Trend Toward Pay Transparency Continues

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Pushed along by new state and local laws, more companies are increasing their transparency about pay.

Seventeen percent of companies are already disclosing pay range information, even in locations where it's not required by state or local laws, according to a new WTW survey. At least 62 percent of employers are planning to disclose or considering disclosing pay rate information in the future.

Seventy-one percent of companies plan to use a consistent approach in determining which pay rate, and range information will be disclosed across all jobs. Fifty-seven percent are applying a geographic pay policy to determine the pay rates or ranges, and they will differ based on the job location, the survey found.

"We're in an era of change in terms of what companies have been sharing and hopefully will be sharing more of in the future," said Mariann Madden, co-leader of WTW's North American fair pay team in Chicago. "I would relate it to the various pay transparency laws that have been cropping up across the United States in the past two years. The labor market and complaints from the employee workforce have influenced this," as well.

Thirty-eight percent of companies that currently disclose pay rates are seeing more questions from current employees, and 27 percent are getting more questions from prospective employees. Sixteen percent also are seeing an increased number of candidate applications, the survey found.

Some employers may be facing internal and external pressures from boards of directors and large shareholders to undertake this process, said Daniel Schudroff, an attorney with Jackson Lewis in New York City. "Some employers recognize that voluntarily providing pay information upfront can serve as a marketing tool to attract qualified candidates who may be earning less performing similar tasks."

However, 31 percent of companies still say their pay programs are not ready for this kind of transparency. Forty-six percent cite possible employee reactions as a reason for holding back on pay transparency, while 30 percent cite administrative complexity and 25 percent cite a lack of clear job architecture, the survey found.

States like California, Colorado, Connecticut and Nevada have passed laws requiring employers to include salary ranges in job postings. Washington state's law will require employers to list salary ranges in job postings starting Jan. 1, 2023.

"Some employers operate in multiple jurisdictions, some of which have—or will soon have—pay transparency obligations," Schudroff said. "In such cases, it may be administratively easier to act as if the most restrictive laws apply companywide, especially with the advent of remote work and it sometimes being unclear where someone works."

Closing Pay Gaps

The state laws promoting pay transparency are meant to reduce the gender and racial pay gaps that persist today.

"Pay inequity along gender and racial lines has been recognized as a problem for more than 50 years, and this is the latest initiative being undertaken to address it," said Tracey Levy, an attorney with Levy Employment Law in Rye, N.Y.

"State legislatures are getting involved to level the playing field, so job seekers can be better informed when they are applying for jobs, and we also know it's to close the gender and racial pay gap," Madden said. "I think it will help close the gap." She noted that state laws that prevent companies from asking job applicants about their salary history also have been helpful in closing the pay gap.

One-third of North American employers—33 percent—are already disclosing information on their approach to managing pay equity, and 53 percent expect to do so in the future and on a global level, the survey found.

But experts don't expect the gender and racial pay gaps to shrink quickly. "It's a step in the right direction, but I wouldn't say this is a magic pill that we're going to see all the pay gaps disappear," Madden said. "A lot of things are needed in order to get pay right, and a lot of times companies have parts of things in place, but not everything that's needed" in governance and management of pay policies.

Levy expressed doubts that pay transparency would be able to overcome factors like women negotiating for lower salaries compared to men, as well as more men being promoted from within companies to earn higher salaries.

Communicate with Existing Staff

It might make your current employees feel underpaid and underappreciated if they see you advertising similar positions to theirs, but with significantly higher pay. "If an employee who has been working for a company for two years sees that an entry-level employee could earn more than that person, that situation could lead to employee discontent, resignations or even union organizing," Schudroff confirmed.

"On any given day, most people would say they would like to be paid more, but they may nevertheless be happy and feel valued if they believe their compensation is reasonable and appropriate to their role, to the organization's pay scale, and to what their peers are paid," Levy said. "If a job posting reveals that to be a false assumption, satisfaction will decline, productivity will decline, and employees who can do so will vote with their feet and leave."

That's why you should educate the workforce "about what pay is," Madden said. That means showing employees your methodology for determining pay and the steps you're taking to make it as fair as possible. "You want employees to feel good about the process you have in place, not distrustful of you," she added.

But some executives don't share that mindset about pay. "I've worked with so many organizations where pay is a black box," Madden said. "There's a cultural aspect of leadership sometimes where they haven't evolved or haven't seen the need to evolve, so now these laws are pushing them in this direction."

"There is this underlying fear of sharing information," she added. "The fear is caused by [the fact that] they don't have their house in order in terms of foundational aspects" of their pay structure and pay governance.

Nonetheless, experts predict the pay transparency trend will continue to grow in the upcoming years. "We expect that level of transparency will likely become the norm as external stakeholders demand more clarity and visibility into companies' pay management practices," said Lindsay Wiggins, co-leader of WTW's North America fair pay team.