- Legislation continues to grow. One in four U.S. workers are now covered by pay transparency legislation, and more state legislation was passed in 2023.
- Job applicants seek employers that prioritize fair pay. Qualified candidates are more likely to apply for positions that include salary in their job listings.
- Benefits of pay transparency. Pay transparency creates a fairer work environment, improves employee morale and engagement and boosts talent retention. Move out of wait-and-see mode by adopting best practices and ensuring compliance with an evolving regulatory landscape.
Pay transparency laws are evolving rapidly at the state and local levels across the United States. Today, a growing number of employers must now disclose salary ranges in job postings and provide pay information to job applicants and employees on request. Salary history bans are also active in a number of jurisdictions.
Colorado was the first state to enact pay transparency legislation in 2021. At the beginning of 2023, California, Washington, and New York followed suit by requiring pay transparency in job postings. Other states and cities have also taken their cue and are considering legislation, such as Hawaii and Illinois (their legislations will take effect in 2024 and 2025, respectively).
Employers — in the U.S. and abroad — would be wise to take note: If these regulations haven’t made it to your doorstep yet, it’s only a matter of time.
Understanding Resistance to Pay Transparency
Demands for a fairer and more equitable society coupled with changing employee expectations have contributed to the pay transparency movement. But historically, it has been something of an Achilles’ heel for employers, for several reasons:
- Employers historically have viewed pay as negotiating leverage.
- Internal reward frameworks are often inconsistent, lack clarity and transparency.
- Leadership is often not aligned on reward strategy and pay transparency.
- Managers often lack the information and skills to conduct effective conversations around pay with their teams.
Most total rewards leaders see pay transparency as both a strategic and compliance issue. Concerns still exist over its potentially disruptive nature, especially in the early stages of implementation. For instance, salary transparency can cause engagement concerns among employees if there are inconsistencies in current practices.
According to WorldatWork research, 2 in 5 employers don’t communicate salary ranges to employees when they aren’t required, and 4 out of 5 organizations say a majority of their workers don’t understand their compensation philosophy.
As a result, company leaders are often nervous about revealing more transparency in their pay practices and many remain in wait-and-see mode.
The Benefits of Pay Transparency
Talent today demands more from its employers. This year, the number one challenge named in the Conference Board’s C-Suite Outlook survey was attracting and retaining talent. Pay transparency directly affects this issue.
Including salaries in job listings means employers are more likely to attract candidates with compensation expectations that align with the employers. Job applicants increasingly seek companies that prioritize pay transparency and fair pay practices.
Pay transparency eliminates pay inequities, creating a fairer work environment. Disparities based on gender, race and other protected characteristics are identified and removed. In the process, pay transparency contributes to inclusive cultures, boosts trust and engagement, and results in more motivated and productive workers.
Best Practices to Reach Compliance
There’s more to pay transparency than disclosing salary ranges in job listings, and pay transparency means different things to different people. Most organizations are navigating this complex landscape by carefully considering the approach that meets their own unique needs. Here are seven best practices help total rewards leaders to ensure compliance and create a culture of equal pay:
- Take proactive action. Embrace pay transparency and fair pay practices, rather than wait for regulatory pressure to force change. By proactively adopting a policy of pay transparency, employers signal their commitment to fairness and attract top talent.
- Carry out a comprehensive pay equity audit. Evaluate your current compensation practices and identify pay disparities based on gender, race, and other protected characteristics. Take prompt action to rectify disparities and establish fair and transparent compensation structures.
- Stay up to date with legislation in your jurisdiction. Effective pay equity requires continuous monitoring to track progress, identify potential pay disparities, take corrective actions, and stay compliant.
- Enhance communication and transparency. Clearly communicate to employees your commitment to pay transparency and fairness. Provide information on salary ranges, compensation policies and detail your steps taken to implement pay equity. Foster a culture of open dialogue and address employee concerns proactively.
- Review your compensation philosophy. Ensure that your decision-making processes are structured, consistent and align with company values. Regularly review and update compensation practices to reflect market trends and maintain competitiveness.
- Invest in your talent. Attracting and retaining top talent is crucial in a transparent pay environment. Benchmark your compensation against market rates, offer competitive compensation packages, and provide opportunities for career growth and development to retain valuable employees.
- Work with what you have. Organizations with limited resources should focus on compliance with legislation. Include a checklist to meet legal requirements and ensure your salary ranges are clearly defined. Job postings should include all legally required pay information. To address employee queries promptly, provide your managers with a list of FAQs.
Pay equity isn’t a one-time fix, but it should form a key component of your company philosophy. As the regulatory landscape continues to evolve, legislation is likely to look very different a year from now. With more resources and awareness now available, organizations are better equipped than ever before to respond to any changes.
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