Have you heard about pay transparency? It’s the idea that companies should be open with employees and applicants about pay and, more broadly, what factors they include when making compensation decisions.
It’s no secret that expectations around pay have changed, and employers need to pay attention. For example, people looking for a new opportunity want to see pay ranges on job postings. Some make it a practice not to apply if that information isn’t immediately available. In addition, employees want more clarity about their pay and how it stacks up relative to their peers, and in a tight labor market, they may hit the road or expend less effort at work if they don’t feel they’re paid fairly.
But pay transparency isn’t just about what current and would-be employees want. Their expectations have now made their way into state and local law. So for many employers and employees, pay transparency is no longer just a “nice-to-have.’ Here are four things you should understand: whether you’re in a location that’s passed a pay transparency law or are simply curious about what this new trend might mean for your businesses.
1. Pay Transparency Is the Next Frontier of Pay Equity
The federal Equal Pay Act was enacted in 1963 but hasn’t ended pay disparities between men and women. Neither have most state laws with the same objective. Long story short: the laws weren’t strong enough and didn’t account for all the causes of unequal pay. In many cases, it has been possible for an employer to comply with these laws while still offering unequal pay for essentially equal work.
Often, it’s not that employers have deliberately chosen to pay women less than men for the same jobs. On the contrary, the basis for pay differentials, such as salary history, has seemed sensible in many cases. But it turns out that basing pay on salary history perpetuates discrimination over an employee’s career. Mindful of these facts, cities and states have instituted salary history bans and other legal measures to strengthen pay equality. Pay transparency laws are part of this trend.
So far, at the state level, Colorado, California, and Washington have passed laws requiring that employers post pay ranges within job postings and ads, while New York is on the brink (just waiting for the governor to sign). What these laws have in common is a new requirement that certain organizations disclose pay ranges in job postings.
2. Pay Transparency Laws and Practices Encourage Employees to Talk About Their Pay
Once pay ranges are visible on job postings, everyone from job hunters to competitors to current employees can see how their pay compares to the range offered. That information is helpful to job seekers considering whether to apply and how much that type of job pays in the current market. It’s useful to competitors who may try to poach talent. And it’s helpful to employees who may wonder whether they’re paid equitably for their work.
If pay ranges are too large, employees will think you’re acting in bad faith or wonder who among them makes that little or that much. If the ranges are reasonable, but you have current employees outside those ranges, there may be gossip, organizing, confrontations, or all of the above. On the other hand, if the ranges are reasonable and your current employees are paid in line with what you’ve posted (phew), you still may get inquiries about how someone’s position in the range is determined.
3. Employees Have a Legal Right to Discuss Their Pay
That’s right. Companies may have told employees not to share how much they make. Or you may have done that yourself. But that’s an engraved invitation to a lawsuit. Under federal law, employers may not prohibit non-supervisory employees from discussing their wages with one another. Likewise, employers may not discipline or retaliate against an employee for discussing their wages or other terms and conditions of employment. Prohibitions infringe upon employees’ protected rights under Section 7 of the National Labor Relations Act (NLRA). Section 7 protection includes discussions about wages, benefits, treatment by managers, facilities, safety issues, and anything else that two or more employees might have a stake in. In addition to rights under federal law, many employees (including supervisors) have protections under state laws that allow them to discuss their wages freely.
We strongly recommend that employers immediately eliminate any written or unwritten policy telling employees that discussion of wages is discouraged or prohibited or that wages are confidential, and also discontinue any written or unwritten policy of disciplining or terminating employees for this behavior.
4. Pay Transparency Can Be Good for Business
Being open about pay is ultimately a boon for employers and employees alike. First, it saves everyone time and the company money. Recruiters and hiring managers waste a lot of time and energy processing applications and interviewing candidates destined to decline any offer because the compensation doesn’t match their expectations or fit their needs. By disclosing compensation upfront, employers discourage those people from ever applying. Second, pay transparency on job postings has been shown to increase the number of applicants significantly. Many job seekers are unwilling to apply for positions that don’t indicate a range, and others will value the transparency of what it says about your organization. Employers should take any leg up in a tight labor market like we’re experiencing now. Third, it encourages and makes it easier for organizations to comply with equal pay laws. You can’t as quickly put pay equity on the back burner when pay ranges are front and center.
Dr. Patrick K. Collard is the Managing Member & Evidence-based HR Consultant for trustHR | GObackgrounds (San Diego, CA and Brookfield, WI). He has over 30 years of experience as a human resources consultant. He holds a Bachelor of Arts in Law and Society and a Master of Human Resources and Employment Relations with a concentration in Employment and Labor Law from Penn State University. Dr. Collard earned his doctorate from the University of Maryland Global Campus. He defended his dissertation – Recruiting the Untapped Talent Pool of Hiring an Employee with a Criminal Record: A Systematic Review. Schedule a Discovery Call with Dr. Collard at – https://calendly.com/patrickcollard/discovery-call
