5 steps to creating a pay transparency strategy

Published: October 4, 2024 | by Emily Scace, JD, Senior Legal Editor at Brightmine

Pay transparency has become an increasingly prominent topic in compensation circles. New regulations have (and continue) to emerge across various states and localities, all aiming to enhance pay equity.

And these regulations are diverse. Some pay transparency laws require employers to post salary ranges or wage ranges in job postings (internal and external). Others mandate disclosing pay ranges to applicants during the hiring process without requiring public posting of such information. Additionally, some laws grant current employees the right to access the pay range for their respective roles.

For businesses bound by these regulations, a proactive approach to implementing pay transparency is key. Even those not legally obliged to disclose pay ranges might find benefits in doing so. Aside from closing pay gaps, transparency helps attract and retain top talent, foster employee trust, and advance diversity, equity, and inclusion (DEI) objectives. In fact, 80% of employees likely wouldn’t apply to a job that didn’t disclose a salary range, according to a recent ResumeLab survey.

This guide outlines the necessary steps and key considerations for executing a pay transparency strategy.

1. Identify applicable laws

When implementing a pay transparency strategy, first, identify relevant local or state pay transparency laws. Pay transparency laws generally fall into two categories:

• Regulations requiring employers to disclose a pay range in job postings.
• Those mandating direct disclosure to job applicants during the recruitment process.

Some laws also provide current employees with the right to know the pay range for their roles. Others require additional disclosures such as job descriptions or details on benefits packages.

When assessing the applicability of a pay transparency law, examine where your physical facilities are. Also, carefully consider your remote roles. Knowing where your remote employees work is important, as many regulations base coverage on the location of the work. For example, an employer without facilities in New York City must still comply with its pay transparency law if it has remote workers based there.

Navigating pay transparency for remote roles can be complex. You may not always know where candidates are physically located. You can manage uncertainty by listing specific locations where you’re willing to hire remote employees. This way, you can limit the number of jurisdictions in which you ensure compliance.

Another option is to adhere to the strictest pay transparency laws nationwide. This way, you’ll have access to the largest candidate pool and one compliance standard to meet.

Understand the “good faith” standard

Some employers have expressed concerns that pay transparency laws limit their ability to negotiate. That is, they believe that in order to comply with the law, they must negotiate solely within the pay range they disclosed.

Here, it’s important to note that pay transparency laws offer some flexibility. They typically require disclosed pay ranges to represent a good-faith estimate at the time of posting. They don’t automatically penalize employers for making offers outside that range.

However, frequent deviations from the disclosed ranges suggest the need for revision. They also indicate that the current ranges no longer reflect the company’s good-faith estimates. If left unchecked, frequent offers outside the disclosed pay range may lead to compliance issues down the road.

2. Create or update your salary structure

Approaching pay transparency on an ad-hoc basis is not enough to create an effective strategy. Employers must truly embrace it.

To do this, establish a standardized salary structure that categorizes compensation ranges across the organization for comparable roles and responsibilities. Incorporate appropriate adjustment factors such as location, tenure, education, credentials, job hazards, travel demands and other relevant dimensions.

A salary structure helps ensure your team bases pay decisions on objective, job-related factors rather than potentially discriminatory factors. Discriminatory factors include:

• Protected characteristics, such as race, sex or national origin.
• Irrelevant considerations, such as negotiating skills or previous salaries.

For employers already equipped with a salary structure, a thorough review is necessary before implementing pay transparency. This review should determine whether the structure:

• Meets current organizational needs.
• Reflects true employee pay.
• Effectively attracts and retains talent.

Market research and benchmarking can verify if the salary structure aligns with expectations in competitive job markets. Additionally, employee surveys and exit interview feedback can provide insights into overall compensation satisfaction. This will also help you determine whether and to what extent pay is causing turnover.

3. Conduct a pay equity audit

Disclosing pay information can, and often does, expose pay inequities. Conducting a pay equity audit is essential to proactively identify and rectify disparities across protected characteristics.

An effective pay equity audit should identify whether salaries for current employees align with expectations based on:

• Role.
• Performance.
• Tenure.
• Other job-related factors.

Furthermore, it should uncover the roots of any pay disparities. This could range from biases correlated with protected characteristics to gaps in hiring and promotion pipelines that impact certain groups.

Upon identifying disparities, it’s important to promptly address them, preferably with legal counsel. Sometimes, immediate fixes are not always feasible. However, if you’re aware of a pay inequity and you don’t take reasonable corrective actions, you could be liable for pay discrimination.

4. Begin including salary ranges in job postings

Once you’ve completed an audit and created a sustainable action plan for any disparities, you can take the next step in promoting pay transparency: job posting.

Job postings should include a pay range that genuinely reflects the expected compensation for the role. First, this range should be informed by your salary structure.

Additionally, the range must be precise enough to be useful to job seekers. For example, a wage range between $50,000 and $150,000 isn’t helpful to an employee. It should also allow for flexibility based on candidate qualifications.

The job posting should also inform candidates of the factors impacting their placement within the range. This may include educational background, years of experience or certification level. When a job posting spans across multiple job grades, include details on each level’s pay range and qualifications.

Additionally, highlight other parts of the compensation package, such as benefits, paid time off and 401(k) matching. Include any intangible benefits like flexible work arrangements or a positive workplace culture as well.

5. Train stakeholders

For effective pay transparency, it’s critical to train hiring managers, recruiters, and other pay decision-makers. Managers need to understand their legal responsibilities under applicable pay transparency laws. They also need to know how to discuss transparency appropriately with candidates and employees.

At a minimum, stakeholders should receive training in the following:

Conclusion

Developing a robust pay transparency strategy is crucial. Legally, a strategy is necessary to comply with varying state and local regulations. Beyond compliance, embracing pay transparency is a must for organizations who want to attract top talent. It also improves fairness in the workplace by supporting efforts to close wage gaps, including gender pay gaps.

By establishing a solid pay transparency strategy, companies can navigate its complexities effectively. Additionally, informing employees of their rights and maintaining open communication about compensation will further reinforce a culture of trust and fairness within the organization.

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