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The Value of Salary Transparency

In 1963, the U.S. Congress passed the Equal Pay Act, groundbreaking legislation that amended the Fair Labor Standards Act in order to “protect against wage disparity on the basis of sex.” At the time, women were paid on average 59 cents on the dollar compared to their male counterparts. In fact, when President John F. Kennedy signed the EPA into law, he stated that the legislation, “affirms our determination that when women enter the labor force they will find equality in their pay envelope.” Fast forward 60 years, and we know that women now earn only $0.82 for every $1.00 that a man makes. This continued disparity begs the question of why a salary imbalance between men and women, as well as certain racial groups, continues to persist. While the intention of this law was to minimize discrepancies in pay, and to some extent it has, we still have a long way to go.

As with many other laws that are passed at the federal level, a lack of local enforcement is often the reason equity issues remain unchanged. In recent years, however, several states have implemented salary transparency laws to promote equitable pay and benefits among employees. Though each state varies in the way they define and practice this law, the idea is quickly gaining traction among the rest of the country. With each new adoption, hope grows that the long-standing pay gaps and discrimination that exist will continue to diminish.

A Costly Divide

Historically, women and people of color have made less than their male and white counterparts for equal work and have faced inequality in hiring, pay, and promotion opportunities. As women began to enter the workforce, many of them did so without a college degree and/or work experience, ultimately leading to lower pay.

The percentage of minorities with a degree is still lower than their white counterparts, which some corporations claim is a contributing factor to their smaller salaries. However, when you take a closer look, even those in minority groups who do have college degrees still earn considerably less than their peers. In a study conducted by Pew Research Center, college-educated Black and Hispanic men earn roughly 80% the hourly wages of white college educated men and Black and Hispanic women with college degrees earn only about 70% the hourly wages of similarly educated white men.

In 2018, California became the first state to implement a salary transparency law. Since then, dozens of other states have followed suit with their own versions of the law, and more are expected to follow.

What does it all mean and how does it affect you?

Salary transparency is the act of publishing and providing employees with details about compensation. For years, the sharing of this information was tightly protected and even discouraged for a number of reasons, including fear of revealing disparities in pay, industry competition, and leverage to negotiate.

While there are some valid concerns about the impact of openly sharing these details, there are also many positive benefits. For example, since employees overwhelmingly support pay transparency, employers can view this as an opportunity to build trust, close pay gaps, increase employee retention, attract top talent, and increase job performance, among other things.

Since each state differs slightly in the details of how the pay transparency laws are to be implemented, many employers are cautiously devising plans and procedures that will allow for a smooth and effective rollout. For those who are concerned about facing backlash or negative reactions from employees, there are steps that can help promote a more positive outcome.

Positive steps you can take to embrace the change:
Introduce salary transparency with a policy.

Work with your HR or internal communications department to ensure you know all the legal requirements for your state. Create an internal policy that is easy to read and understand for all employees– no need for technical legal jargon here. Employees will appreciate having a clearly outlined guide that they can easily understand and refer to as needed.

Focus on effective communication.

Excellent communication will be key during this transition. You want to be sure those in management have a solid understanding of the new policy and its purpose. For maximum benefit, provide ample opportunities for employees to learn more about the changes through Q & A sessions, FAQ’s, and office hours.

Be honest and maintain integrity.

Revealing details around pay for the first time can be intimidating and unnerving. The best way to approach this situation is to simply rip off the bandage. By maintaining your integrity throughout this process, you will earn the trust and respect of your employees. Look at this time as an opportunity for new growth and the ability to establish fair practices for all employees.

Make meaningful change.

Transparency laws are only the tip of the iceberg. It will be up to each employer to effectively create a plan of action and clear policies for pay structures within your organization. Commit to ongoing methods of communication regarding transparency practices. Lastly, create an environment where employees are seen and heard on a regular basis. The higher value you place on the people in your organization, the greater return you can expect in the way of motivation, hard work, and loyalty.

Attracting and retaining top-notch employees

While certain industries, such as government jobs, healthcare, and education have always openly published their salary schedules, they are the exception. With the rollout of new salary transparency laws taking effect across the country, all employees will be able to make informed decisions about the jobs and salaries they agree to.

According to LinkedIn, job seekers seem to be in favor of the new changes. In fact, 85% of job seekers are more likely to apply for a job that openly lists salary information. In addition, a candidate’s perception of a company is greatly enhanced (by 30%) when they are provided with the salary range without having to request it.

When employees believe organizations are transparent with their workforce (including their pay practices), trust is established and they are more likely to maintain employment as well as engage more meaningfully with their work.

In 2023, several states, including California, Washington, Rhode Island, and New York, will enact some version of a pay transparency law.

While the new laws won’t immediately resolve the long-standing disparities between different groups and employees, it’s a step in the right direction. By thoughtfully incorporating these laws, employers can create positive change that includes greater equity, higher worker morale, and mutual trust between employees and the companies they work for.