Mandates for Pay Disclosure Change Hiring Conversations

updated: 4/28/22

Employers are facing an expanding wave of state mandates to disclose pay ranges for open positions. It's time to consider how this information could affect employees' perceptions of whether their compensation is a good deal.

New York City will soon require employers to include a pay range for all posted jobs, following a similar requirement imposed by the state of Colorado. Other jurisdictions have passed laws requiring employers to provide this information to applicants at a specific point in the hiring process or on request, but don't require employers to make this information public when posting a job.

The New York City law, whose effective date was recently delayed until Nov. 1, and the Colorado state law, now in effect, are unlikely to be the only pay range disclosure laws for long:

• California has already introduced a bill to expand pay disclosures by requiring employers to post pay ranges for available jobs, and other jurisdictions are expected to follow suit.
  

• Washington state employers, beginning in 2023, must include a "wage scale or salary range" along with information about benefits and other compensation in each posted job listing.

Once pay range data becomes available, it gives job candidates a powerful negotiation tool. "The goal is to force employers to make sure compensation is based on specific job requirements rather than the applicant's negotiating skills or salary history," said Lynne Anderson, partner and leader of the pay equity team at law firm Faegre Drinker Biddle & Reath LLP in Florham Park, N.J.

Employers may be tempted to post open-ended salary ranges, such as "$40,000 and up," but that is unlikely to be viewed as satisfactory compliance under these statutes. "Post the range you intend to pay," Anderson advised.

Hiring and Pay Disclosure

The prospect of pay range disclosure, like other pay transparency laws, should force employers to consider what kind of story their disclosures would tell to current employees, job seekers and their competitors for talent.

"What is the state of your current compensation system?" asked Jennifer Loftus, owner of HR consulting firm Astron Solutions in New York City. "What is your level of confidence in current pay ranges for your jobs?"

Loftus predicted that expanding disclosures will force employers to keep their compensation structures in good working order. If there is any doubt in the answers to these types of questions, employers need to be prepared to refresh and build out their compensation systems to make sure they stand up to scrutiny by both job candidates and current employees.

"An immediate action item is to look where incumbent employees fall within the advertised pay range," Loftus said. An internal pay equity analysis can show whether any differences in incumbent pay are defensible. If this analysis reveals problems, such as some employees making less than their peers in the same job, the employer should investigate to see if these issues are the result of unfairness or because of other factors such as cost-of-living differentials or workers' own long-term performance.

Explaining Pay Offers

Pay range disclosures also increase the stakes for hiring managers, who may need help to plan for and conduct an effective salary discussion in which the candidate knows the pay range for the job.

When making salary offers to job candidates, employers may need to become better at explaining their compensation structures and decision-making around pay levels. "How did you determine where the candidate should fall within the pay range?" Loftus asked. "This education component is essential."

Job candidates, for example, may assume that their skills and experience warrant a pay offer at or near the high end of the stated pay range. In this case, the hiring manager may need to explain to the candidate what the organization considers when making a salary offer and why that offer is fair considering the candidate's education, skills and experience.

"When screening job candidates when they can see the pay range, employers have an opportunity to explain why a candidate would fit better at the lower end of the range or band," said Donnal Renella, president of ABW Solutions LLC, a consulting and recruiting firm in New York City. "If you are looking for someone who can stretch and grow with the position, there are ways to state that respectfully."

Employers need to make sure hiring managers have the tools necessary to make a fair but competitive offer. If the talent market for the job in question is highly competitive, employers need to consider whether and under what circumstances a hiring manager has the discretion to make a higher offer.

Ongoing Transparency

Employers may not welcome it, but the trend toward greater pay transparency is not going anywhere. Moreover, the impact of one pay transparency law is likely to be felt well beyond its borders, especially as the number of remote jobs continues to increase.

If these laws spur employers to take a hard look at their compensation structures and decision-making, that can benefit both employers and the people they hire.

In an environment where employees feel free to discuss pay with their peers, pay transparency allows employers the opportunity to learn how to communicate more effectively about pay. That includes finding ways to explain the rationale driving pay decision-making in ways that employees can understand and respect.

In addition, pay range disclosures have the potential to tighten up the hiring process itself. By posting the pay range for a job, employers may find that they waste less time screening applicants whose pay requirements are higher than the position warrants.

"This could create a pool of more relevant talent with better candidates and save time," Loftus noted. "It doesn't have to be a negative."

Joanne Sammer is an award-winning business and financial writer based in New Jersey.

Related SHRM Article:

Managing the Workplace Compliance Minefield of Wage Disclosure Laws, SHRM Online, February 2022