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As the Shift toward Pay Transparency Increases in the U.S., So Do Opportunities and Challenges for Employers

November 1, 2022
By Nicole Vaughn

Planning and Communication Are Key

Let’s talk about salaries.

For older workers, even the suggestion may be taboo; many have held jobs where such a discussion could get one fired. In 2022, not having such a discussion may be breaking the law.

On Nov. 1, 2022, New York City’s pay transparency law took effect. Effective Jan. 1, 2023, California’s pay transparency requirements become law. Colorado, Connecticut, Maryland, Nevada, Rhode Island and Washington already have laws in place that require employers to provide salary ranges to applicants and current employees. A handful of municipalities also have such laws on the books, and more are in the queue.

Pay transparency won’t exactly be new in California – California employers already were required to provide the pay range to job applicants after a first interview. But now, any job posting for companies with 15+ employees must include such information. Employers of 100 or more must retain job title and salary history for all employees — by race, ethnicity and gender — during their employment and for three years after.

While California’s law is regarded as the most comprehensive, some of these laws have been in place for at least three years. No federal equivalent exists, but President Biden has proposed pay equity measures for government employees.

The common thread is requiring the availability of salary ranges for a job title in an effort to end inequalities in pay across historically underrepresented groups. For most employers, the rules pose a dizzying array of legal nuances to understand and address, depending on the number of employees and where they are based. But whether your organization is adhering to pay transparency guidelines by mandate or by choice, doing so creates a new level of workplace complexity to manage. These rules introduce another element of uncertainty to an already volatile labor market in which workers have had more employment options and have been quicker to change jobs than at any point in recent memory.

Why it matters for your organization

The premise for these changes is intrinsically good and long overdue: to close the pay gap between genders and among racial and ethnic groups. As these new rules come into practice, they have the potential to impact your company and your employees in a number of ways, including:

  • Employee engagement – In a survey from Indeed.com, 82% of workers say they feel more engaged with – and fulfilled by – their work when they are paid fairly. And 81% of respondents say fair pay makes them more productive and loyal to their employers.
  • Retention and recruitment – Among historically underrepresented groups, who typically are at greater risk of being underpaid relative to their male and white colleagues, pay transparency can help improve an employer’s ability to attract – and keep – top talent.
  • Tensions in the workplace – As employees learn what their colleagues earn and question why they are paid less than their peers, employers who do not adjust salaries may risk worker attrition or disruption in the workplace. This can manifest in the form of quiet quitting, drops in productivity or conflict among workers and managers.
  • Reputation – Few employers would want to be known for not supporting fair pay. Altruism aside, the reputational risks are significant. In addition to potential disruptive employee responses, consumers may protest with their wallets, putting financial performance at risk.
  • Increased competition for talent – Once an employer posts the salary range for a job description, competitors may offer more pay for a comparable position, potentially fueling a bidding war for talent and jeopardizing an organization’s ability to compete with companies in a stronger financial position.
  • Employee activism – Employees are increasingly comfortable taking their grievances public. This could occur in person and/or on social media including TikTok, which introduced the world to the notion of quiet quitting.
  • Litigation – With pay transparency legislation affecting more employers – and with additional states and municipalities lined up to follow suit – employers may face a growing risk for lawsuits and court battles.

What you can do

Even if your organization isn’t currently subject to pay transparency laws, there are steps you can take to prepare.

Establish a cross-functional group to determine your organization’s approach. Include leaders/decision makers from HR, DE&I, Communications, Government Relations and Legal.

Develop a point of view. Collaborate with your cross-functional group to address the following questions to help determine your company’s next steps.

  • What do we know about pay equity in our organization and any existing pay gaps?
  • If we have disparity in employee compensation, how will we respond to level the playing field? Do we have the resources and senior leadership support to address this in an effective and meaningful way?
  • What are we required to do now – and what penalties might we face by not complying?
  • What is our timeline and what actions do we need to take in advance?
  • Will our organization invest to keep ahead of legislation and avoid operating on the defensive when laws do take effect? If so, what investment/resources are needed?
  • What is our total rewards package and how well do our employees understand their benefits, beyond compensation? How can we better communicate other elements?
  • What are our competitors doing? Do we know about pay equity in their organizations? How are they responding? And how are their internal and external stakeholders responding?
  • How does pay equity fit within our mission and values? Will pay transparency laws expose an authenticity gap within our organization and/or with our leadership?
  • Does our organization have a downsizing/reduction in force on the horizon? If yes, which roles will be impacted? And how will these actions be perceived if compensation information is publicly available for these and/or non-impacted roles?
  • How will we address employee engagement and productivity challenges?
  • What can we do to address potential impacts on recruitment and retention? Where will we direct employees who have issues/questions/concerns about pay equity?
  • Do we operate in other locations that will soon be subject to pay transparency legislation?
  • How do we stay informed about what’s happening across the pay transparency landscape, including legislative updates and the impact on our competitors?

Start monitoring the conversation. Create processes to monitor social and traditional media dialogue around pay transparency. Although this legislation is not new in some markets, the dialogue will continue to pick up steam as New York and California laws take effect. Keep an eye on how your organization, your industry, your competitors and others in the geographies (with such laws) in which you operate are showing up. Don’t forget to keep an eye on employer review sites such as Glassdoor and Indeed. Establish reporting and escalation protocols to ensure key stakeholders are informed in a timely and efficient manner.

Bring in the experts. Depending on the complexity of your situation and in-house expertise, you may want to hire or contract with an HR or employment law expert. Many third-party firms have dedicated teams who track and specialize in pay transparency law. This may be particularly helpful if your organization has employees in multiple states with varying laws. In addition to HR and legal experts, consider enlisting DE&I professionals who can bring the right cultural competency to your pay transparency efforts.

Create a high-level communications plan. The timing and level of urgency assigned to this task will depend on the status of state and municipal legislation that would affect your organization. It is best to prepare in advance for any communications issues that could spark workplace controversy.

Plan for a series of clear communications. Start by assessing key stakeholders to ensure you are ready to respond to both internal and external audiences. Make sure messaging aligns across those audiences. And be sure to plan for a variety of scenarios. It’s a good idea to develop key messages or holding statements – to be further customized depending on the situation – that you can use in the most likely scenarios, such as:

  • An employee confronts a leader at an internal meeting about pay inequity.
  • A current or prospective employee calls out your organization or a specific executive via social media over pay disparity within your organization or relative to your competitor set.
  • A reporter reaches out to you about or publishes a story about pay disparity involving your organization.

Prepare leaders and managers for conversations with their teams. Employees will have questions – and their supervisors will need answers. Toolkits with talking points and FAQ as well as dedicated training sessions may be needed to help them get ready for challenging conversations that gaining visibility into their peers’ compensation may prompt. Carefully consider who has compensation conversations with employees and ensure those individuals have the resources they need to guide those discussions.

Provide ongoing updates. Pay transparency legislation will continue to appear in other states and cities across the country. And, as it gains greater ground, it will likely undergo additional changes. As this occurs, continue to discuss these developments, what they mean for your organization and how you will address them.

As the push toward transparency gains momentum across more of the U.S., the requirements for employers will become more complex. Similarly, the approaches employers must take to effectively navigate this shifting landscape – and the potential implications for not doing so successfully – will continue to expand. By getting – and continuing to stay – informed, developing a planful approach and communicating effectively along the way, employers can position themselves to create a more equitable environment and employee experience while maintaining business continuity and minimizing disruption and the potential for reputational risk.