- Shifting landscape. As the use of artificial intelligence (AI) rises in the compensation area, employers need to pay close attention to related emerging laws and regulations.
- The employer’s responsibility. It’s important for practitioners to verify any salary range suggested by AI, to ensure that the range is something the employer can afford and does not cause internal equity issues.
- Building trust. Pay transparency in both recruiting and existing internal compensation processes is critical for ensuring that AI-driven results are verifiable and reliable.
New potential laws could increase liability and even require employers to tell job applicants whenever artificial intelligence (AI) has been used to determine pay ranges, screen resumes or manage other aspects of recruiting and hiring.
Ontario is currently considering a law that would require employers to inform job seekers when AI is used in hiring. California is weighing a similar law, and the state’s Supreme Court ruled in August that third-party vendors can be liable if AI is used discriminatorily in hiring.
Liability for Using AI in Setting Salary Ranges
“Employers are responsible for the salary ranges that they are publishing, so employers should be cautioned when using AI for this work,” said Lulu Seikaly, a senior corporate attorney specializing in employment law at Payscale. For example, if a job posting includes a salary range developed with AI that it is not in a “good faith range” (as required by many U.S. state laws), employers may be liable, she said.
It is crucial for practitioners to verify any salary range suggested by AI, she added, to ensure the range is one the employer can afford and that does not cause internal equity issues. She cautioned that AI is not yet sophisticated enough to be relied on when determining salaries or managing pay increases.
“For example, I would not advise anyone to use ChatGPT to determine pay for a new employee,” Seikaly said. “Compensation management is a strategic function within an organization that should not be replaced with AI.
“It will be very important for companies to stay abreast of regulations concerning compensation management in general, and this certainly extends to AI,” Seikaly said. “However, this really begins with having formal pay structures and a compensation strategy, validated by human compensation professionals, that ensures that pay is both competitive and fair for employees.”
Too many organizations, she cautioned, have not taken these initial steps.
Michael Piker — a global HR executive who focuses on HR-compensation-related areas, including AI — agrees there are key initial steps employers should follow.
To prepare for potential AI regulations regarding pay transparency, he said, employers should conduct gender pay gap reporting to spot and mitigate any problems — even if these actions are not legislatively required. Employers also should perform proactive pay equity analyses to determine if employees are compensated the same if they are doing work of equal value, he said.
“These underlining steps should be taken before publishing pay levels to prepare for the countless questions that candidates and employees will ask,” Piker said.
He added that pay transparency legislation in general is exploding in the U.S. and European Union right now. For example, multiple U.S. states and cities already require employers to report salary ranges in job postings.
Leveraging AI to Reduce Hiring Bias
While AI might increase potential liabilities, it also can provide benefits.
Justin Sun, global compensation advisor at Expedia, said AI has the potential to help organizations remove bias and standardize the criteria used to make decisions. When it comes to compensation, he said, AI can help organizations analyze objective data — such as job type, level and time-in-role — to ensure salary decisions are made in an apples-to-apples manner, where appropriate, across teams.
If organizations can quantify candidate assessments — for example, the total years of relevant experience — they can use these inputs via AI to help ensure pay parity as new hires are brought into the organization, Sun said.
For Sun, transparency can provide benefits to recruits and existing hires alike.
“The laws being put in place will help ensure transparency and accountability in the overall recruiting process — and also allow candidates to self-select out of the process if they’re not comfortable with the methodology being followed,” he said.
Sun added that “to build trust with employees, companies should ensure they’re being transparent about how AI is used to pre-recommend compensation for both new hires and current employees.” He said that “by being transparent with employees about the methodology used to determine pay increases during the annual compensation planning cycle, employees may perceive a greater sense of fairness.”
James Atkinson, vice president of data products at Payscale, said that while many practitioners are wary about the use of AI in the hiring process, there is a lot of potential yet to be unlocked – if organizations are transparent.
“What matters in the short term is to be transparent about how AI technologies are being used, what the benefits are and where there are shortcomings,” he said. “Pay transparency is everything in 2024.”
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