The philosophy behind compensation transparency laws and what this means for you

Seventeen states (and counting) have passed pay transparency laws in the United States. Scandinavia has been doing it for years (Denmark in 2006 and Sweden in 2008), and in late December 2022, European Parliament and Council passed pay transparency measures. Compensation transparency is here to stay. Organizations of all shapes and sizes must be ready, and knowing what to do starts with understanding why pay transparency is so important.

Need a refresher on the latest pay transparency laws in the United States? We have you covered. Learn what you need to know about these recent laws.

Equality in the workplace starts with pay

Pay gaps —whether due to gender, race, disability, or age — are still an issue even in today’s modern era. Pay transparency laws are being enacted not only to bring the issue of pay disparity to the forefront but also to force employers to fix the problem. World at Work best summarizes the philosophy behind pay transparency laws: “The theory behind pay disclosure laws is similar to the purpose of underlying laws prohibiting pay secrecy. Suppose applicants and employees know what the job they want pays. In that case, they can more effectively negotiate a compensation rate that aligns with the pay of other similarly situated employees.”

Employers should prioritize pay transparency and equity in the workplace. To create a fair and just work environment, your company must clearly understand each employee’s compensation. This benefits the employees and gives job seekers a better understanding of their salary concerning others in the company and industry, giving them greater knowledge in salary negotiations. To ensure compliance with current laws and regulations and to maintain a culture of fairness and transparency, it is recommended that the company regularly review and assess its compensation policies and practices.

Studies have shown that pay transparency promotes positive sentiments and is something workers want:

• A 2022 study by Figures revealed a 3.5% pay gap for non-transparent employers, whereas those who were fully transparent had no pay gaps.
• A Monster poll reported that 98% of workers believe companies should put salary ranges in job postings, and 53% would decide not to apply for a job that doesn’t.
• Visier’s Pay Transparency Pulse Report found that 79% of those surveyed want some form of pay transparency, 32% want total transparency, all employee salaries are publicized, and 68% would switch employers for greater pay transparency.

Pay transparency laws are necessary to create equitable work environments across the globe, plain and simple.

Here’s a list of some of the things to be mindful of when it comes to pay transparency and pay equity laws:

1. Understanding the laws: Familiarize yourself with the laws and regulations in your state or locale and how they affect your organization.
2. Employee awareness: Ensure employees know their rights and the company’s pay transparency and equity policies.
3. Pay audit: Conduct a thorough pay audit to identify and address any disparities in pay based on gender, race, ethnicity, or any other protected characteristic.
4. Compensation philosophy: Develop a clear and comprehensive compensation philosophy to guide your decision-making around pay and benefits.
5. Job descriptions: Ensure that job descriptions are accurate, up-to-date, and reflective of the tasks and responsibilities of each position.
6. Training: Train managers and HR personnel on the importance of pay transparency and equity and the steps they can take to ensure compliance.
7. Communication: Foster open and transparent communication with employees regarding pay and benefits.
8. Data privacy: Be mindful of privacy laws and regulations when collecting and managing employee pay data.
9. Monitoring and updates: Continuously monitor and update your policies and procedures to ensure they align with changing laws and regulations.
10. Legal support: Consider engaging legal support to help you stay informed and compliant with the latest laws and regulations regarding pay transparency and equity.

Your organization needs to be ready, regardless of your state’s laws

As more states pass pay transparency laws and regulations, it only makes sense for businesses to start preparing now. Your organization will suffer adverse consequences if you wait until laws are passed. You can begin by adopting a compensation philosophy, conducting a pay audit, and creating a plan to close any gaps.

Additionally, it’s helpful to proactively educate your managers and employees about your company’s pay transparency philosophy. Open communication fosters trust and ensures everyone has access to the same information.

If you are feeling overwhelmed, you’re not alone. Taking on compensation transparency and accountability isn’t easy — but it’s necessary.

Hiring a compensation expert ensures your organization offers equitable pay, complies with laws, and is ready for upcoming rulings. At Compensation Works, for example, we use a six-step process and proprietary tools to analyze various factors to identify pay gaps and weaknesses in pay practices. We use that data to help organizations build and maintain compensation plans that close the gaps and develop roadmaps for long-term compensation strategies.

Competitive organizations understand that developing a compensation strategy and pay transparency philosophy isn’t a one-and-done thing. Continuously monitoring and adjusting for the latest regulations and trends is the path to remaining equitable.

Pay transparency is vital for any business regardless of state or industry. Even if you are not currently required to follow a pay transparency law, you more than likely will in the future. Adopting compensation transparency now will increase your market competitiveness and retention value. Compensation Works can get you on the path to pay transparency. Contact us today to get started with a consultation.