Pay transparency is intended to drive equity and fair hiring practices, and many states are passing pay transparency laws for just those reasons. Still, plenty of organizations see only risk to their business. Done well, however, implementing salary transparency can become an advantage, making you more competitive in the talent marketplace. In this blog, Edgility seeks to give organizations a clear overview of how pay transparency works, its potential pitfalls, and how organizations can use it to their – and their employees’ – advantage. Salary transparency, done well, is about more than just compliance. 

Pay Transparency Laws and Compliance 

Each state (and some local governments) have specific requirements for pay transparency laws, and every organization should make sure they stay up to date on the specific requirements in their area. The following are general requirements for salary transparency, regardless of jurisdiction. 

• Disclose salary ranges in job postings
• Disclose salary ranges to applicants at a specified point during the hiring process
• Disclose salary ranges to employees upon request

How many states have salary transparency?

Currently, 6 states and the District of Columbia have state-wide pay transparency laws. These states are Washington, California, Nevada, Colorado, New York, Maryland, Rhode Island, Connecticut, and D.C. Two more states, Minnesota and Illinois, have laws that will go into effect on January 1, 2025. New Jersey and Ohio do not have state-wide laws, but several of their metropolitan areas have local pay transparency laws. 

The Role of Clarity in Pay Transparency

In her bestselling book Dare to Lead, renowned researcher Dr. Brene Brown writes “Clear Is Kind. Unclear Is Unkind.” Brown and her team interviewed senior business leaders for their research. They learned that many are concerned that “niceness” has replaced clear, honest feedback in the workplace – and this lack of clarity and transparency is creating problems and disengagement among staff. Anecdotally, Edgility knows this to be true. A lack of clarity leads many organizations to suffer from poor staff retention. And a lack of clarity when implementing pay transparency policies is a recipe for disaster. Here are a few questions to consider. 

Does your company have an overall compensation philosophy?

To know that you’re compensating fairly and competitively, you need a philosophy or strategy for doing so. A strategy allows you to be consistent while defining the values that will guide your hiring, compensation, and retention efforts. 

• See how one of our clients used Edgility’s compensation strategy services to improve employee morale and retention. 

Do employees know your salary transparency and overall compensation policies? 

Clarity in pay transparency policies also means ensuring employees at every level understand the organization’s compensation philosophy, leadership’s reasons for deciding on these strategies, and how they are implemented. Employees should have a clear understanding of how pay transparency policies affect them, including how their compensation was determined (i.e. why they are paid the amount that they are).  

Do all roles have a set of role-specific competencies, and do all staff know how to access the one for their role?

An inability to advance is an often-cited reason why employees leave organizations. In many situations, there might actually be a way for employees to further their careers internally, but the way forward is unclear, so it’s easier for that person to achieve the responsibility and pay increase they desire somewhere else. Effectively implementing pay transparency includes being clear about expectations for each role and what expertise or skills those in the role need to move up the ladder. 

Do management staff know how to implement the scorecards appropriately?

A well-designed evaluation process supports an effective compensation program. However, even with the best intentions, it’s not uncommon for organizations to have uneven implementation. It’s important that there’s clear training on how to use talent management systems and that managers and employees understand the philosophy behind them. Organizations drive more equitable outcomes by creating clear expectations for how they are used while improving staff retention and morale. 

• Check out Peer Health Exhchange’s experience implementing a talent management strategy.

Do staff know how to grow their salary over time or get promoted? 

When employees know what it takes to make more money or earn more responsibility, they’re more likely to stick around and be motivated and engaged while at work. Clarity drives loyalty and retention. 

How to be competitive while being transparent

Many leaders and HR professionals fear that publishing salary information will make them less competitive. This can be especially nerve-wracking for organizations with smaller budgets: Would publishing salary information make us less competitive and less likely to attract top talent? The data suggests otherwise. 

How do employers attract employees?

