Change can be disruptive, especially for formerly taboo topics like salary and compensation. But it’s better to prepare than to scramble to catch up.
Increasing employee demand, developing legislation and evolving business priorities all point to a lasting change in pay transparency and disclosure practices. Are you ready?
To help you prepare, let’s look at this growing trend. We’ll discuss the challenges, the opportunities and some important considerations moving forward.
A growing movement
Over the past few years, companies have been under increasing legal and societal pressure to list salaries, or at least salary ranges, for all job postings.
Nearly 80% of employees want greater transparency in pay, according to a survey by the analytics company Visier. The survey also found that 68% of employees would switch jobs to work for a more transparent employer.
Legislators are following suit. In January 2021, Colorado became the first state to enact a law requiring companies to include salary ranges in their job postings. In New York, similar legislation is in effect as of Nov. 1, 2022. A handful of other states and local jurisdictions are set to enact pay transparency laws soon.
With the increase in remote job positions, state laws aren’t always contained to state borders. For example, according to the HR news site Human Resources Director, the Colorado law applies to companies that post remote job positions and have one or more employees currently residing in Colorado.
The Colorado statute creates fines between $500 and $10,000 per violation. And labor attorneys warn that companies can run afoul of discrimination laws if they attempt to ban Colorado candidates from applying for nationwide remote positions. Check with your legal counsel for more guidance.
Business practices are also evolving. Websites like Glassdoor and Blind built their followings by collecting anonymous data from employees to provide greater insights into salaries. This summer, the job site Indeed added a salary component to nearly every job post. The rate of pay either comes directly from the job recruiter or is estimated by the site’s software. Large companies had been able to opt out of Indeed’s salary estimation and disclosure practice, but Indeed ended that option in July 2022.
Challenges and opportunities
Some businesses have pushed back against transparency, while others have embraced it. Regardless of your organization’s stance on this topic, increasing legislative and employee demands make it important to prepare.
Following are some potential pros and cons.
Positives of greater transparency may include improvements in:
- Pay equity — Forbes notes that women still earn 82 cents for every dollar men make, and Black women earn 63 cents. Basing pay on job positions instead of prior salaries can help level the playing field for candidates who have been historically underpaid.
- Hiring processes — You may save time and money with more streamlined hiring practices. One advantage is that you won’t waste time recruiting and interviewing candidates whose salary expectations are beyond the role they are applying for.
- Diversity, equity and inclusion (DEI) initiatives — As you examine salaries, you may see opportunity gaps for certain demographics within your business. Hiring and promoting underrepresented employees can serve a vital DEI function. In turn, you may increase employee engagement, recruitment and retention in the long run.
- HR strategy — The initial investment in compensation structure could lead to a better long-term plan for your business needs. For example, it can help HR strategize for the entire organization instead of taking a piecemeal approach when salary complaints arise.
- Awareness of benefits and culture — Salary is only one component. If you offer rich health care or retirement benefits, work-life balance, professional education opportunities and other valued benefits, now is the time to promote them to your internal and external audiences.
On the flip side, greater transparency can lead to concerns:
- Administrative burdens — You’ll need an overarching compensation strategy to set and justify salary ranges. This may mean creating and managing a database with job classifications and salaries for all positions, as well as tracking data for similar businesses and industries.
- Employee discontent — Current employees could be unhappy if they see new employees or those in similar roles earning more. You may need to raise salaries for underpaid employees.
- Competitive disadvantages — You might miss out on candidates who will no longer apply for a job based on the listed salary. In addition, it may be harder to land talent if candidates see competitors offering higher compensation.
- Potential complaints or lawsuits — You can pay employees different salaries based on job type, job requirements, employee skills and experience, and other legitimate business purposes. But it is illegal to base compensation on race, gender, religion or any other protected characteristic. Intent isn’t a defense. For example, you can run into trouble if greater transparency reveals that any protected groups in your organization are collectively underpaid.
Considerations for becoming more transparent
Even if you aren’t currently subject to pay transparency and disclosure laws, the trend is gaining momentum. The following considerations can help you get ahead of the curve:
- Immediate impact — Pay transparency will affect both current and prospective employees. Assess your compensation practices to ensure pay equity for current employees and competitive offerings for external candidates.
- Legitimate business needs — Examine the reasons behind potential differences in pay. For example, salaries based on geographic location, cost-of-living analyses and similar factors can serve organizational needs. Similarly, you can justify differences between a high-performing 20-year veteran and a three-year employee with mediocre performance evaluations.
- Red flags — Uncovering differences among comparable employees, as well as gender, race and other protected characteristics, could be a red flag for pay practices. These differences likely warrant immediate action. Check with your legal counsel for guidance.
- Discretion and training — Your hiring managers will need to communicate pay ranges and where prospective employees fit into those ranges. Decide how much discretion you’ll give to hiring managers for placing candidates within salary ranges. Supervisors may also need to hold these conversations with current employees. Training could be a vital part of this transition. For example, some companies use role-playing techniques to help managers become more comfortable talking about pay.
To learn more
For more information on pay transparency and disclosure, talk with your legal counsel or benefits adviser. They can help you examine your compensation strategy for effectiveness and compliance.
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