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The Importance of Pay Transparency Laws

Date Published: May 04, 2023 | Last Updated: September 20, 2023 | By Accurate Background

Historically, issues of pay have been kept fairly hush-hush at most organizations, with employees exhorted to not share information on their salaries with others. That approach has widely been disparaged as an effort by employers to keep salaries low, or to mask potential discrepancies in pay that could cause dissatisfaction and dissension among employees.

In recent years, though, the issues of pay secrecy and pay transparency have gained traction and attention in regulatory circles, with many stats now requiring companies to share information about pay.

Pay Transparency Laws are Nothing New

Despite widespread company efforts to keep pay levels quiet, laws prohibiting these efforts have long existed. For instance, in 1935 the National Labor Relations Act (NLRA) gave employees the right to discuss issues of pay, benefits, and work conditions without fear of retaliation.

Still, pressures to do just the opposite persisted.

In 2016, the Office of Federal Contract Compliance Programs (OFCCP), under Executive Order 11246 gave employees “the right to inquire about, discuss, or disclose your own pay or that of other employees or applicants.”

Most recently, federal and state governments have taken additional steps to ensure pay transparency, in part as an effort to address longstanding pay inequities impacting women and people of color (POC). This has come in the form of pay transparency laws requiring companies to post “good faith” pay ranges when posting job opportunities.

Transparency in Job Postings

Laws being created by states such as California, Colorado, New York, Rhode Island, Washington, and municipalities like New York City are designed to provide employees with some indication of pay ranges when applying for jobs. According to CMBC, “roughly 1 in 4 U.S. workers now live in a place where employers are required to share pay ranges by law.”

Are these requirements having their intended impact? In some cases. A study in Nature Human Behavior, reported by Harvard Business Review, for instance, found that transparency in U.S. academic settings “dramatically reduced the gender pay gap, even eliminating it in some states.’ Similar studies have shown the same, according to the article.

But, despite good intentions, the intended affects of such laws are already being circumvented by some employers. As Fortune reports, some employers post ranges below their actual salary bands—or include ranges so broad (a $100,000 range from top to bottom of the salary range, for instance), to make the transparency virtually meaningless.

Pay Transparency Matters to Employees

In addition to adhering to the letter of the laws that impact them, though, employers also are wise to consider the impact on their employer brands, especially in volatile labor markets where certain skills are in especially short supply.

This may be especially true of younger entrants to the workforce. In a Future Workforce Study from Adobe, for instance, members of Gen Z indicate that they won’t even apply for a job if the salary isn’t included, according to Insider. And while pay isn’t necessarily top of the list for today’s job candidates—flexibility and opportunities for learning and development are equally, if not more valued—pay transparency does send an important signal about company culture and communication transparency in general.

Glassdoor conducted a global survey of pay transparency across seven countries, including the US and Canada, and found that 70% of employees feel that salary transparency is good for both employee satisfaction and 72% feel it’s important for business in general. The survey report points to some steps that  companies are taking that go beyond regulatory requirements:

  • Whole Foods employees can look up any colleague’s salary and bonus from the prior year.
  • Buffer offers a publicly available list of employees’ pay levels.
  • Following an internal audit, Salesforce invested $3 million to address pay gaps.

These are the kind of actions that can help employers stand out in positive ways to drive prospect preference among job seekers—and to help keep employees on board and engaged during massive trends like the “Great Resignation” or “Quiet Quitting.”

Whether currently required by laws where you recruit candidates, chances are good that pay transparency laws will be impacting your organization sooner rather than later. Even in the absence of these regulations, progressive organizations recognize that their ability to attract and retain top talent can be positively impacted by transparency in pay, and in general.