- Pay transparency laws vary by location. Organizations that operate in multiple jurisdictions often face a number of different requirements. Additionally, as states and other municipalities continue to adopt pay transparency regulations, organizations may now be grappling with how to comply.
- Approaches to pay transparency differ. Some multi-jurisdictional employers adhere to minimum compliance requirements, others provide full transparency, and still others do something in between.
- Education is crucial but often lacking. Fewer than half of employers have a formal education program about their compensation philosophy, even though education benefits all stakeholders.
Author's Note: This article contains general information based on our understanding of the requirements of various pay transparency laws. However, Deloitte does not provide legal advice. We strongly recommend consulting with your legal counsel on the information included herein.
A continuing wave of state and local pay transparency laws is sweeping across the U.S., creating new requirements for employers. Because these requirements can vary by location, compliance has become increasingly difficult for organizations that operate in multiple jurisdictions. Additionally, new legislation is requiring employers to think about pay range transparency, possibly for the first time.
Pending federal legislation (H.R. 1599), if it passes, could provide an opportunity to drive consistency in pay transparency practices. For now, however, many multi-jurisdictional employers are left wondering how to approach the situation.
To better understand how organizations are responding to pay transparency laws, Deloitte Consulting recently collaborated with Empsight International to conduct a Pay Transparency Pulse Survey. Over 250 organizations, many of which are Fortune 1,000 companies, responded to the survey. These organizations represented a broad cross-section of industries, as well as workforces ranging in size from less than 100 employees to over 20,000.
Most respondents who have implemented pay transparency policies indicated that these policies have had either a positive or a neutral impact on their business. Additionally, our survey found that three different approaches to pay transparency mandates have emerged: adhering to minimum compliance requirements, embracing full transparency or doing something in between.
Adhering to Minimum Requirements
Some organizations have chosen to strictly follow the letter of the law, disclosing pay information only in the jurisdictions where they are legally required to do so. Employees and external stakeholders receive the minimum information required to satisfy the transparency mandates in these locations, and nothing more.
Some companies have chosen to apply this approach strictly to meet the legal requirements in the jurisdiction(s) where they operate. While that will certainly meet the need for those employers, other companies have used this approach as an initial step towards a more transparent compensation philosophy to help meet the shifting asks of the new workforce. Either way, the advantages and disadvantages of this approach ultimately come down to the implementation. For example, a very wide range (e.g., spanning $100,000 or more) may limit the overall usefulness of posting the range.
Embracing Full Transparency
In choosing how to best deploy pay transparency policies, other organizations have gone to the opposite extreme and decided to take an approach rooted in complete transparency, sharing more than what is legally required in all jurisdictions.
By choosing to educate their employees on all the ins and outs of how compensation works, these organizations are demystifying their pay practices. Employees and leaders at these organizations understand how pay decisions are made, where they fall within the range for their position and potentially the salary ranges for other jobs at the organization.
When asked about its full-transparency approach, one of the respondents to our survey said its talent acquisition team partners with its managers to discuss pay ranges with both external and internal candidates.
"For internal employees and managers,” the company added, “we developed a digital compensation training where they can learn more about our pay philosophy and our pay-for-performance approach.” Topics covered in the training include how the organization determines its merit matrix, how its salary structures are prepared, and what is meant by terms like “midpoint,” “quartile” and “compa-ratio.”
When it comes time to provide annual increases, salary planning managers enter their employees’ salary increases into the company’s portal and communicate the increases to employees using the salary planning dashboard as supporting documentation.
“We believe our education efforts and transparent pay approach has a positive impact, building trust with our employees and empowering our managers,” the respondent said.
Taking the Middle Ground
Organizations that want to do more than strictly follow the letter of the law but that aren’t ready to become completely transparent about compensation are employing a strategy that falls somewhere in between. This more tempered approach gives organizations the flexibility to comply with regulations in multiple jurisdictions but still maintain control over the compensation narrative.
What does this look like? At one organization, it means providing education. “We have been on a pay transparency journey that extends beyond legal compliance to leverage the advantages it offers to our associates and the organization,” the respondent said. “A critical step in this journey has been educating our leaders and associates to enhance their awareness and understanding of our pay philosophy and practices.”
Like some other organizations, the company said it intends to use this middle-ground approach as a steppingstone toward complete pay transparency. In the future, it plans to further advance pay transparency by publishing pay ranges on all job postings and increasing visibility into each associate’s own pay range.
“This proactive approach underscores our commitment to pay equity and a culture of inclusivity and belonging while remaining competitive with the market,” the respondent said.
Solid Educational Foundation
There is no “right” way to respond to pay transparency regulations. What works for one organization could prove disastrous for another. The best approaches align to the organizational DNA, to organizational goals and company culture, and in language the employees find relatable. If employees don’t have a clear line of sight on how to get promoted or how performance management is done, the company is opaque on compensation. That is not a consistent approach, and consistency is key.
Two things to note: Less than half of respondents (46.6%) indicated using formal education programs to help people understand the organization’s compensation philosophy, and 26.1% reported having no formal process or trainings at all.
Failing to provide such education could prove detrimental to employers. Education is crucial in helping to ensure that leaders and employees understand compensation practices and do not create their own narrative about the organization’s compensation philosophy. So, regardless of what approach a company takes to pay transparency, establishing a solid foundational understanding of the organization’s compensation philosophy will be critical to their success.
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