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Create pay transparency to win in the job market

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Close up of American dollar bills As employers continue to refine their talent acquisition strategies and differentiate their total rewards practices, the evolving business and regulatory landscape may create barriers if the employer has not equipped talent specialists with the tools they need.

Many employers continue to struggle with ensuring pay transparency and countering legacy practices, both of which can lead to pay inequities, affecting motivation and relationships at work as well as an employer’s brand and reputation. Pay transparency may not be the singular cure for racial and gender pay gaps, but it is a good starting point to remove barriers and improve accurate information about employee compensation.

Impact of state legislation Talking about pay at work, with family, or at a social setting has historically been discouraged. Like many traditional management practices, organizations have been working to adopt significant change with respect to compensation communications. If not prepared, or aligned to requirements, these changes can create risk or magnify inconsistencies of ill-defined employee compensation programs.

For example, our federal and many state laws now encourage pay transparency for applicants and employees. For federal contractors, the Office of Federal Contract Compliance Programs prohibits employer policies that discourage pay transparency. Many states have taken the lead and implemented even more rigorous standards that require open pay transparency. The trend for the different approaches taken by various states is to require pay disclosure. At a minimum, employers will need to supply certain information about their compensation programs upon request. This information may include salary ranges and other forms of compensation for the role, as well as the general benefits that are available.

 
Quick start to evaluating pay transparency
Below is an initial inventory you can complete to determine whether supporting rationale is current and transparency-ready:
  • Do formal salary ranges exist?
  • Is there documented program and pay philosophy?
  • Do job summaries or descriptions exist?
  • What promotion opportunities embedded within the employer’s job architecture?
  • Has a pay equity review been completed to identify any existing equity issues?
Significant variations in pay equity regulations also exist from state to state, creating a troubling environment for many employers to navigate. For example, for over a year, Colorado’s Equal Pay for Equal Work Act has prohibited all employers from discriminating because of sex (including gender identity) — alone or with another protected status — prohibiting paying them less for substantially similar work in terms of skill, effort and responsibility. Every employer with any employees in the state has to comply with the law. Other states have adopted similar regulations, including prohibiting employers from requesting a salary history from prospective job candidates and prohibiting employers from preventing employees from discussing their own compensation information with other employees. For organizations that have employees across the U.S., this can create significant challenges in administering enterprise-wide compensation programs if pay transparency tools do not exist or readiness to share details of employee compensation programs across all labor markets is low.

Transparency and perceptions of pay equity It’s no surprise that our past survey research found a strong correlation between the level of pay transparency and perceptions of pay equity. Our June 2021 By the Numbers pulse data suggests that employees who have experienced a greater level of pay transparency practices are more likely to indicate a belief that no difference in pay exists across genders at their organization. On the other hand, employees who have more limited access to information about pay practices are more likely to report a belief that men are paid more than women at their organizations.

Well-designed compensation programs are essential to achieve the strategic goals of businesses and attract and retain the talent necessary in today’s competitive business environment. Conducting regular reviews of broad-based employee compensation arrangements improves alignment to longer-term objectives and identifies potential human capital risks.

Actions to improve pay transparency Given the escalating trend for states to adopt pay transparency laws, it is crucial that organizations examine their employee compensation programs on a recurring basis and from a variety of perspectives for the foreseeable future. Provided below are actions that an employer can take to refine their employee compensation programs and create the tools that talent specialists need to win the war for talent.

  • Strengthen pay transparency at critical points in the employee experience: At a high level, pay transparency practices help management reinforce the efforts the organization makes to structure meaningful employee experiences and mitigate the risks of legacy business processes that create pay disparities. By taking a proactive response, employers can be more prepared to improve pay transparency practices and potential inequities that are created by legacy practices. Starting with job posting processes and offer letters, to salary increases and promotions and, ultimately, to severance programs, transparency needs to be considered through the entire reward life cycle.
  • Pay equity review: We expect to see some form of a pay-equity ratio measure is likely to be more routinely reported voluntarily in public company disclosures to meet future SEC requirements, as well as its increased use by nonprofits where public scrutiny is high. By taking a proactive response to develop pay equity metrics, employers can avoid the impacts similar to those of the Dodd-Frank Act of 2010 which, when it went into effect, required that the total compensation of CEOs to be compared in the form of a ratio to the median employee’s compensation.
  • Employee listening: The COVID-19 experience has elevated many organizations’ internal communication capabilities in response to the need to inform employees about new workplace practices. The shift to active listening creates another opportunity for employers to gain insights into perceptions of compensation and the level of transparency that can follow from brief pulse surveys, open-door exchanges and mentorship opportunities to engage top performers and critical workforce segments.

The management challenge of casual conversations about pay at work is not new. However, similar to other fairness and equity movements, we are likely at a breaking point with respect to how we manage pay transparency. At the same time, the competitive landscape has elevated the need for employers to review the tools that their talent specialists have to attract candidates to open job opportunities and confidently explain their employee compensation program.

Contacts:
Bob Lemke
Director, Compensation Consulting
T +1 312 602 8969

Ken Cameron
Director, Compensation Consulting
T +1 404 704 0136

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