About 94% of HR professionals believe pay transparency is important but less than 50% of them say their companies practice it. But what exactly is pay transparency? How many levels of pay transparency exist? How can HR professionals embrace the philosophy of pay transparency? Dive right in to understand.
What is Pay Transparency?
When an organization practices pay transparency, they openly communicate information about compensation that employees or potential hires receive. Pay transparency is sometimes also referred to as salary transparency or wage transparency. This practice involves unfolding details about:
- How wages are determined
- Salary ranges for different roles
- Equal pay for equal work
- Accessible information
- Clear compensation policies
Organizations often vary in their degree of pay transparency. Beyond its impact on creating a more positive workplace culture, pay transparency can also be a matter of compliance with legal requirements. It’s important to recognize that pay transparency exists on a spectrum, and organizations can tailor it to align with their specific goals and values.
For instance, some organizations may choose to embrace partial transparency, such as sharing salary ranges and outlining general compensation principles. In contrast, others might opt for full transparency, revealing individual salaries alongside the criteria used for determining them. Ultimately, the level of pay transparency should be a strategic decision, thoughtfully considering the organization’s distinct circumstances and objectives.
What Laws Surround Pay Transparency
The list below discloses some of the laws surrounding pay transparency for different states in the U.S.:
All organizations, upon request, must disclose to an applicant the pay scale that is offered for the position they’ve applied for. The organization must also disclose its pay scale to a current employee.
An employer with 15 employees total and at least one employee based in California is required to incorporate pay scales on their job listings.
In accordance with Colorado law, employers with a minimum of one employee within the state must include salary ranges, details about benefits, and a description of any additional forms of compensation (such as bonuses or commissions) in their job postings.
Note: that this disclosure obligation does not apply when hiring occurs without the use of a formal job posting.
Upon the applicant’s request, it is mandatory for an employer to furnish the wage range applicable to the specific job position for which the applicant has submitted an application. This means that if a prospective employee asks about the expected salary or wage range for a particular job they have applied for, the employer is legally obligated to provide this information. The same applies to current employees.
Employers are required to take the following actions:
- Furnish the wage or salary range or rate for a particular position to an individual who has concluded an interview for that position.
- Disclose the wage or salary range or rate for a promotion or transfer to a different role when the following criteria are met by an employee:
- The employee has applied for a promotion or transfer.
- The employee has either undergone an interview for the position or received an offer for it.
- The employee has specifically requested information regarding the wage or salary range or rate.
NY introduced a new pay transparency law in September 2023. This requires employers to openly communicate pay ranges for all jobs, transfers, and promotions.
For employers with a staff of four or more employees, it is mandatory to include both the minimum and maximum annual salary or hourly wage for a job vacancy, promotion, or transfer opportunity when advertising such positions.
All employers must disclose a pay range for a position either upon a candidate’s request or before presenting an offer of compensation to the employee. For a current employee, the organization must disclose the pay scale for a position when:
- The employee is hired
- An employee is transferred to a position (or promoted)
- When the employee requests a wage range
In Washington state, it’s a mandate for organizations to clearly display the pay scale in every job posting. Additionally, beyond the pay scale, employers must also transparently reveal all benefits and various forms of compensation linked to the respective position.
In Rhode Island, job postings must prominently display the salary range.
Furthermore, employers are obligated to share the wage range both upon request by prospective hires and when an employee experiences changes, such as being hired, promoted, or transferred to a different role.
Why Pay Transparency Matters
Pay inequities are still rampant in our corporate world today.
Pay transparency is one practice that can help narrow this gender pay gap. Aside from promoting pay equity, pay transparency can unlock countless other benefits for both employers and employees. It can boost job performance, build trust in the workplace, increase talent retention, and create a great workplace culture. When employees know you pay them equally, they naturally feel valued and improve their performance.
How Does Pay Transparency Benefit Employers and Employees?
If your organization starts practicing pay transparency today, here is the impact that will follow:
- Your organization will promote pay equity. Studies show a strong link between pay transparency practices and increased pay equity efforts.
- You will build solid trust and engagement with your employees. As a result, employee productivity, job satisfaction, and morale will increase.
- You’ll attract and retain top talent.
- You’ll keep toxic pay secrecy and rumors at bay.
The HR Team’s Roadmap to Promoting Pay Transparency
The HR department of your organization plays a pivotal role in promoting pay transparency. Here are a few strategies to take note of:
Recognize that Pay Transparency is the New Normal
We live in a world flooded with information from all sides. Employees today want to know how much they’re being paid and how their salaries compare to their colleagues in similar positions.
Pay transparency is not just a concept. It’s quickly becoming a rock-solid law in many states in the U.S. Conversations about this topic can unfold at any time and your HR team must be prepared to talk the talk and walk the walk when the time comes.
Find the Answer to “What Does Pay Transparency Look Like for My Company?”
The level of pay transparency varies for different organizations. The four stages of salary transparency include:
- Stage one. Where the organization reveals what an employee earns.
- Stage two. Where the organization reveals how they arrived at an employee’s current pay based on market data.
- Stage three. Where the organization unlocks insights into their overall compensation structures and salary ranges.
- Stage four. Where the organization gives its employees insights into how much people in similar positions make.
You can determine where your organization falls on this pay transparency spectrum based on factors such as local and state laws, your work culture, employee performance, any current pay discrepancies, and more.
Familiarize Yourself with the Company’s Pay Philosophy
HR teams must know the A to Z of their organization’s pay policies. Crafting a great pay policy involves answering the following questions:
- How exactly are pay scales created?
- What type of data is deployed to arrive at market competitiveness?
- What are the market considerations?
- What do the pay ranges look like for employees working remotely?
- What does the company’s current compensation structure reveal?
- How can you analyze this structure to spot any unjustified pay differentials?
Deploy Pay Analysis
Once you commit to promoting pay transparency, it’s natural for pay discrepancies to arise. During this time, it is critical to run regular pay analyses based on your organization’s size and needs. Your compensation structure must align with your business strategy and market rates.
Discuss The Policy with Your Workers
Once you run your pay analysis and craft a clear pay policy, it’s time to communicate it with your employees. This can either be done via one-on-one conversations with the HR team or through a company-wide presentation.
HR should have constant conversations around employee performance and provide a solid context for employees to realize why their performance matters and how their salaries fit the bigger organizational picture.
Know the Laws Surrounding Pay Transparency
As discussed, practicing pay transparency goes beyond just creating a better workplace culture. Each state has its own set of pay transparency laws, which evolve constantly. It is the duty of HR professionals to consistently comply with these laws to both:
- Avoid the cost of noncompliance
- Create a productive, fair workplace culture
Moral of the Story: Now Is the Time to Embrace Pay Transparency
Pay transparency has become an increasingly important topic in today’s corporate environment. Employees want (and deserve) to know how much they’re being paid compared to the market rate and how their salaries compare to others in similar positions.
On the same note, employers are acknowledging the importance of being transparent with their pay philosophies, promoting fairness in the workplace, building trust with their employees, and retaining their valuable talent.