Pay Transparency. The Impact and How to Manage it

Pay transparency legislation is moving up the equality agenda and gaining traction globally. Ultimately, this legislation is about organisations putting in measures that require them to be open about the compensation they provide, for current and prospective employees.  Inc. called 2022 the "Year of Pay Transparency", while LinkedIn included pay transparency in their 2022 list of big ideas that could change the world.

"Fierce competition to recruit talented workers combined with a growing push to hold companies accountable for their diversity promises will force employers to finally open up about who is earning what, once and for all."

(LinkedIn Big Ideas)

Pay transparency measures that are covered by legislation include:

• Publicising salary ranges to candidates
• Establishing rules about not discussing past salaries as part of the recruitment process.

Although legislative requirements may differ in each location, fundamentally, what they have one overall aim in common; achieving equal pay for equal work for employees from under-represented groups.

With the majority of businesses starting to sit up and start thinking about pay transparency, there are global organisations that have already taken pay transparency further than the legislation, such as Buffer who, since 2013, have published all employee salaries online.

Pay Transparency in the U.S.

There are currently 20 U.S. states that have already introduced pay transparency legislation, with many others in the process of doing so. New York State's bill comes into effect in November this year, which means that all employers are required to post the minimum and maximum salary or hourly wage offered for the position in all job postings.

California's Equal Pay Act has been in place since 2016 and prevents employers from asking about candidates' previous salaries. The state also recently approved a bill that would require all employers in the state with at least 15 workers to include on all job postings the hourly rate or salary range.

E.U. Pay Transparency Directive

With the gender pay gap at around 14%, the EU Parliament recently approved a legislative proposal to strengthen the application of the principle of equal pay for equal work, or work of equal value, between men and women through pay transparency and enforcement mechanisms.

The current proposals would require companies with at least 50 employees to disclose information on salaries, making it easier for those working for the same employer to compare salaries and expose any existing gender pay gap within their organisation.

Although legislative requirements may differ, fundamentally, what they have in common is one overall aim; achieving equal pay for equal work for employees from under-represented groups.

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Pay Transparency in the U.K.

In the UK, companies with more than 250 employees are already obliged to disclose pay information under the Equality Act 2010 in order to report on their gender pay gap, i.e. the difference between the average (mean or median) earnings of men and women across a workforce.

In March 2022, a pilot scheme was launched by the U.K. government targeting pay transparency. Those taking part in the pilot will be asked to list salary details on job adverts and to stop asking about salary history during recruitment.

Does Pay Transparency Work?

Pay transparency is popular with employees and those seeking new roles.  Given the current war for talent, companies should take notice of findings showing that 60% of U.S.employees and 57% of U.K. employees would switch companies to one with more pay transparency. However, research looking at the wage data relating to 100,000 academics in the U.S. over two decades, found that increased pay transparency can result in a 20% reduction in the pay difference between individuals.

‍What are the Other Outcomes of Pay Transparency?

Harvard Business Review recently shared some interesting research on the often, unintended impacts that a pay transparency policy can have in an organisation:

• Pay transparency policies can actually reduce reward responsibility for explaining pay discrepancies often passes to supervisors and managers, they might then take steps to reduce differences in compensation within the same level by compressing pay. One study cited in the article found that average compensation dropped by 7% when the government of California made the pay of city managers transparent in 2010.
• ‍Pay transparency policies can lead to employees increasing their overall reward in other ways not covered by the policies – employees may negotiate other ways to increase their reward such as asking for funding for training and development or requesting additional benefits (e.g.healthcare).

These additional, non-monetary benefits have been termed "idiosyncratic deals" or "i-deals" and the research further found that these i-deals were more likely to be agreed by supervisors as a way of retaining key talent. So, base pay may be fairer but inequality may still exist in the additional rewards that some employees are able to negotiate for themselves.

Another fear that organisations might have is that by publicising their salaries, competitors could poach key talent with higher offers. This is something that Buffer (who publish all their salaries online) feared but say they haven’t experienced so far.

How to Prepare for Pay Transparency

The challenge for most organisations is not just how to keep up with these changes to the legislation, but how to put in mechanisms and processes to ensure compliance globally and to manage increasing changes and the nuances of regional variations. For many companies this now involves investing in technology to automate and integrate compliance and hiring specific DEI compliance experts to manage this process and protect the organisation against future issues.

Organisations need to make decisions as to how far they are going to go with pay transparency. Are they going to do the minimum to comply with the legislation in each location or are they going to go above and beyond the legal requirements. They also need to make sure that they are looking at the whole Reward picture otherwise the issue of inequality can simply shift to non-monetary benefits (as in the case of i-deals).

At the very core of pay transparency, and pay fairness, is the ability to look across the organisation at the landscape of jobs, pay and reward, in order to make comparisons between the compensation for similar roles and dive deep into roles to ensure equal pay for equal work. For many companies this landscape is still a very chaotic, with individual teams and departments having their own job structures, titles and pay scales with little governance in place to manage and align.

Innovative organisations are investing in technologies that help automate simple, flexible, future-proofed job architectures that help govern job creation and pay bandings, manage scope creep and provide instant access to job and pay inequalities.

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RoleMapper is an AI-powered job description management platform that enables you to:

• Design DEI and OFCCP compliance into your job creation process
• Automate how you manage pay transparency
• Govern how jobs are created, ensuring managers are DEI compliant
• Debias and design inclusion all your jobs