Historically, it has been a social taboo within American workplaces to discuss wage rates and compensation approaches. Employers are often reluctant to disclose employee pay information, relying on confidentiality claims or employee privacy to restrict disclosure. With that said, we are on the edge of historical change where many states are putting provisions in equal pay laws that support pay transparency. The NLRB has always protected employees, allowing discussion regarding employment terms and conditions, including pay. New laws are passing, requiring employers in these states to provide pay transparency, pay equity, and restrictions from inquiring about historical pay.
Several states have already passed pay transparency, salary history restrictions, and pay equity for comparable work laws. Colorado is leading the Rocky Mountain region by passing the Equal Pay for Equal Work Act. Employers in Colorado are adjusting to the state’s Equal Pay for Equal Work Act’s salary disclosure requirements. Still, even if you don’t do business in Colorado, there are benefits to explaining how pay is determined in your organization.
What is pay transparency? It’s providing employees information about how they are paid, the organization’s compensation philosophy, policies, and practices when it comes to compensation. It means explaining how pay decisions are made. It may also include knowing more about what others in the organization are paid.
Why dive into these waters if you don’t have to?
Reducing Wage Disparity – Salary transparency helps uncover pay gaps between similar individuals and has been proposed as the best remedy to address pay discrimination issues in the workplace. Research indicates that in states that outlaw pay secrecy, wages are higher for women, even when accounting for standard human capital controls and state effects.
Attracting New Talent – Employees are looking to work for a company that offers not only competitive but what they would consider fair wages. A company with a philosophy of providing pay equity is seen as more progressive to many talented job seekers, making it a more desirable company to want to work for. Pay transparency can also help streamline the recruiting process. A salary posted on a job ad can help weed out applicants who would typically go through the recruiting process to determine the salary below their expectations.
Increasing Retention – Pay equity can play a critical role in retaining your top talent. An employee who feels they are being treated equitably is far less likely to leave an organization because of pay, even if they are paid below market.
Increasing Diversity – Diverse candidates are more likely to join a company when they are sure they are being treated fairly. Making salaries common knowledge can be a first step in showing employees that pay discrimination does not exist in company practices.
Increasing employee engagement – In an Aptitude study in 2017, respondents were asked to assign a percentage to each of six categories (work environment, development, recognition, etc.), indicating its relative impact on employee engagement and retention. Compensation was the number one component of engagement and retention. Organizations that make pay equity a priority see, on average, 13% higher engagement levels.
Increasing Productivity – Pay transparency has been shown to increase productivity. A study from UC Berkley found that individuals worked harder and more productively when they received information about peer earnings. When employees don’t know what their coworkers are paid, they tend to overestimate what their peers might be earning, leading to increased levels of job dissatisfaction and decreased productivity.
Increasing trust – When employees feel that there is a process in place to determine pay and see that it is fair, it drives confidence in the organization, which, in turn, can lead to increased trust that that company is making decisions that are in the best interest of the employees.
Improving your brand – Your employer brand is what your employees are saying about your organization to others. Employees are more likely to speak positively about the company if they feel they are being paid fairly. From a reputation perspective, how you pay employees can be viewed as a way of communicating externally to customers and shareholders what you value as an organization. Companies that structure pay programs that are viewed as creating a great work environment and a great place to work can also be seen as a great place to do business. Pay transparency practices can send the message that your employees are your most valued asset, helping the company attract new clients and customers.
Pay transparency is not a new trend: many organizations have been transparent about pay practices for years, including government workers, federal contractors, US Military, unionized workforces, and some non-profit staff.
Jumping from complete secrecy to full transparency can breed chaos. There is a pay transparency spectrum that ranges from only knowing your specific pay rate to knowing everyone’s pay. Review your current status, what your organization is ready for, and decide on your goal. A step-by-step approach may be best for your organization.
Are You Ready for Pay Transparency? Here are some things to consider:
- Do you have a defined compensation philosophy that articulates how you pay for your jobs (market focus) as well as how you pay employees within each job? What are the components of compensation in addition to base pay? For example, do you have an incentive, bonus, or commission structure?
- Do you have a structure of pay levels or grades with an assigned pay range?
- Are you consistent in your pay practices, such as hiring rates, merit increases, and promotions
- Are you paying employees in those already established ranges?
- Have you answered yes to all these questions? Only now should you consider sharing all employees’ pay information.
Ultimately, a compensation program should provide the ability to attract, motivate, and retain qualified workers; provide internal and external equity; be legally defensible; and be linked to an organization’s business strategy, goals, and culture. Use this opportunity to explain how your organization’s business strategy is reflected in your compensation programs and how those compensation programs drive results.
Employers Council can help you develop a compensation program, review existing practices for compliance with federal and state laws, and provide salary survey resources.