How Pay Transparency Can Become a Competitive Advantage

Pay transparency laws are gaining traction across the county. As of this writing, 26% of the workforce is covered by some form of pay transparency mandate, including 10 states and several municipalities, with legislation pending in another 15 states.

While the laws vary by jurisdiction, most require employers to disclose salary and/or total compensation (including commission, benefits and bonuses) at some point in the hiring process—either in the job description, when an offer is made, during the interview, or upon request. In California, Connecticut, Maryland and Rhode Island, employers are also prohibited from asking candidates about their salary history to avoid perpetuating any pre-existing inequity.

With the push for transparency also taking place at the federal level, pay transparency will likely become standard practice, if not mandate, for employers in the very near future.

Talent and Transparency

With new generations now integrated and leading many organizations, keeping salaries private can be detrimental. Studies show employees are now less concerned about money, and more concerned about culture, fairness, equity and how you treat people. Pay transparency plays a role in perception of workplace culture.

Pay transparency improves acquisition, retention, and culture. 

The open sharing of salary data has shown to be beneficial for organizational performance and talent acquisition, with disclosures attracting more, better quality applicants. It carries weight in the candidate’s organizational perception, expectation, and experience during the hiring process.

There are legitimate reasons for compensation variances. It is important for employees to understand why they earn a specific level of pay and the opportunities and requirements to advance. Open conversations build trust, and growth opportunities are a significant driver in employee retention.

It turns out that pay transparency is more economical. While one might think it saves money to keep individual/organization-wide pay rates concealed, it can cost you more overall. High performers are more likely to quit due to salary discrepancies, resulting in the loss of key talent, cost of role vacancies, and new candidate negotiations.

You don’t have to publish everyone’s salary to be transparent. Establishing pay equity policies, including justifiable variances based on experience, education, skills and location, shows that the organization strives for fairness. It also demonstrates a commitment to equity and inclusion: women who say their employer has a pay transparency policy make the same or more than their male counterparts.

Best practices for pay transparency.

Embracing pay transparency can create a competitive differentiator for attracting and retaining talent. Here are six best policies to guide pay transparency policies. 

• Start the conversation. Being up front about how pay scales are determined opens the door to conversation. It helps employees feel safe asking questions about pay.
• Conduct an audit and address inequities immediately. When pay inequities or disparities come to light, how quickly you rectify them can make a positive difference in retention: employees whose pay was increased within a month after a higher-paid coworker joined the company stay for an average of 2 ½ years longer, while companies that take six months to a year to adjust pay will see employees leave over two times sooner.
• Create a policy that aligns with your values, backed by relevant market data. Having position-based salary data to support the published range for each job role and well-structured job descriptions goes a long way toward helping candidates and employees feel like they’re being treated fairly.
• Arm managers to communicate the why. Managers are the frontline resource for employee questions. Train managers on salary policies and how to clearly communicate the compensation plan.
• Establish fair, realistic pay ranges. Avoid the instinct to set wide salary ranges. This is disingenuous and undermines trust and transparency.
• Provide a clear path for employees to level up. If employees find they are on the lower end of the salary range for their role, explain the opportunities for growth. Skills development, continuing education, conferences, association membership, and mentoring programs are welcome resources for individuals that want to advance in their career and income.

Pay transparency policies can feel daunting, especially since it may require a significant shift from the days when talking about money was taboo. However, being forthright with salary ranges in job postings and implementing equitable pay policies establishes a policy of transparency, fairness, and respect. This cultural reputation improves candidate volume and quality, employee loyalty and satisfaction and organizational outcomes and performance.

Current state and local pay transparency laws 

(list subject to change as laws change)

California employers with 15 or more employees:

• Must provide pay scale for position
• Must maintain records of job titles/wage history for each employee
• Prohibited from asking applicants about salary history
• Required to disclose salary information to current employees upon request
• Penalties range from $100-$10,000 per violation

Colorado employers (all):

• Must include salary range in all job postings
• Penalties range from $500-$10,000 per violation

Connecticut employers (all):

• Must provide applicants with wage range for the position when an offer is made, upon request or after the first interview, whichever comes first
• Prohibited from asking applicants about salary history, unless voluntarily disclosed
• Employees or applicants can bring civil suit against an employer for violation for up to two years

Hawaii employers with at least 50 employees (excluding unions and internal transfers or promotions:

• Must disclose the hourly rate or salary range accurately reflecting the compensation
• Penalties include civil actions and punitive damages.

Maryland employers with 15 or more employees:

• Must provide wage range upon request of applicants
• Prohibited from asking applicants about salary history
• Penalties include fines up to $600 per violation.

Nevada employers (all): 

• Must provide salary or wage range to applicants after initial interview and to current employees seeking promotion or transfer upon request or if they receive an offer for a new position
• Penalties include civil action and fines up to $5,000 per violation

New York employers with four or more employees:

• Must provide applicants with the minimum and maximum salary for the position upon request
• Applies to jobs performed in or supervised in New York
• Penalties include $1,000 for first offense, $2,000 for second offense and $3,000 for subsequent violations

Rhode Island employers (all): 

• Must disclose salary ranges to applicants and employees upon request, before discussing an offer, or before moving to a new role
• Prohibited from asking applicants about pay history
• Penalties include fines up to $5,000 per violation

Washington employers with 15 or more employees:

• Must disclose the minimum and maximum salary for the position when it is offered and upon request after initial job offer
• Applies to employers with at least one employee in-state or if they recruit in-state
• Penalties include fines of $500-$1,000 or a percentage of damages

Cities with Pay Transparency Policies:

• Jersey City, New Jersey – Employers with 5 or more employees must disclose salary ranges
• Ithaca, New York – Employers with 4 or more employees must disclose salary ranges
• New York City, New York – Employers with 4 or more employees must disclose salary ranges
• Westchester County, New York- All employers must disclose salary ranges
• Cincinnati, Ohio – Employers with 15 or more employees must disclose salary ranges
• Toledo, Ohio – Employers with 15 or more employees must disclose salary ranges

States with pending legislation: 

• Alaska
• District of Columbia
• Illinois (legislation passed, becomes effective Jan. 1, 2025)
• Kentucky
• Maine
• Massachusetts
• Michigan
• Missouri
• Montana
• New Jersey
• Oregon
• South Dakota
• Vermont
• Virginia
• West Virginia

Source: https://www.handbooks.io/resources/pay-transparency-laws-by-state/