Pay transparency is a key issue facing HR in 2023. It’s estimated that one in four U.S. workers is covered by a law that requires companies to share salary ranges by law. The latest pay transparency legislation came into effect on January 1st in California and Washington State.
Pay transparency offers HR an opportunity to improve employee engagement and retention, as well as close the pay gap and achieve pay equity. For many employers, employee perception of pay equity is based on organizational trust.
Research by Gartner found that less than one-third of employees believe they are paid fairly and only 34% believe their pay is equitable. That trust is further diminished by poor workplace culture.
Pay equity is a notable priority for younger generations within the workforce. Deloitte’s Global 2022 Gen Z and Millennial Survey reports that pay is the number one reason that Generation Z and millennials left their jobs in the past two years. Pay transparency also supports better conversations around career progress, a key factor in retaining talent in the midst of a labor shortage and the Great Resignation.
‘’When organizations focus on making rewards and recognition fair and equitable, they retain and engage people well, their customers are happier, and they innovate more.’’
Ensuring pay transparency in job listings
Job listings should provide salary ranges that are competitive, equitable, and explainable, both to external applicants and to your employees. By explainable, employers must be able to demonstrate that their pay range is fair and consistent across the organization. It also means that in the event of an inquiry, either from a prospect, or a disgruntled employee, the organization must in good faith discuss how the range was identified. Generally, that requires the use of internal and external compensation data.
Since pay transparency laws were introduced, however, some employers have sought to avoid complete transparency in the salary ranges they’re sharing in job listings. In New York City, for example, some pay ranges were extended to $100,000, or in some cases salary ranges were compressed. Avoiding pay transparency only adds to the disconnect between employees and HR. Furthermore, it puts the organization at legal risk, brand reputational damage, and a disadvantage in attracting and retaining talent.
Our previous blog provides more detailed information on individual state pay transparency laws.
Setting pay ranges in an era of pay transparency
Ten states across the country, and several cities, currently require employers to post salary ranges in their job listings. Washington State law is the most expansive, with the most stringent pay transparency requirements. The law requires that all employers with at least one Washington-based employee, that conducts business in the state or hires remote employees, must disclose pay range information on their job listings.
Colorado’s law prohibits employers from asking about a candidate’s previous salary and states that all job listings must be shared with current employees. In September 2022, California also announced the inclusion of its SB 1162 law into the upcoming pay transparency legislation, which required additional pay data reporting for employers.
Implementing a system to ensure consistency in pay ranges is not a quick fix. Setting salary listings is only one aspect of complying with pay transparency laws, which are complex and variable. We recommend the following steps as a foundation:
1. Evaluate your current situation: A pay equity audit is the only way to identify existing pay disparities within your organization. Start by compiling and analyzing workforce data from your human capital management platforms. To ensure the accuracy of this data, specialized pay equity software can help to provide a clear picture of pay gaps.
One way to do this is by using software like PayParity which conducts a pay equity audit at the intersection of factors such as gender, race/ethnicity, age, and disability. The results of the audit identify risk areas for remediation and pay gaps within every employee group and at every level in your organization.
2. Identify the root causes of pay inequity: Multiple issues can influence your organization’s pay equity. For instance, certain groups of employees may not have equal access to jobs or promotions, and cannot progress to higher roles. Recruiting and hiring policies must be equal and consistent for all employees and job applicants.
Pay equity software can help employers identify factors such as unconscious bias or processes which may be affecting, or causing, pay disparities.
3. Make your pay explainable: Pay transparency requires more than a “one size fits all’’ approach. For many organizations, this might mean going back to basics. Analyze your salary range and compensation, to break down and justify each element.
For example, is the base salary competitive and commensurate with employee skills? To break it down into further detail, is the base salary competitive for the work required, the skills of the individual employee, and their performance against their objectives? Employers must also be ready to explain how they differentiate and define performance in setting base salary.
Your employees must also be part of the conversation around pay equity. You cannot have pay equity if your employees do not agree that you have pay equity. If a pay equity audit suggests your organization has no pay equity issues but your employees disagree, your company has a perception gap. A good way to gain their critical insights is to carry out a sentiment survey.
4. Select equitable pay ranges: To comply with new pay transparency laws, employers must choose fair and equitable pay ranges for all job listings. That involves integrating market data with the outcome of internal pay equity audits.
A pay equity software solution like Salary Range Finder® can help to determine competitive and fair salary ranges by overlaying internal pay equity audit data with that of external labor market data. Fair salary ranges are instantly determined for your job listings by combining the two data points.
There’s more to adopting a culture of pay equity than ensuring compliance with pay transparency laws. It provides a springboard for best-in-class, forward-thinking organizations to create a more open, inclusive, and positive workplace, and in doing so, rebuild connections and employee trust.
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