For starters, don’t overestimate the value of money. Pay and benefits can certainly be a huge attraction, but they’re not what get people to stay. If you don’t want your business to be a revolving door for employees, you’ll need to work on culture and values. This brings us back to clarity and transparency and building an equity-driven environment. A great way to do this is through pay transparency in job postings. Be upfront about things like your non-negotiation practice. You’ll be surprised at the diverse and qualified talent pool this will attract. Lastly, determine your total value proposition (TVP) which can help you see clearly what current employees appreciate about your organization – as well as areas to improve upon – so that you can attract the right people by showcasing your organizational values. 

Pay a living wage

Quality of life is a key way salary pays into employee happiness and retention. If someone can live comfortably on $60,000 a year, bumping their pay to $65,000 annually is unlikely to compensate for cultural deficiencies or a challenging work environment. But if someone cannot live comfortably on what you’re paying them, rest assured that bumping their compensation up to a liveable wage will significantly impact employee turnover for the better. Living wage varies by geographic location and family situation. For instance, a single parent with one child must make approximately $120,000 annually to earn a living wage in the San Francisco, CA, area. That same single parent would need to make about $75,000 in Cleveland, Ohio. Building a living wage floor into your compensation strategy can make your organization more competitive. 

The bottom line is that culture is the king in employee retention. But a well-disseminated compensation philosophy and a living wage floor will be significant factors in attracting the right talent. 

What are the disadvantages of pay transparency?

We would argue that pay transparency has no disadvantages, but there are risks. The good news is that an effective plan to roll out and implement pay transparency can mitigate these risks. Without one, here are a few ways problems could creep in. 

Perception of Inequity

Salary transparency becomes an issue when the only thing driving it is compliance. Organizations that disclose salary information without equitable pay policies in place can see a rise in resentment among employees and a decrease in trust. If differences in pay exacerbate existing inequities (such as gender and minority pay gaps), staff are likely to become dissatisfied and disengaged. Avoid negative perceptions by creating a clear, equity-driven compensation program that is well-communicated to all employees. 

Talent Drain

Talented employees always have options. If compliance with pay transparency laws reveals inequitable or uneven compensation practices, the employees you most want to stay may be the first out the door. By prioritizing fair and consistent pay practices, you engender staff loyalty and confidence and improve retention rates. 

Organizational Reputation

The public perception of a company is always important, but it’s especially true for value and mission-driven organizations. If an organization fails to be transparent, or in being transparent, reveals major inequities, they may not only struggle to hire and retain the best staff, but their mission may suffer as donors, volunteers, and supporters choose to distance themselves. Organizations do their best work when their internal customers – their staff – are supported and compensated fairly.  

Using Pay Transparency Laws to Put Equity into Practice 

Pay transparency laws have the potential to be a stumbling block to businesses. Leaders and HR professionals can ensure successful implementation by putting equity into practice in tangible ways. As these laws become the norm, organizations with no current legal requirements in their area will ensure their future success by proactively implementing best practices. 

What does equity look like in practice?

Equity is often best understood through images like these shared by American University. While the concept is fairly straightforward, it can feel intangible and hard to pin down in practice. Equity in practice looks like fair, clear, and consistent policies across all areas of an organization, but specifically in areas of talent acquisition, management, and retention. An equity lens sets organizations up to succeed when implementing new legislation, such as pay transparency laws. And given that not all businesses will see the need for equity-driven policies, those who do will create a competitive advantage for themselves and increase employee retention and loyalty. 

How do you maintain equity?

For leaders already thinking about the long term or those whose organizations already have compensation philosophies in place, the next logical step is determining how to maintain equity from now on. Consistency is key. Know when and how often you’ll revisit your policies and procedures and how you’ll evaluate if they’re working. Edgility recommends performing a wage gap audit every year, revisiting your internal pay ranges every other year, and reevaluating your compensation philosophy every three years. 

How does Edgility help companies practice equity?

Creating equity-driven policies takes intention. Edgility helps companies practice and maintain equity through valuable resources, such as our free Pay Transparency Roadmap. Time is also a factor for many leaders and HR professionals, which is why Edgility offers consulting and design services to help organizations build talent acquisition, management, and retention policies that create lasting, positive outcomes. If your organization is ready to not just comply with pay transparency laws but also build practices around them that ensure you thrive, reach out to Edgility.