What is Pay Transparency Anyways?
Pay transparency has been in the news headlines in the last several months, mostly driven by new pay transparency laws happening in the US. The states of Washington and Rhode Island implemented different forms of pay transparency laws. New York City implemented a different pay transparency law, too. Now we are seeing stories of companies posting widespread salary ranges in job postings to adhere to the law without really providing good information for job applicants, which is the point of these laws.
So, what is pay transparency and why is it so important that laws are being passed for it? I’ve worked in human resources for the last 25 years, and I can share my experience and research into this topic. This is a broad topic, and I want to offer two streams of thought today – pay transparency to disrupt bias and pay transparency as a larger element of pay equity.
Pay transparency laws are being passed in local governments to reduce bias and pay inequity within job offers. Bias and pay inequity happens when an organization uses a person’s previous or current pay to determine how much they will be offered in a job salary negotiation. Of course, the organization has a predetermined salary range, but the organization may lowball a candidate to save money because they know what that person is making now and the candidate doesn’t know the actual salary range for this new position. The organization has all the power.
Where do bias and pay inequity come into this scenario? Studies have shown that the US has significant gender and race pay gaps in addition to pay gaps in many social identities. Members of historically underpaid groups will naturally have lower salaries than their peers not in these groups. The bias and pay inequity happens when organizations overlook these gaps and lowball these candidates to take advantage of their lower pay history rather than paying these candidates for what they are worth based on the job qualifications.
Providing salary ranges in job postings allows each candidate to have a fair chance in negotiating their salary in a job offer. However, providing the salary range doesn’t eliminate the bias and pay inequity completely. Studies have also show that members of historically underpaid groups do not negotiate salary in job offers or are less likely to negotiate. And other studies have shown that organizations are less likely to hire members of historically underpaid groups if they try to negotiate. Therefore, posting a salary range without details on where this job actually sits in the range or what qualifications might change the salary increases bias and pay inequity. This is a big topic by itself, so I encourage you to do your own research.
Outside of these laws, pay transparency is also a critical and large element of a pay equity approach within an organization. And pay transparency is much bigger than posting a salary range for open jobs. A pay equity approach involves three levels of work:
1. Pay Equality
2. Pay Equity
3. Pay Justice
And these three levels of work all include some level of pay transparency. Pay transparency reflects different levels of sharing pay for roles within an organization and externally to the public. The transparency happens when more than one person (such as HR) can access the actual pay and pay range for an individual position.
A pay equity approach and resulting levels of pay transparency are critical for every organization right now. Gallup Research released a study in March 2022 that highlighted why people are leaving jobs (also known as the Great Resignation). Not surprisingly, 62% of respondents noted that pay and benefits were the driving factors. However, this same study noted that people are leaving their jobs due to a lack of trust in their supervisors and organizations. One way to increase trust with employees is implementing a pay equity approach with levels of pay transparency.
While pay transparency may sound amazing to employees, the implementation work can be complex. More often than not, I find that clients need to revisit their organization’s compensation philosophy. A statement around “paying at the 75th percentile” just doesn’t work anymore. Employees need to understand how their pay was structured in the first place and how to increase their pay during their tenure at the organization.
I also find that addressing pay equity and transparency leads to discoveries in other parts of the HR cycle that need the same level of inquiry. One example is the promotion process. When pay equity is the focus, the promotion process becomes clearer and more predictable (in a good way) for supervisors and employees. Another example is wage compression. Working through a pay equity assessment typically reveals where people who stay longer may experience lower wages than their newer peers if the organization is not raising salaries at equitable rates each year.
Those organizations who lightly address pay transparency with muddled salary ranges for open positions may abide by laws, but they are not building trust with candidates and employees. Pay transparency is a much bigger and more involved process. Here are the initial steps:
1. Conduct a pay equity assessment
2. Review results with leadership and supervisors
3. Communicate plans with employees; ask for feedback
4. Put together a project plan for implementation – start slowly
5. Implement feedback loops
If you need help with this work, Loftis Partners is available in multiple ways. In our client work, we are finding that the new wage floor for entry-level workers is $55,000 per year or $26.44 per hour. Read more here.
Photo by Hansjörg Keller on Unsplash