How employers can use pay transparency laws to their advantage

On September 27th, California Governor Gavin Newsom signed sweeping pay transparency requirements for California employers into law, following similar legislative developments in Colorado, Washington, and New York City. The bill requires employers of 15 or more employees to include salary ranges in all job listings, and those who employ more than 100 people to submit annual pay analyses by race, gender, and ethnicity, data that California would make public.

As the national pay transparency movement continues to gain traction, other states and municipalities are expected to follow in California’s footsteps, including New York, whose governor has a similar bill awaiting her expected signature. Certainly, pay transparency is more than a passing trend, rather a top priority for state legislatures and their constituents alike across America. As a result, employers are faced with the need to adopt more transparency, in a job market where the 10 million openings outweigh the 5.8 million unemployed Americans. While implementing more transparent policies may be a challenge for some employers, those who embrace the movement can gain a considerable advantage both in employee retention and the war for talent.

Preparation is key

Organizations, regardless of any regulations in their region, should begin taking stock of their compensation practices by gathering the necessary data. Specifically, HR departments should start by outlining their current salaries, pay raise history, and promotions over time, followed by analyzing them demographically; by race, gender, sexual orientation, ethnicity, and age, in conjunction with other metrics such as employee tenure, experience, performance, and relevant skills. Additionally, compiling salary data amongst regional competitors can provide a snapshot of where an organization stands in regard to offering competitive compensation.

Analyzing compensation benchmarks enables leadership to come to the table prepared to comply with potential transparency regulations, and begin to put plans in place to combat any pay inequities or salaries that may reside on the regional or industry low ends. Accumulating pay data now, rather than scrambling when their state or municipal government announces new regulations, puts organizations in a strong position to easily adhere to potential legislation.

Gain an upper hand in the war for talent

Today’s job seekers have more options for work than ever before with the rise of online job boards and remote work options, but currently, pay transparency is not a common benefit. Our 2022 Compensation and Culture Report finds that 79% of respondents are more likely to apply to jobs if descriptions are more transparent regarding salary ranges for the position. Transparency is a proven way for employers to bolster their talent pool, as Colorado’s post-transparency legislation labor force participation rate increased by 1.5% more than neighboring Utah (a state with a similar economy but without transparency requirements) in the same timeframe.

Pay transparency also helps organizations streamline the hiring process. By providing a salary range in the job posting, candidates who choose to apply are doing so knowing that the compensation is in the ballpark of what they’re looking for, greatly reducing the chances of a candidate making it all the way through the interview process only to withdraw their application or decline the offer because the proposed salary is below their expectations. Furthermore, it removes the salary expectation conversation from the beginning of the interview process, evening the playing field for those who may not feel as confident to ask for what they’re worth. Embracing pay transparency eliminates considerable uncertainty within the recruitment process.

Remember to look internally

In addition to creating benefits in the hiring and talent acquisition process, transparency can be a great retention tool. Sixty-five percent of American workers considered a job change in the last twelve months, and of those contemplating greener pastures, 60% would do so for an employer who provides greater pay transparency. Moreover, many employees cite cultural “salary secrecy” surrounding compensation in their organization, which undermines employee trust. Most notably, 10% of our survey respondents believe their company doesn’t pay fairly simply because leadership provides no insight on why they’re paid what they’re paid. When employees did decide to ask colleagues in similar roles about their compensation, 43% found out their colleagues earned more.

A lack of internal transparency is a major pain point for employees, contributing to wandering eyes and potential resignations. Even if an organization does pay fairly, maintaining a culture of silence and opacity can make employees believe otherwise. On the flip side, adopting a more open approach will boost employee trust, and foster a reassurance that leadership is committed to decreasing any inequities.

Publicizing significant internal salary data may be quite daunting for many companies right now, especially those who may pay less than regional competitors or have possible demographic inequities and can’t afford to bridge those gaps in the current economy. However, it’s important for organizations to provide some insight to their employees around how compensation, bonuses, raises, and promotions are determined. This can come in the form of total rewards statements, or providing clear performance-based criteria for earning a promotion or raise. These insights don’t need to come in the form of a company-wide memo, but instead can be communicated during one-on-one employee check-ins with their managers or HR, or provided as a part of annual performance reviews.

Read more: Employers, prepare for wage transparency laws

Sweeping state-wide pay transparency legislation like California’s is a response to an overwhelmingly popular movement amongst Americans, and corporate policy changes reflecting the movement will boost both recruitment and retention. By disclosing salary ranges in job descriptions, open roles will not only become more attractive, but will also field applicants with a more genuine interest in taking the job. Internally, taking steps to provide employees with insight into how their compensation, bonuses, and raises are determined serves to strengthen employee-employer trust and reduce the risk of resignations. Transparency is here to stay, and employers should act accordingly.

 Tanya Jansen, Co-Founder of continuous performance management platform beqom