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There is growing pressure for employers to be both transparent and competitive with pay for every role in their organization. Several states, including New York and Colorado, already have pay range laws in place that require the disclosure of pay scales to current and prospective employees. This wave of pay disclosure will continue with California, Washington and Rhode Island implementing similar legislation in 2023. Many companies are already disclosing pay rate information, even in areas where they are not required to do so, as they are getting more questions from current and prospective employees.
Most companies are simply not ready for this kind of transparency, either because they're not sure how to tackle it from an administrative perspective, lack the job architecture, or are afraid of employee reactions when pay is disclosed. Already there are complaints about companies posting outrageously wide salary bands to skirt the spirit of these laws. The potential for dangers exists if current employees feel slighted during tighter labor markets where posted salary ranges increase.
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Companies must be thoughtful and deliberate about defining their culture and strategy around rewards and communicating it consistently both inside and outside the organization. The best protection in this is having a well-defined total rewards philosophy that is underpinned with a scalable job architecture, leaving no doubt how compensation is determined for each job level, and what is required for team members to move up in pay and title at the company.
For many companies, the process of job leveling can be burdensome, with the employee data to build it fragmented across multiple systems. The best way to tackle this is to bring together fragmented employee data, compare that information to real-time market data, and properly communicate pay ranges to current and prospective employees.
For companies that expanded rapidly in recent years, paying top salaries to woo talent, there will be much work to do to ensure that pay ranges are benchmarked, employees fall within disclosed pay ranges, and everyone knows what's required to move into the next tier of compensation. Failure to reconcile differences in compensation will expose brands to risk, including pay discrimination suits.
From there, how businesses communicate pay ranges to prospective and existing employees will be critical. Publishing too wide a pay range in job postings or being too vague in the description of benefits could put companies out of compliance and turn away top talent. Candidates don't want to sit through five interviews just to find out that the pay offered isn't enough. Conversely, being too specific or narrow in disclosed pay ranges may set a bar for competitors to beat and make it harder to hire team members with varying levels of experience. These disclosures are also bound to affect existing team members as they discover what new hires earn.
Adjusting to this new era of pay transparency will be a lot easier for companies that move quickly to get ahead of it, make sure they remain compliant with regulation, and adapt quickly as things change. Those that successfully adhere to employer obligations and communicate to workers what they want – fair, equitable, and competitive pay – will be the employers of choice in the years ahead.
Kyle Holm is the VP, Total Rewards Advisory at Sequoia
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