Pay Transparency Remains Key Amid a Tight Labor Market
Workspan Daily
June 16, 2022
Pay Transparency
Key Takeaways

  • Employees talk. Research indicates employees, especially Gen Z and Millennial employees, are more inclined to discuss pay with one another.  
  • An inevitability. Some comp experts believe the global standard by the end of 2022 will be to publish pay ranges with job openings and to no longer discourage or disallow employees to talk about their pay with coworkers. 
  • Improve employee experience. Compensation is tied to the employee experience and organizations have an opportunity to improve the employee experience through increased pay transparency. 
  • Leadership alignment and planning. Rolling out a pay transparency strategy requires extensive planning and leadership alignment to handle anticipated employee inquiries.  

Widespread employee movement is still very much a reality for businesses. And while there are various compensation and rewards tactics that organizations continue to utilize to boost retention and attraction efforts, transparency should be layered into these strategies.  

study from beqom found that 63% of American employees know the current industry benchmark pay rate for the role they want. What’s more, Gen Z (18-26) and Millennial (26-41) workers, who now comprise a majority of the workforce, are more likely to discuss compensation with one another. A survey found that 42% of Gen Z and 40% of Millennial employees have shared their salary information with a coworker or other professional contact.  

Thus, if you’re recruiting to fill a job, chances are your existing employees will eventually find out the compensation level at which you have brought in that new employee. This is why many experts in the compensation field are increasingly advocating for more transparency around pay.  

In speaking at WorldatWork’s Rewards’22 conference in May, Boyd Davis, global head of compensation planning at Unit4, suggested that publishing pay ranges with job openings and no longer discouraging or disallowing employees to talk about their pay with coworkers will be the global standard by the end of this year. 

Organizations, however, will have to be strategic and thoughtful in moving toward more transparency.  

“Honesty and transparency goes a long way. You have to first assess what happens when you expose these ranges and how people are going to perceive it when they see it,” Davis said. “You have to constantly be able to explain what your philosophy is and where you have variances from that philosophy and if or when you’ll have action to fix them.” 

Current Legislation  

Davis’ belief that pay ranges published within job postings will become standard practice is based in part on the continued movement of pay transparency legislation.  

For example, Colorado’s Equal Pay for Equal Work Act went into effect in 2021 and it requires Colorado employers to provide formal notice to Colorado employees of promotional opportunities and to disclose pay rates or ranges in job postings for positions that will be or could be based in Colorado, including remote opportunities.  

Given the proliferation of remote work brought on by the COVID-19 pandemic, a quick perusal of job postings on LinkedIn reveals many organizations are obliging this Colorado law by calling out the pay range “for Colorado candidates.”  

This law went further than California’s pay transparency legislation, which entitles applicants to request and receive the pay range for a pay position in which they’re applying for, noted Tauseef Rahman, partner in Mercer’s career business.  

New York City also recently enacted pay transparency legislation that is set to become a requirement for employers in the Big Apple as of Nov. 1. Specifically, it requires employers with four or more workers in New York City to post the minimum and maximum pay range for any job within the city.  

Both laws have a “cat’s out of the bag” feeling to them if you’re an organization looking to expand your talent pool. While some companies have opted to find ways around the legislation, forward-thinking employers will see it as an inevitability and begin building out a pay transparency process and strategy.  

Tanya Jansen, co-founder of beqom, said organizations can parlay increased transparency into  an employee engagement tool that assists with retention.  

“While the first instinct for some employers may be to panic, leaders can actually use this increased curiosity as an opportunity to build greater trust with their employers by having open communication,” Jansen said. “Employees with a clear idea of how much they are earning  and why are less likely to doubt they are being compensated fairly, and are more likely to have a strong relationship with their employer.” 

Framing the Conversation  

While inflation is currently top of mind for many employees, cost of labor, not cost of living is what’s driving pay increases. Organizations continue to field requests for pay increases as a relation to inflation, however, which is perhaps another opportunity for employers to demonstrate what influences pay decisions to their employees.  

In February, WorldatWork’s “Salary Budget Follow-Up Pulse Poll,” collected more than 250 responses from compensation professionals indicating an average actual 2022 merit increase of 3.7% and 3.5% median; significantly above predictions from months earlier.  

These figures, however, still fall well below the current inflation rate of 8.6%. With increased transparency, organizations can set proper expectations about employee pay.  

“Today’s employees haven’t been shy about their desires for increased pay, as we’ve seen workers at companies nationwide advocate for higher wages to combat rising inflation,” Jansen said. “Raising wages for every employee is a costly initiative. Employers that can’t afford widespread wage hikes should continue to be transparent about their pay strategies, so employees are in the loop on why they may not be receiving the same raises as competing companies.  

“Employers should also be open about some of the factors weighing in on their decisions around employee pay, like budget and location, as well as other benefits (e.g., fully paid healthcare) that contribute to making their total compensation more competitive.”  

Lee Ownbey, senior director of total rewards at Beam Therapeutics, emphasized the importance of compensation practitioners getting executive buy-in and establishing alignment with leadership when transitioning to a more transparent approach with compensation.  

“You have to have that executive alignment and make sure they are fully bought in to this idea of pay transparency before you roll it out,” Ownbey said at Rewards’22. “Part of that is educating them and helping them understand this is inevitable.” 

Ownbey cautioned compensation and rewards practitioners that employees would likely react negatively to more transparency around pay ranges, noting that if an employee is on the low end of a pay range, they’ll wonder why they aren’t higher, and if an employee is on the high end of a pay range, they’ll wonder why they haven’t been promoted yet.  

“You have to manage employee expectations and have conversations with them and to keep up employee relations,” Ownbey said.  

Data indicates most employees respond to this increased transparency, as 68% of Americans say they would be willing to accept a lower salary if their employer offered transparency around salary benchmarks.  

Ultimately, Jansen said, now is an optimal time to do an internal assessment of pay practices and programs and evaluate the steps needed to become a more transparent organization when it comes to compensation.  

“Organizations can use inflation as an opportunity to begin a more frequent compensation evaluation process that ensures the company is keeping up with industry trends, fair pay and more,” Jansen said. “When workplaces are confident in their pay practices and have the ability to be agile, they will be better prepared for the next crisis and to talk through their strategy with employees.”  

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