What Employers Need to Know About Pay Transparency

Not since the passage of the groundbreaking Equal Pay Act of 1963 have we seen such positive progress in the push to advance pay equity. On November 1, New York City will join Colorado, Jersey City, and Ithaca to require salary ranges in all job postings. Similar legislation will go into effect in California and Washington on January 1, 2023. On that day, a fifth of all working Americans will be empowered, informed and protected by pay transparency legislation.

This legislation matters. It matters for women who still on average make only $0.83 cents to the dollar as the average man, and who collectively lose out on millions over the course of their careers.

This tipping point is further accelerated by the increasing number of employers who post salary information in job listings, even when not yet legally required. They’re just in time; over two-thirds of employees say they would switch employers for the same pay simply for greater pay transparency, according to a 2022 survey.

There aren’t often moments in a lifetime where the tide changes in such a big and important way that it’s permanently better, but this is one of those moments, and workplaces need to be ready.

What’s the TLDR of pay transparency for your organization?

Considering today’s patchwork of pay transparency laws, and its vast implications for recruiting, hiring, employee experience, and attrition, one thing is clear.

Employers need a plan for how they’ll talk with their teams about pay transparency, whether legal compliance is a consideration for their state at the moment or not. (I predict that over one third of U.S. states will have pending pay transparency legislation by the end of 2023.)

In this article, I’ll guide business leaders through a 4-step preparation process.

Step 1: How is your business’ compensation health?

To assess the health of your organization’s compensation, you need to complete four data-driven sub-steps. Be careful. As with most foundational processes, creating your company’s compensation strategy and plan is critical — and riddled with common mistakes and misconceptions.

1. Benchmark your pay. Compensation benchmarking involves comparing your organization’s pay with market-based pay, this does not mean Googling for numbers. Source your comp data only when it’s verified by a third-party, no older than 9 months old, and provided by employers (not employees). Do not use the comp data unless you can parse it by company size, pertinent financials and or industry, and location — and unless you can verify that jobs are compared based on skills and scope of responsibility, not title alone.
   
   
2. Document your compensation philosophy. This is a concrete statement about how your company pays and rewards, and it must be something you can apply equitably — and afford. For example, “we pay all employees at market mid-point relative to New York City, regardless of where they live.” Consider your market position, pay mix, segmentation, and geographic strategy when you do so. And re-evaluate annually, and at major company milestones, like a merger, acquisition, or new raise.
   
   
3. Form company wide salary ranges. Aggregate and define cross-functional minimum, midpoint, and maximums for your pay ranges, ensuring pay consistency and fairness for similarly paid roles and levels within your organization is paramount. These will be the foundation of all headcount planning, position your organization to eliminate wage inequity and discrimination, and set you up to list salary information in job postings. Generally, they also need to be updated once a year. You can do this in a handful of clicks with OpenComp’s compensation software.
   
   
4. Determine processes for merit increases, bonuses, and promotions. This includes creating consistent guidelines and criteria, as well as scheduling merit cycles. Ideally, your guidelines and criteria will be based on a job leveling framework, but don’t worry if you don’t have one yet, provided the process you outline is consistent and equitable.
   
   

Step 2: How do you talk about compensation to your team?

It’s time to communicate your compensation strategy, philosophy, and processes to your team.

• Who: Every stakeholder in your businesses needs to hear about your compensation approach.
• What: While more information is generally better, at the very least, you need to share how you reached your decisions for setting pay ranges, promotions, and merit increases.
• When: Compensation should be an ongoing conversation — in group and one-on-one informal settings, as well as more formal merit cycle and focal reviews. The more you talk about compensation, the more comfortable it is to do so.
  
  

Step 3: How do you communicate about pay to candidates?

As with speaking with your organization, the earlier and more often that you speak about compensation with candidates during the recruiting process, the better. Following are a few best practices I’ve seen stand the test of time:

• Include salary information in job posts, including the actual salary band, the source of your comp data, and your compensation philosophy.
• Train recruiters to share pay information for open roles in their first screen, and answer any questions.
• Train your hiring committee not to ask for salary history.
• Discuss career goals and pathways in the interview process.
• When making an offer, again explain the salary range, the source of your comp data, and how your compensation philosophy was applied.
  
  

Step 4: How can you scale compensation fairly and consistently?

Pay transparency doesn’t always lead to true pay equity. True change happens only when company leaders sponsor that change over and over.

Even though more than three of every 4 CEOs say pay equity is important, and that it influences recruiting and retention, the majority aren’t in tune with the reality that their teams lack adequate resources to address pay equity.

Maintaining a sustainable infrastructure for pay equity means addressing these challenges head-on by applying three additional best practices:

1. Conduct pay audits and equity analyses to spot pay gaps. Share the findings with your organization and take action. Any company who joins OPEN Imperative (Organizations for Pay Equity Now) will receive a free pay equity audit.
   
   
2. Proactively budget to correct for pay discrepancies. A best practice is to correct pay discrepancies after pay equity audits, during merit cycles, and after company milestones.
   
   
3. Update your compensation strategy with pay-equity analysis data. Using reliable comp data, compare employee compensation in similar jobs, including relevant parameters such as job function, level, responsibilities, years of experience, and geographic location.
   
   

Don’t stand still and let this tipping point pass you and your organization by.

Thanh Nguyen is CEO & Co-founder at OpenComp. A serial entrepreneur and former member of the founding HR team at salesforce.com, Thanh writes about topics including startup compensation, company growth strategies, the future of work, and hybrid work for publications including TechCrunch and Forbes. Connect with him on LinkedIn here.