At the beginning of 2023, California and Colorado joined Washington and other U.S. states, as well as New York City, in enacting pay transparency laws. It’s likely more states will join them. While they differ in detail and complexity, pay transparency laws require employers to provide compensation information on job postings. They also make it easier for employees to find out about the compensation other employees in the workplace receive.
Employers have been worried that disclosing pay ranges could cost them their competitive edge in recruiting — and alienate employees who discover their pay is at the low end of their pay range. But human resources (HR) leaders and stakeholders have started to recognize pay transparency’s upside, though they still find it complex to navigate. This blog post explores lessons HR leaders have learned from pay transparency laws and how those lessons can inform how they will respond in the future as the laws continue to evolve.
Why pay transparency is a good thing
Pay transparency can improve the employee experience by creating a sense of fairness that boosts loyalty and motivation. Clear and candid communication about compensation encourages a culture of fairness; pay transparency laws are designed to inspire both fairness and equity in compensation. And pay equity plays a role in broader culture-shaping efforts that aim to develop a more psychologically safe and positive workplace.
When employees ask why they’re at the bottom of their pay range, it’s an opportunity for rewarding discussions about performance and career development. HR leaders are preparing people managers for challenging conversations in which they share pay and performance information. Educating managers about pay practices — including why and how pay decisions are made — empowers managers to be more effective and gives employees more clarity.
Strategies to capture pay transparency’s benefits
Organizations attain pay transparency’s benefits with strategies that consider talent acquisition and the needs of HR business partners and people-manager stakeholders. HR leaders make good on pay transparency’s promise by:
- Adopting compensation philosophies that align with talent and career strategies
- Assessing market compensation and seeking to close market and equity pay gaps
- Building a robust job architecture and pay structure
- Developing easy-to-understand guidelines that build trust and ensure pay equity and consistent decisions
- Creating plans for change management that include ample communication, coaching and training to support managers and staff, with a focus on care and empathy
- Considering pay transparency in conjunction with broader culture-transformation initiatives like diversity, equity, inclusion and wellness
- Continuing to apply lessons learned to future pay transparency work
Opening up: The compensation dialog
Pay transparency gives HR leaders an opportunity to shift from managing compensation to using it to communicate and improve the link between total rewards and career strategies. Consider these scenarios:
A developer comes across a job posting listed by her employer for her exact role. Through the posting, she learns that her salary is at the low end of the posted range, though she has consistently been told she is a high performer. It can be a disappointing and discouraging moment.
An associate director comes across a job posting by his employer for his exact role. He knows his salary is at the low end of the posted range, but he and his manager have already discussed compensation and he understands his position in the job’s pay range. Working together, he and his manager have developed a plan to get him to midpoint or higher in the range. Knowing his development opportunities has him feeling enthusiastic about his possibilities in this job and his future with his employer.
HR leaders’ proactive response to these scenarios can build trust and spark a dialogue. Some approaches include the following:
- Developing a pay structure if none exists. Having a job architecture and defined pay range for each job lends credibility to any conversation about pay. It also fosters explorations about how performance impacts growth in salary as well as career progression.
- Educating managers about placement of employees within a pay range. Factors influencing individual compensation decisions include experience, education, skills, performance and job location. Thus equipped, managers can use pay conversations as an opportunity to develop and motivate employees, helping them see development opportunities available to them, including how they’ll be rewarded for their growth and performance.
- Being the first mover in compensation discussions. Proactively communicating with recruiters, HR business partners, people managers and employees before pay information becomes public enables employers to set the tone of the dialogue. (Many employees won’t approach managers if they feel they’re underpaid. Rather, they’ll just look for a new job — or, worse, let the disappointment fester.) Employers can analyze who’s likely to feel underpaid and prepare for one-on-one conversations, down to securing unrushed, uninterrupted time in a private setting. They also can initiate ongoing dialogues as a component of managing employee performance and career development.
Looking around the corner
More states in the U.S. will enact pay transparency laws. Preparing for these new rules will require an effort to master caring and empathy in addressing employee needs. Human resources leaders can make the most of this moment by applying lessons learned, educating stakeholders early and equipping managers to become better leaders.