Preparing for pay transparency regulations: Communicate salary ranges across your organization

As of January 1, 2023, pay transparency laws will be in effect in New York City, California and Washington, covering virtually 1/5 of the country’s workforce. The new pieces of legislation expand upon others like those in Colorado in requiring salary ranges to be published as part of every job posting and require pay reporting to help close pay gaps across marginalized communities.

If your organization is hiring in one of these states or hiring remote employees from any state, you will need to have clear, defensible salary ranges for all new hires and be prepared to share salary ranges with current employees upon request. These changes are an important step for pay transparency, and as HR and business leaders, we have an opportunity to directly impact and help achieve pay equity. To not just comply with these laws but to truly close gender and racial pay gaps you need:

- Company-wide salary ranges based on reliable market data

- Alignment across HR, recruiters and hiring managers to activate the plan with candidates

- Clear communication with employees Here are the three keys to getting salary ranges right for your organization.

How employers and HR leaders can create accurate, equitable salary ranges

The first step in creating salary ranges is to understand how the market is paying for both current and future roles you will be hiring for. To do this, you’ll need to review comparable market data. By comparing yourself to companies at a similar funding stage, employee size, industry and location you’ll be getting an apples-to-apples comparison. Compensation data should be verified by a third-party, no older than nine months old and provided by employers (not self-reported by employees). Also important is comparing skills and responsibilities, not job titles.

Once you have reliable market pay data, you can determine your compensation philosophy and set company-wide salary ranges for every role. Your compensation philosophy should consider your market position, pay mix, segmentation and geographic strategy. Your market position targets what percentile of the market you anchor your pay to. After setting this target, you can define minimums, midpoints and maximums for salary ranges for each role and level. Your pay mix may include bonus, commissions and equity in addition to base salary, while your geo-strategy may take into consideration the cost of labor or cost of living.

How to empower recruiters and people managers to consistently activate salary ranges

No matter how much time and effort gets put into your compensation philosophy, if your recruiters and hiring managers don’t have access to your plans, these ranges won’t be implemented at the time hiring decisions are made and offers extended. Closing top candidates in today’s hot labor market often causes recruiters and hiring managers to make independent pay decisions that misalign with your compensation plan – or “rogue recruiting.” Make it easy for hiring managers and offer approvers to access your pay strategy at every point of decision.

When crafting offers for candidates, speak with candidates about compensation as early and as frequently as possible during the recruiting process. Not only should you include the actual salary range in job postings, but you should also discuss the source of your compensation data, your compensation philosophy, how their level will be evaluated during recruitment and how that impacts where in the range you will target their pay.

In this tough labor market you may have candidates looking to negotiate and ask for compensation outside your range. It’s important that you stand firm within your ranges – otherwise, pay equity goes out the window. Since you’ve based your decisions on comparisons with your peers, you can be confident with your ranges because they were based on reliable data and your defensible philosophy.

At OpenComp, we’ve found that when we extend our best offer first and explain how we came to that number, we’ve increased our offer acceptance rate by nearly 20%. Our time to hire also decreased 32% QoQ after we started including our source of compensation data, our compensation philosophy and salary ranges in job postings.

How to communicate salary ranges to current employees

One factor that often gets overlooked when creating salary ranges is how to reconcile with current employees. For companies doing this exercise for the first time you’ll likely receive questions from employees about their pay including how salary ranges were determined and why they fall where they do within the range for their role. To get ahead of a barrage of questions, you’ll need to do some internal analysis and education.

First, review every team member against the salary range you’ve created. If you identify outliers, you should absolutely consider adjustments to rectify anyone being paid below range. This should coincide with broader communications to your entire organization about your compensation strategy, philosophy and process. At the very least, you need to share how you reached your decisions for setting salary ranges and communicate your cadence for merit and promotion review. When possible, take the lead and communicate this in a group setting such as a company-wide meeting and empower your managers to have one-on-one conversations with their direct reports to answer individual questions and map a plan for future development.

Educate and train your managers on how to have conversations around compensation. By building their confidence in your compensation philosophy, they act as ambassadors for both you and your employees.

Read more: How employers can use pay transparency laws to their advantage

With these three steps, you’ll design ranges like a pro, build a strong compensation philosophy and help close the pay equity gap. But pay equity doesn’t happen overnight, and with every hire, there is a chance that inequities can creep back in. Practice regular pay audits and equity analyses to identify gaps and refresh your market data to ensure your salary ranges are keeping up with what talent expects.

Ashley Brounstein is the senior director of people at OpenComp, a compensation intelligence software platform.