A peek into pay transparency
Pay transparency has historically allowed employees to ask about, discuss, and disclose their pay. Although the term “pay transparency” seems a like a popular HR buzz word these days, the right to talk about wages has long been protected by the National Labor Relations Act (NLRA). The NLRA protects workers’ rights to seek better working conditions (including wages) without fear of retaliation.
Recently, several states have taken this a step further by enacting pay transparency laws that require employers to disclose pay ranges in all job advertisements for a new position, promotion, or transfer opportunity.
The reason behind this trend is to help ensure all workers are being paid equally and fairly. So, in a way it’s all about discrimination — not making wage decisions based on someone being a protected class. It’s about employers being open about the compensation provided for current and prospective employees, as a step toward pay equity. When employees discuss their pay with each other, they might learn that others who are similarly situated are earning more for doing the same work. That leads them to ask why.
Gender disparity
The trend could have its origin in the fact that women are generally paid less than men on average.
Because employers tend to base pay, in part, on a job applicant’s previous salary, such discrepancies can widen throughout a woman’s career. That’s why some laws also prohibit employers from asking about a job applicant’s prior salary. These discrepancies are harder to hide when they are made public.
Job applicants might prefer to work for a company that exercises pay transparency, particularly when the employment market is tight. States with laws regarding pay transparency include:
- California,
- Connecticut,
- Maryland,
- Nevada,
- Rhode Island, and
- Washington.
Several cities have also jumped on the bandwagon.
Federal contractors must also allow employees to ask about, discuss, and disclose their pay. In the event of a claim, contractors have two ways to justify or defend actions taken that might otherwise be seen as discriminatory and prohibited:
An essential job functions defense — when an employee, as part of that employee’s essential job functions (such as HR) has access to the compensation information of other employees or applicants and discloses it to individuals (such as managers) who do not otherwise have access to it; and
A general or workplace rule defense — such as disciplining an employee for a violation of a consistently and uniformly applied workplace rule — as long as it’s not a rule that prohibits employees or applicants from discussing or disclosing compensation information.
Tackling pay transparency
Some employers are taking a proactive approach to pay transparency, and tackling it head on, even if not required to do so by law. Recruiting and retention challenges could be a reason for this “full disclosure” approach.
But pay is only one part of an employee’s total compensation. Employers must consider job titles, duties, and performance.
- When it comes to determining pay, other factors to consider include:
- How much current employees are earning,
- What the market reflects for those types of positions,
- The company’s compensation structure, and
- Where employees’ pay falls, pay philosophy, and related policies.
Unless required by law, pay transparency might not be right for every company yet. In the meantime, examining pay at a high level could uncover issues that should be addressed, likely before opening up all pay information to all employees.
Key to remember: Whether required by law or not, pay transparency can help disclose disparities and bring employers closer to pay equity.