What began as unrelated efforts and discussions, and some regulations, in particular states in the US is expanding into a broader pay transparency trend that presently affects employers from coast to coast. A new law will require most New York City employers to include salary ranges on job advertisements beginning around May 15, 2022. This law joins similar mandates in other states, signaling the start of significant growth in the pay transparency movement.
Pay transparency, the sharing of compensation information in one form or another, continues to expand across the US. California started the trend in 2018 when it required employers to provide a pay scale to external applicants after a successful first interview, when requested. Similar laws followed in Maryland and Washington and in the cities of Cincinnati and Toledo Ohio. Variations of the law may extend to internal candidates or provide requirements as to when the pay data may be requested.
In 2021, Colorado implemented a new law that “requires employers to include compensation in job postings, notify employees of promotional opportunities, and keep job description and wage rate records.” Likewise, laws in Connecticut, Nevada, and Rhode Island focus on proactive disclosure of pay scale information.
What was previously an issue for individual states is quickly becoming a national and even global topic of attention.
3 ways pay transparency benefits businesses
There may be some hesitancy to adopt pay transparency fully because, well, it’s just not what’s been done in the past. Creating pay transparency requires changes to the way things are done. It also shines a light on areas that some would like to ignore. But sunlight disinfects — and this is an opportunity to get it right.
Pay transparency of some form is a legal requirement in an increasing number of states. As a growing number of states adopt variations of these laws and as companies often operate in multiple states, it’s often best to take a consistent approach that satisfies the most progressive legislation.
Mercer has gathered detailed list of recent state legislative initiatives pertaining to salary history bans and salary range disclosure requirements that affect private sector employers and provides links to state resources from organizations, government websites, third parties, and news articles.
A culture of transparency drives better workforce outcomes. Today’s employees have increasingly high expectations around pay transparency, as many job- and pay-related websites facilitate democratized, employee-driven conversations about pay. Companies who don’t actively engage in a dialogue on pay transparency risk losing the trust of their employees, candidates, and even their customers.
A recent PayScale study reported in Fast Company shows that reassuring employees that they are being treated fairly in comparison to their peers can have a positive effect on job satisfaction, employee engagement, and productivity. Some leaders are starting to understand this connection. The WorldatWork’s 2020 Pay Transparency Study found that nearly a quarter of leaders believe pay transparency has a positive or extremely positive impact on employee outcomes.
Yet, most companies still fall short in communicating to employees about their own pay. Currently, 80% of companies discuss employees’ pay with non-managers only once a year. The number is marginally better for leaders, but companies need to improve communication with employees at all levels if they want to capitalize on the benefits of pay transparency.
Pay transparency, when coupled with robust analytics, can support fairer pay equity outcomes. Pay equity is often conflated with pay transparency, but they are 2 very different concepts.
- Pay transparency is a legal requirement
- Pay transparency can lead to a better employee experience
- Pay transparency supports pay equity
- Pay equity is achieved by measuring and remediating pay gaps through robust analytics — and in some cases, it goes a step farther by using root-cause analysis to identify and prevent the creation of pay inequities in the first place.
- Pay transparency, on the other hand, is about engaging with employees on the topic of pay opportunity by clearly communicating pay structures, ranges, practices, and opportunities.
According to PayScale research, when women report that their organizations engage in transparent pay practices, they are also more likely to report that their pay is on par with that of their male colleagues. Compared to the overall gender wage gap — where women currently earn $0.98 cents for every $1 earned by men after controlling for legitimate factors — the wage gap effectively closes at all job levels when there is pay transparency.
The WorldatWork research also revealed that more than half of companies that made pay-equity adjustments tell employees that such adjustments are pay-equity related.
Ready to take the lead on pay transparency?
The first step to successful pay transparency is getting pay right. Start by ensuring your market pricing is accurate using our industry-leading compensation surveys. Then, let Mercer experts show your company how to make the move to pay transparency.
Contact us at email@example.com or 855-286-5302 to help you swiftly and effectively move your organization along your pay transparency journey.