington State
Washington first enacted its Equal Pay and Opportunities Act in 2019. The law requires employers with 15 or more employees to disclose the minimum wage or salary for a position upon an applicant’s request once a conditional offer of employment is made.
Washington's law also requires employers to post their salary information in a conspicuous place in the workplace. In addition, it requires employers to provide employees with this information on an annual basis.
More detailed information on the states and cities that mandate pay transparency is available on Payscale.
How Pay Transparency Affects Remote Work
Laws around pay transparency intend to protect job applicants. But remote workers in Colorado suffered when the state made posting salary a legal requirement in 2021. To remain compliant, companies simply cut these workers out of the recruitment pool so that they could continue being vague about salary. Job ads would typically use wording like “available to candidates anywhere in the U.S., except Colorado”
It makes sense that businesses want to keep salary cards close to the chest when internal equity isn't up to snuff. Or to prevent competitors from publicly outbidding them for top talent. However, excluding remote workers to uphold this veil of secrecy is not sustainable.
In recent years, there has been an increase in the number of companies that are offering remote work options to their employees. This trend is likely to continue as more and more employees are looking for ways to balance their work and home life.
With the rise of remote work, there is also a need for greater transparency around how companies determine salaries for remote positions. Remote workers may not have the same opportunities to negotiate and compare their salary as workers who are employed for in-office work. Furthermore, they may not be covered by the same laws as the organization if they are in a different state.
HR Tech’s Place in Pay Transparency
Although the requirements of pay transparency depend on where your organization is based, there are a few general ways your HR Tech stack can help you manage and convey this information.
HRIS and Payroll Software
As your single source of truth regarding employee and organizational data, your human resources information system (HRIS) must hold your employee handbook on pay structures, transparency policies, and DEI protocol. As an employee data hub, an HRIS allows your workforce to securely and freely access this information.
Many HR software vendors offer a combined HRIS and payroll management tool. This neatly places compensation management with your core employee data, making it easier to track and update disclosed salary information.
Applicant Tracking Systems
As an applicant tracking system (ATS) allows for automation within the candidate journey, you can set yours up to compliantly disclose salary and benefits information as a candidate moves along your hiring funnel. This automation takes the pressure off your HR team to keep track of salary data disclosure during recruiting and onboarding.
Compensation Management Software
A compensation management system helps you manage salaries, bonuses, and benefits in one centralized place. It can also aid with irregular wage structures such as performance-based compensation. These tools use tracking and automated processes to ensure your compensation is fair, competitive, effectively paid out, and properly documented.
Benefits Administration Software
Benefits administration software manages and tracks access to all your employee benefits.
With everything centralized, your employees can easily enroll for the benefits they want with full transparency regarding what is taxable, what is deductible from their salary, and what the company brings to the table.
The Future of Pay Transparency
2022 has been heralded as the Year of Pay Transparency. It certainly is a turning point. Not only in legislation but also in the way workers think about and talk about their salary.
Diane Domeyer, managing director at human resources consultancy Robert Half, is quoted as saying "Organizations have an advantage in being ahead of legislation and demonstrating to employees they're about equity and inclusion... Without [pay transparency], people will always feel they aren't being paid enough."
It is fair to say that equal pay and pay transparency is, and will remain, an important issue for workers in the United States.
