On November 1, 2022, New York City’s new pay transparency law for businesses operating in the region went into effect. This legislation follows similar measures in 17 states across the United States, including Colorado, Connecticut, and Maryland, and precedes new laws which will take effect in early 2023 in Washington and California.
This emerging trend toward strengthening pay transparency laws isn’t solely a US phenomenon. For businesses operating (or planning to expand multi-nationally), the EU recently passed similar legislation, too.
So how do these seismic changes to the recruitment market affect job postings, pay equity, and your compensation strategy? What challenges do they raise for HR professionals, and what steps should you take to respond well?
New and complex challenges driven by these changes are appearing every day, and it’s up to HR departments around the world to react quickly and intelligently to keep their companies on top. To help out, we spoke to HR leaders here at HiBob to outline what you can expect from pay transparency laws and how to lay the foundations of an effective response program.
What are the pros and cons of new salary transparency laws?
Localities with salary transparency laws are primarily aiming to reduce the gender pay gap and promote fairness in the job market—and it looks like they’re prepared to go far to achieve these goals.
“This subject is top of mind for many companies who have historically based salaries on where their employees physically are,” says Ariana Moon, head of talent planning and acquisition at Greenhouse Software. “Many leaders and HR folks acknowledge that pay transparency is, overall, a good thing and a step in a more progressive direction.”
But the latest legislation may also make things trickier for candidates, potentially resulting in the setting of false expectations around salary and responsibilities.
Here’s how things could pan out.
Advantages for candidates:
- Pay transparency laws should achieve their number-one goal of narrowing wage gaps by forcing employers to examine how they’re paying their people. Businesses are taking a serious look at how they value their team members and how much it will cost to replace anyone who leaves. The legislation also encourages companies to critically evaluate their internal compensation strategy and ensure they’re paying people fairly—which can only be a good thing for professionals.
- These laws set clearer expectations across the hiring process and encourage companies to look more closely at their needs when defining the scope of roles. As a result, job postings are likely to be more precise, accurate, and structured, improving both the candidate and employee experience.
Disadvantages for candidates:
- Pay transparency laws may encourage less qualified candidates, drawn in by the potential offer of a higher salary, to apply—increasing frustration and fueling a disconnect in the marketplace.
- These laws may also limit companies’ ability to reframe the scope of a position once the job advert has been posted, reducing flexibility.
What challenges do these new laws present for HR departments?
“In order to productively exercise pay transparency,” Moon says, “companies need to provide a lot of education around their respective compensation philosophy and strategy so that people understand the why around their methodology.”
Challenge #1: Job postings
Most recent examples of pay transparency laws refer directly to the need to declare pay ranges in job ads. This has led to strategic changes across many companies. American Express Co., for example, recently joined many other firms, including HiBob, in committing to declaring salary ranges across the board, including in regions that don’t require it by law.
HiBob’s HR leaders use external market data and internal pay scales to determine salary ranges for open positions. They also use wide pay bands to attract candidates with a broad range of experience and skill sets.
Using salary ranges rather than specific figures gives your team greater flexibility in choosing the best candidate for the role. While someone with less experience might reduce the pressure on your budget, a more seasoned candidate will bring a greater wealth of industry knowledge and other relevant skills and experience.
A salary range is also important when making allowances for different job locations, including remote or hybrid roles, so it’s worth considering precisely how you’ll implement your new approach.
Challenge #2: Tricky conversations
For many businesses, pay transparency is likely to prompt potentially challenging conversations between team members and their managers about their current salary, especially if this sits towards the bottom end of the published pay range.
HR and managers must align closely to navigate these conversations successfully and have the tools they need to enable transparent and open conversations with their people. It’s critical to handle these discussions delicately. It’s key to building greater trust with team members and increases your ability to retain top talent.
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Challenge #3: Impact on remote recruitment
If your company recruits people to work remotely, it’s important to stay on top of precisely what the legislation means for you. For example, Washington State’s new law requires employers with even a single local employee to comply in full.
It’s also best practice—and in the spirit of a consistent approach to pay equity—to set equal pay ranges across roles within a single country. If, for example, you’re posting an ad for a remote marketing manager in the US, the pay range should be identical across every state where you publish the posting, despite discrepancies in the cost of living.
Pay transparency laws: A change for the better
Ultimately, HiBob’s HR leaders expect the new pay transparency legislation to improve conditions for everyone by helping companies better align their expectations of roles with the expectations of the candidates applying for positions. Challenges and some tricky conversations may well lie ahead in the short term. But, in the longer term, these changes will help businesses more thoroughly understand their needs, ascribe proper value to their people, and build teams primed for future success.
