The salary transparency trend continues. Last year, Colorado passed its Equal Pay Transparency Rules, which required employers to include compensation in job postings, notify employees about promotional opportunities, and record job descriptions and wage records. Soon after, states like Washington, Nevada, Maryland, and Rhode Island followed suit.
In recent news, California and New York will introduce new laws in November 2022 and January 2023. Because these are two of the most populous states in the US, thousands of employers (and employees) across the US will be affected. Soon enough, salary transparency will be one of the leading discourses in how the future of work plays out.
Employers with 4+ employees (with at least one working in the city) must provide a “good faith” pay range listing with a minimum-maximum base salary or hourly wages.
Employers with 15+ employees must include salary or hourly wages for what they can “reasonably expect.”
Why Salary Transparency is Important
Culturally, talking about pay in the workplace has been such a secretive topic. It was always taboo to discuss your salary with your peers. But times are changing. Not only do employees want more transparent pay, but they’ve deemed it as a workplace essential. In recent studies, 79% of employees want pay transparency, and 68% are willing to switch to employers who prioritize transparency – even if the pay is the same.
The government requiring companies to be more explicit about pay is a massive win for job searchers and employees. Pay transparency follows a social pattern kin to Black Lives Matter and the #metoo campaign, which in simple terms, are part of an overall movement for social fairness. Historically, women and people of color have faced bias (conscious and unconscious) in the workplace. This is often reflected in the pay, especially compared to white men. For example, a Payscale report shows that:
- Women make $0.82 for every $1 that men make.
- Black women, Hispanic women, and American Indian and Native Alaskan women make $0.79, $0.78, and $0.71 for every dollar white men make, respectively.
- Women of color see fewer opportunities for advancement.
- The pay gap widens as women advance in their careers.
Other studies have also shown that Black and Hispanic men make significantly less per dollar than their white counterparts.
Okay… But Why Is Government Intervention Necessary?
What’s the buzz around salary transparency? Why is it so important that the government has to get involved?
Well… long story short, closing pay gaps has become a global issue. Every country in the world is working to address pay equity in its own way. A recent report from the World Economic Forum reports that North America (the US & Canada) is the leading region in closing the pay gap. While Canada remains stable, the US has seen improvements since last year.
With pay equity asserting itself as a global issue, North America, more specifically the US, would want to take the lead in addressing it. What other way to do that than for the government to impose laws? While many think it interferes with our laissez-faire system, it is one of the few methods the government can use to get positive results.
Is it Good for Business?
Overall, pay transparency does a lot for your workforce. The trust and assurance it builds has a trickle-down effect. The more employees trust the organization, the more engaged they will be. As a result, employees are more satisfied and loyal.
While salary transparency has the potential to positively shape the future of work, it must be implemented correctly to mitigate potential cons.
How to do it Right
“I would go so far as saying that if an organization wants to implement pay transparency… they critically need to have an air towards transparency in other parts of how the culture is set, how rules are made, how decisions are made.”
– Alex Haimann, Partner and Head of Business Development at Less Annoying CRM
Analyze Your Current Pay Scale
To better equip management and other leaders in answering pay transparency questions, you should start with a pay analysis. A pay analysis gathers data about each employee’s salary and identifies the outliers – employees who make notably more or less than their peers. Once identified, analyze why the pay is so much different than their peers who work in the same position. Be sure you have an objective reason, such as their experience level, tenure, or level of responsibility. If there is no real objective reason, get ahead by offering raises, bonuses, or other benefits.
Another thing to note is you should be aware of your competitors’ salaries for different roles. As other companies adopt pay transparency, your employees and candidates will see what other companies offer, which could backfire on you. So, as you analyze and adjust your employee’s salaries and compensation packages, do your best to keep everything around the market level.
Create an Objectively Clear Pay Progression Model
It’s natural for employees to see each other’s salaries and begin comparing. Inevitably comparison results in envy, which creates tension in the workplace. While you may strive for an environment of competition, there is nothing healthy about envious competition. So, employees must have something to reference when they begin making salary comparisons. This is where data comes in. If salaries can be objectively accounted for, bias is less likely to occur.
Of course, you should use market data and rates to set salaries, but you should have an internal system that justifies your pay scale. Some companies have a specific formula they follow. However, the reasoning could be as simple as creating a clear career path. To reach new levels in the career path, you must successfully accomplish a variety of benchmarks. With this, you could add other objectives such as experience, education, the scope of responsibilities, performance level, etc.
Prepare Managers for Tough Conversations
Often, determining the pay scale is not the managers’ or supervisors’ responsibility. It is an enterprise-level decision. But when salaries are revealed, they are the ones left to confront dissatisfied employees. Not only are managers attempting to explain pay discrepancies, but they also become the first point of contact for employees wanting to adjust their pay.
We’ve seen this situation go one of two ways. Managers not prepared to interpret the reasoning for different pay scales may become defensive and unhelpful in giving employees the necessary clarity. In this case, salary transparency will harm the workforce because employees may feel that salaries are unjustified and unfair.
On the other hand, when managers are well-informed and prepared to discuss nuances in pay, employees and candidates feel more secure. Managers must also be ready to negotiate with employees and candidates about salary adjustments. Because you’ve already conducted a pay analysis, you know which employees’ salaries must be reconciled and which ones don’t. There may even be cases where an employee’s salary shouldn’t be modified, but their performance calls for a bonus. There are many different situations that your manager will run into. So, be sure they are equipped to negotiate based on your objective-driven rewards system.