Spotlight On: Pay Transparency

In Accel’s Spotlight On series, experts share recommendations and startup resources. This feature was contributed by Rani Mavram, Founder of Complete, an Employee Compensation Platform.

In recent months, new pay transparency laws have been signed into legislation in US states including New York, California, Colorado, and Washington. Now bound to laws around pay transparency and pay equity, companies are beginning to include pay ranges in public job postings. These salary ranges are nuanced and can be hard to understand and evaluate. 

If you’re among those struggling with this new paradigm, this guide is for you. We’ll be covering: 

       – What is pay transparency?

       – What is pay equity?

       – What does transparency look like for your company?

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Before we unpack the pay transparency trend and its resulting impacts, it's helpful to have a certain level of understanding of compensation fundamentals, including the different elements that make up a compensation package. 

Now, let’s start with some important definitions.

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What is pay transparency?

Pay transparency is when companies are public about the compensation provided for current and prospective employees, for the purposes of promoting pay equity and fairness. Transparency gives employees an understanding of their company’s compensation philosophy, strategies, and practices. It also helps level the financial playing field for women and underrepresented groups. 

What is pay equity?

We aren’t talking about stock options. Pay equity is the concept of compensating employees who have similar jobs with comparably equal pay, regardless of their gender, race, ethnicity, or other protected categories. This does not mean that everyone with the same job title will have the same pay. Companies often factor in the employee’s prior work experience or specialized skills, tenure, performance, education, and other factors to determine where someone falls within a pay range. 

Companies evaluating their pay to identify gaps within their organization may do so by evaluating pay for those in similar jobs, and cross-referencing pay against a number of categories such as gender, ethnicity, or job level. Discrepancies that cannot be explained by legitimate reasoning should be investigated and corrected. 

One way pay inequities are created within organizations is through the offer negotiation process, with some candidates being more likely to negotiate despite having the same qualifications and skills as other candidates. Therefore, some companies are no longer allowing salary negotiation to help prevent pay equity issues. 

What are the pay transparency laws?

Pay transparency laws are legislative measures that state governments have put into place to give workers more visibility into what compensation looks like for a role and how that range was determined. While numerous states have implemented pay transparency laws, the type and structure have varied:

1) Salary History Bans. As of December 2022, more than 20 states have banned employers from requesting salary history information from job applicants. The rationale is to end the cycle of pay discrimination. Some laws, in states such as Colorado, Washington, and Maryland, go further to prohibit employers from retaliating against employees who choose to not disclose their pay history. 

2) Pay Range Transparency. Many states are enacting laws that require companies to include pay ranges in internal and external job postings, as documented in this full list of pay transparency laws broken down by state. 

Please note the following information does not constitute legal advice on which policies may apply to you. It is simply a snapshot of the laws in effect as of December 2022:

       – California: California was the first state to enact a pay transparency law. The current law requires employers to provide the position’s salary or hourly wage after an applicant has completed an initial interview. SB 1162, which goes into effect Jan. 1, 2023, will expand this requirement to require employers with 15+ employees to include salary range in any internal or external job posting. Employers must also provide the pay range to current employees who request it. This applies to all roles, including remote roles, unless the role cannot be worked in California

       – Colorado: Requires employers with one or more employees in Colorado to list the pay range and benefits of any job opening, regardless of whether you work remotely or in person. Employers are also required to notify employees when promotion opportunities are available. This applies to all roles, including remote roles, unless the role cannot be worked in Colorado.

       – New York City: Beginning on Nov. 1, 2022, employers with 4+ employees in New York City were required to disclose salary ranges and benefits in job postings. This applies to all roles, including remote roles, unless the role cannot be worked in New York City

Transparency isn’t just about knowing how much your peers make. Transparency means current employees have a full understanding of how and why compensation decisions are made, and candidates can understand if an opportunity is the right fit for them.

What pay transparency looks like for your company

To be “transparent” does not mean companies will share everyone’s salary. The majority of organizations target to communicate pay practices to individual employees and train managers on understanding compensation, but they don’t go as far as to publish everyone’s pay publicly. 

There are different levels of transparency and each company is going to fall somewhere along the spectrum.  

Source: Mercer 

The ultimate goal of pay transparency is to give employees an understanding of why they are at their current level of compensation and what they need to do to reach the next step in their careers. This is good news for both employers and employees, and worth implementing.

Now that we’ve defined pay transparency, equity, and several state laws, you may be looking to learn more. If you are an applicant and need a complete guide on pay ranges and how to understand them, we’re outlining them here.