Pay Transparency & How It Impacts Your Business
December 7, 2022
Have you heard about pay transparency? It’s the idea that companies should be open with employees and applicants about pay and, more broadly, what factors they include when making decisions about compensation.
It’s no secret that expectations around pay have changed, and employers need to pay attention. People on the lookout for a new opportunity want to see pay ranges on job postings, and some of them make it a practice not to apply if that information isn’t immediately available. Employees want more clarity about their own pay and how it stacks up relative to their peers, and in a tight labor market, they may hit the road or expend less effort at work if they don’t feel they’re paid fairly.
But pay transparency isn’t just about what current and would-be employees want. Their expectations have now made their way into state and local law. For a sizeable number of employers and their employees, pay transparency is no longer just a “nice-to-have.” Whether you’re in a location that’s passed a pay transparency law or are simply curious about what this new trend might mean for your businesses, here are four things you should understand.
1. Pay Transparency Is the Next Frontier of Pay Equity
The federal Equal Pay Act went into effect in 1963, but it hasn’t brought an end to pay disparities between men and women. Neither have most state laws with the same objective. Long story short: the laws weren’t strong enough, and they didn’t account for all the causes of unequal pay. In many cases, it has been possible for an employer to comply with these laws while still offering unequal pay for essentially equal work.
Often, it’s not that employers have deliberately chosen to pay women less than men for the same jobs. In many cases, the basis for pay differentials has seemed sensible, such as salary history. But it turns out that basing pay on salary history perpetuates discrimination over an employee’s career. Mindful of these facts, cities and states across the country have instituted salary history bans and implemented other legal measures to strengthen pay equality. Pay transparency laws are part of this trend.
So far at the state level, Colorado, California, and Washington have passed laws requiring that employers post pay ranges within job posting and ads, while New York is on the brink (just waiting for the governor to sign). What these laws have in common is a new requirement that certain organizations disclose pay ranges in job postings.
2. Pay Transparency Laws and Practices Encourage Employees to Talk About Their Pay
Once pay ranges are visible on job postings, everyone from job hunters to competitors to current employees can see how their own pay compares to the range offered. That information is useful to job seekers considering whether to apply and how much that type of job pays in the current market. It’s useful to competitors who may try to poach talent. And it’s useful to employees who may wonder whether they’re paid equitably for their work.
If pay ranges are too large, employees will think you’re acting in bad faith or wonder who among them makes that little or that much. If the ranges are reasonable, but you have current employees outside of those ranges, there may be gossip, organizing, confrontations, or all of the above. If the ranges are reasonable and your current employees are paid in line with what you’ve posted (phew), you still may get inquiries about how someone’s position in the range is determined.
3. Employees Have a Legal Right to Discuss Their Pay
That’s right. You may have heard about companies telling their employees not to share how much they make. Or you may have done that yourself. But that’s an engraved invitation to a lawsuit. Under federal law, employers may not prohibit non-supervisory employees from discussing their wages with one another. Likewise, employers may not in any way discipline or retaliate against an employee for discussing their wages or other terms and conditions of employment. Prohibitions of this nature infringe upon employees’ protected rights under Section 7 of the National Labor Relations Act (NLRA). Section 7 protection includes discussions about wages, benefits, treatment by managers, facilities, safety issues, and just about anything else that two or more employees might have a stake in. In addition to rights under federal law, many employees (including supervisors) have protections under state laws that allow them to freely discuss their wages.
We strongly recommend that employers immediately eliminate any written or unwritten policy telling employees that discussion of wages is discouraged or prohibited, or that wages are confidential, and also discontinue any written or unwritten policy of disciplining or terminating employees for this behavior.
4. Pay Transparency Can Be Good for Business
Being open about pay is ultimately a boon for employers and employees alike. First, it saves everyone time and the company money. Recruiters and hiring managers waste a lot of time and energy processing applications and interviewing candidates who are destined to decline any offer because the compensation doesn’t match their expectations or fit their needs. By disclosing compensation up front, employers discourage those people from ever applying. Second, pay transparency on job postings has been shown to increase the number of applicants significantly. Many job seekers are unwilling to apply for positions that don’t indicate a range and others will value the transparency for what it says about your organization. In a tight labor market like we’re experiencing now, employers should take any leg up they can get. Third, it encourages, and makes it easier for, organizations to comply with equal pay laws. You can’t as easily put pay equity on the back burner when pay ranges are front and center.