One of the largest trends for U.S. hiring in 2023 is the push for pay transparency. After a flurry of local and state legislation last year, 2023 begins with employers facing uncharted hiring territory. Already more than 1 in 4 Americans live in cities or states with laws requiring pay transparency in hiring practices.
Adding to this momentum, a sustained, robust hiring market and the democratization of access to potential employers through online job boards has empowered job candidates to become more selective in where they apply. With 6 in 10 job seekers (62%) reporting that including a salary range in a job posting is the most important driver for deciding whether to apply for a position, employers are primed to act.
Some companies are already responding to this trend and discovering that being on the leading edge of pay transparency delivers a competitive advantage for attracting and winning top talent. Thus the decision for employers today is not whether to adapt to this emerging demand, but how to adapt to this new landscape effectively and avoid being left behind.
Effective action on pay transparency, however, is complex and can easily backfire. Visibility into salary bands could risk losing top talent unless recruiting teams have a clearly articulated compensation philosophy. Recruiting leaders must sell potentially skeptical executives concerned about the loss of bargaining power in hiring. And in the wake of the Great Resignation and surging salaries, new visibility into pay ranges may leave current employees feeling left behind, marring workplace morale and costing companies their best talent.
Executing a successful move toward pay transparency demands intentionality and nuance. But if done well, it can confer a competitive advantage to organizations. There are two key elements to developing a successful pay transparency policy and using it to sell your company to today's top talent.
Defining a salary philosophy
Setting a philosophy for how compensation relates to roles is a first step toward building an effective pay transparency policy. Often companies are apprehensive about embracing pay transparency and are concerned that their pay bands will be lower than market value. However, proactively defining the key skills, experiences, and responsibilities for a role—and their associated market valuation—sets the foundation for competitive salary ranges.
In situations where pay ranges are below market value, a clear mapping of necessary job skills to their market value equips hiring teams with a well-articulated framework for selling leadership on updating the salary bands for a role.
Before beginning a hiring process, recruiting teams should partner with hiring managers to answer three key questions:
- What skills and experiences are core for this role, and what is their market value? This will set the minimum for the salary range. Before a job goes live, recruiters should partner with hiring managers to take a critical look at the position, catalog the skills and experiences required for success in the role, and then canvas similar roles to define the competitive range for a candidate who meets the core requirements.
- What are exceptional skills or experiences for this role? In addition to defining core skills, recruiters should align with hiring managers on the skills and experiences that make for an exceptional hire. Be sure to also discuss how these qualifications would factor into salary offerings. An effective pay transparency policy should reliably and consistently differentiate between candidates that meet core requirements versus potential hires that would significantly up your game.
- Do the job responsibilities align with compensation? The relative scope of a role's responsibilities should influence decisions about salary offerings. Hiring managers can work with recruiting to conduct an internal audit comparing the responsibilities of a new role with similar internal job titles. Roles with expanded job responsibilities should command a higher, or at least a broader, salary range.
While all salary bands have institutional guidelines and constraints, a move toward pay transparency that begins with a well-defined compensation philosophy makes such transparency a boon for the hiring process. This promotes competitive salary, equips recruiters with clear rationales for pay ranges in conversations with candidates, streamlines offer decisions for hiring teams, and ultimately promotes greater equity in offers.
Nailing the range and hooking top talent
As more recruiting teams begin posting specific salary ranges, an often-cited drawback is less leverage for the company during negotiations. Leaders are concerned that candidates will ask for the top dollar of the posted range and pay transparency will mean less wiggle room for recruiting teams in negotiations. Deciding on what pay ranges to post is an acute pain point for many teams, with identifying "good" benchmarks for salary range size and how to preserve bargaining power in offers emerging as top-of-mind concerns.
Posting pay ranges can be a powerful attractor for high-quality talent, but the ranges must be informative to attract and win talent. In particular, ranges that are too wide will hurt recruiting efficacy. Posting extraordinarily wide salary bands increases the risk of misaligned candidate expectations resulting in more declined offers, wasted recruiter effort, and dragging out time-to-hire.
Extremely wide salary bands can hurt your employer brand as candidates may perceive overly general bands as an implicit signal that the company is paying lip service to an equity-focused policy and the company is not committed to pay equity. This can be especially detrimental to diversity hiring goals, as women, BIPOC, and LGBTQ+ candidates rate company commitment to pay equity as a top attractor and signal of an inclusive work culture.
Instead, use the following guidelines to set informative, attractive pay ranges and to effectively communicate them to job candidates:
- Leverage your compensation philosophy to ground your salary ranges. The range of value for a role's key job requirement provides a solid starting point for defining the maximum range for a posted pay band.
- Consider narrowing the posting range to trim outliners and preserve bargaining flexibility. A useful heuristic is to take the median salary as defined by your compensation philosophy and adjust the range to end at 25 percent above and below the median.
- Fine tune posting ranges based on internal salary bands and budget constraints. With the surging salary growth of 2022 and the Great Resignation, market value of pay ranges may be higher than internal ones and may require revising downward to limit compression concerns and to fit within budgeting constraints.
- Equip recruiters and hiring managers with the pay bands for roles and the accompanying compensation philosophy so they can proactively set expectations with candidates and provide well-informed answers on salary when they arise.
One of the most acute challenges for recruiting teams this year is difficulty sourcing talent into their recruiting pipelines. Even as the U.S. economy shows signs of cooling, the job market remains hot with 4 in 10 jobs going unfilled every month. At its core, sourcing talent is a sales challenge—standing out and enticing potential job candidates to invest their effort applying to your role versus competitors—and pay transparency can be a powerful tool for selling talent by reducing uncertainty and transmitting your company's values.
When grounded in an intentional pay philosophy and communicated clearly in job descriptions, pay transparency delivers on a core and acute demand for talent. Moving jobs, or even considering moving jobs, is a costly and time-consuming act. Informing candidates up front of the material dollar impact of changing jobs not only removes a key decision-making hurdle for applying, but also helps ensure that the candidates who do apply are more aligned with the role, thus smoothing the recruiting process and generating a higher proportion of accepted offers.
This article was written by Dr. Andrew Monroe from Quartz and was legally licensed through the Industry Dive Content Marketplace. Please direct all licensing questions to legal@industrydive.com.