What is the Pay Transparency Trend and How Can Employers Prepare for it?

What is Pay Transparency?

Openly communicating pay-related information to current or prospective employees is called pay transparency. Employers can provide this information through various channels, such as online job sites, job postings, during an interview, or through other company communications.

As a result of changes in the labor market, more and more employees are demanding pay transparency. In some jurisdictions, employers are required to share pay information, meaning that this trend is having an impact on more and more businesses.

In this article, we will explore the rules and regulations around pay transparency as well as workers’ ever-growing demand for it. We will also touch on employer advantages and helpful strategies to implement pay transparency in your own organization.

Pay Transparency Across the Nation

With the recent clamor for more pay transparency, some states have decided to pass legislation requiring organizations within their borders to meet this demand. In the last few years, California, Colorado, Connecticut, Maryland, Nevada, Rhode Island and Washington have all had laws passed pertaining to pay transparency. Additionally, some cities including New York City have instituted their own pay transparency laws.

Depending on the state, employer transparency laws surrounding salaries differ. Some places only demand that employers offer pay ranges if the potential employee asks for it, while others require businesses to disclose this information from the start. For instance, a recent California law passed requiring companies with 15 workers or more to include their salary range in every job posting starting January 2023. This includes postings on other websites as well.

Employee Demand for Pay Transparency

The current labor market has caused employees to voice new requests, such as the ability to work remotely, increased benefits and much more—one of which is pay transparency. Websites focused on pay information, like Glassdoor, have helped make pay transparency a regular part of an individual’s employment search and employee-employer conversations about salary. Employees value transparency because it allows them to see if they are being paid what they deserve, builds trust and encourages employers to be fair in how they compensate workers for similar roles.

The most important factor potential employees consider when deciding whether to apply for a job is their estimated compensation, according to Visier’s 2022 Pay Transparency Pulse Report. Furthermore, 11% of candidates will not apply or interview for a role without knowing the salary range, and 50% have completely abandoned an application or interview process because the pay did not meet their expectations once they learned it.

Job applicants prioritize salary information to ensure they are being paid fairly for their work and skills, in line with what the marketplace offers, as well as to avoid applying and interviewing for jobs they ultimately won’t accept due to insufficient pay. Furthermore, potential employees see compensation transparency as a way to develop trust with their employers from the start of the working relationship.

Advantages for Employers

Pay transparency is no longer a fad–it’s here to stay. More and more states and localities are implementing pay transparency laws, showing that this movement is only growing stronger. This shift matters especially to younger workers, who place an increased importance on knowing what they could potentially earn at a company.

The way younger generations and entry-level employees think about pay is different from how employers have traditionally treated compensation conversations and practices. Employers may need to evolve their thinking by embracing pay transparency, in order to make themselves attractive to these workers.

Although pay transparency may just sound like another run-of-the-mill thing for employers to think about, it’s really a chance for them to earn their employees’ trust. If an employer isn’t paying their staff more than others in the industry, simply sitting down and going over pay with current employees and candidates can help create trust. This seemingly small change has the potential to dramatically improve relationships between employers and employees.

Employers need to evaluate the pay transparency rules and regulations that apply in their jurisdiction. Even if there are no legal requirements, providing this type of information may still be beneficial because employees and job applicants are increasingly demanding it. In other words, offering pay transparency can make your organization more attractive to potential hires.

Because of this law, companies that cannot or do not publish what they pay their workers are at a disadvantage. While it is not yet required by law that all companies do this, many consider hosting informational training sessions on the topic or publishing the salary scales for open positions in order to get ahead of competitors and please potential new hires.

Moreover, companies that publicly share pay-related data generally receive more job applications. Also, revealing salary details and ranges to potential employees early on can cut back on HR costs related to recruiting. Giving this type of information to applicants can help organizations stay ahead of changing laws, for instance, many states are now mandating pay transparency for remote positions.

Although transparency in pay comes with potential benefits, some employers avoid these measures due to the possibility of discontent among employees–disclosing pay information may reveal discrepancies and spur more questions from workers. This type of data sharing could result in legal action against the organization relating to unequal compensation. With that said, pros and cons must be carefully assessed before implementing changes regarding pay transparency practices.

Key Takeaway

As pay transparency becomes a higher priority for employees, employers should prepare themselves to provide it. By increasing their pay transparency in different ways, employers may see an improvement in talent attraction. Some places of employment are already legally required to have pay transparency; therefore, these businesses should consult with local legal professionals to make sure they are following the law.

With this trend in mind, employers can prepare themselves with the following steps

  • Review the pay levels, confirm salary ranges, and ensure pay ranges are consistent for each position; taking into account race and gender.
  • Review job postings, notices of promotion or transfer, and compare them against any existing pay transparency law in effect to ensure compliance.
  • Train managers to ensure that the organization is not taking any steps which could be seen as limiting employees’ right to discuss their pay or retaliating against employees for talking about these types of topics.
  • Develop a strategy to handle current employees’ complaints if they find out you are paying their coworker more. This will help reduce the risk of those employees leaving, such as providing concrete reasons for the disparity (i.e., years of experience) and future opportunities to increase pay.
  • Make sure to stay updated on any new pay transparency laws in the area in which you operate.

Ultimately, employers must decide how transparent they should be about pay within their company. The goal of revealing compensation is to help employees understand why they’re paid a certain amount — and what actions they need to take to progress in their careers.

For more information on compensation strategies, contact PeopleStrategy today.

*These HR Insights is not intended to be exhaustive nor should any discussion or opinions be construed as professional advice.