What is pay transparency?
Pay transparency refers to companies being open about the compensation provided for current and prospective employees, to promote pay equity and fairness. The goal of pay transparency is to give employees an understanding of why they are paid what they are and what they need to do to reach the next step in their careers. When you give employees access to the same information, you are more likely to level the playing field for women and underrepresented groups.
What is pay equity?
According to the National Committee on Pay Equity, this principle means that “the criteria employers use to set wages must be sex- and race-neutral.” One straightforward way to achieve that neutrality is to use a set salary formula or approach to pay across your company. Some forward-thinking companies are no longer allowing salary negotiation to reduce pay equity issues.
Pay transparency spectrum
Often companies incorrectly think that to be “transparent” means they have to share a spreadsheet with everyone’s salary listed, like Buffer. That’s one extreme of transparency, but there are actually many steps companies can take on their journey toward pay transparency.
Employees and lawmakers are putting more pressure on companies in recent years to become more transparent about pay. Although being fully transparent creates a lot of media buzz, it is not the best solution for all companies. Being more transparency about pay without the proper documentation, communication, and training, can cause unintended negative consequences.
Why is pay transparency important?
There are major benefits for both employees and employers:
Equitable pay for equal work: eliminate pay inequities faced by women and underrepresented groups. Women currently earn $.80 cents for every $1 earned by men. The gap widens when comparing white men to women of color.
Builds trust: when employees feel valued and properly compensated, they are more engaged, satisfied, and productive in their work. With a lack of transparency, employees waste time figuring out what their peers are making and making up stories as to why. If employees are able to have an open dialogue with their manager about compensation and career development opportunities, this will lead to more confident conversations.
Increases retention: employees who work at more transparent companies will be less likely to leave an organization due to compensation misunderstandings. Companies interested in retaining their best employees should move in the direction of more transparency.
Attrition is expensive. A major reason employees leave companies is frustration and misunderstanding around pay. Educating employees about the company’s pay practices and the decisions that go into determining their compensation is critical.
What laws govern pay transparency?
Working towards greater pay transparency isn’t just the right thing to do. For many companies, it’s a legal requirement (or soon will be). States are moving forward with legislation that aims to prevent potential pay gaps and create more fair and equitable compensation.
Salary History Bans
There are currently 20+ states that ban employers from requesting salary history information from job applicants. The laws are aimed at ending the cycle of pay discrimination. Some laws go further to prohibit employers from taking disciplinary action against employees who discuss pay with coworkers. Here’s a running list of the states who have similar laws.
Pay Transparency Laws
Many states are enacting laws that require companies to include pay ranges in internal and external job postings. Here are some of the state-specific laws in effect, but more are likely coming.
Require employers with 1 or more employees able to work 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
Effective November 1, 2022, employers with 4+ employees in New York City are 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
California (SB 1162 goes into effect 1/1/23)
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 January 1, 2023, expands this requirement to require employers with 15+ employees to include a salary range in any internal or external job posting
Employers must 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
Beginning May 2023, the pay data reporting requirements in SB 973 expand to require employers to include the median and mean hourly rate, broken down by race, ethnicity, and sex.
Employers must provide a salary range once they make an offer to a candidate. Employers must also provide salary ranges for employees who request them and for transfers and promotions
Connecticut / Maryland / Nevada / Ohio / New Jersey
The specific language varies state-to-state but generally requires employers to provide a salary range if the candidate requests it, for new hires, transfers, and promotions
What You Should Do
There is a growing cultural shift toward pay transparency and a growing pressure for companies to close pay gaps. Companies should respond to these demands by getting out in front of the issue and implementing strategies and policies around pay transparency.
If companies wait until forced to implement pay transparency laws, it can come off as inauthentic. Given the growing number of states and localities requiring wage transparency, multi-state employers may consider a national policy for including pay ranges in job postings and/or providing pay ranges to applicants.
Steps You Can Take
Define Your Compensation Philosophy
Determine where your company falls on the pay transparency spectrum, and where you want to be. Then develop your compensation philosophy that aligns with your talent strategy, company values, and culture.
A compensation philosophy is a concrete statement about how your company pays and rewards, and it must be something you can apply equitably. For example, “we pay all employees at the market midpoint relative to New York City, regardless of where they live.”
What components will factor into compensation, such as market data, annual budget, geography, performance, and other program guidelines?
Here are a few common questions to consider when developing your compensation philosophy:
What market data do you use to set compensation ranges?
What percentile of the market do you target (ex. 50th percentile, 75th percentile)?
With regards to geography, will compensation differ based on geo-location? For example, will everyone receive the same rate of pay across the US, regardless of the cost of labor differences, or will your comp differ based on location?
When should employees expect their pay to be reviewed? Do you run your compensation reviews on a focal basis (the entire company is evaluated at the same time) or on an individual anniversary basis?
How often will you re-evaluate your philosophy (annually, and at a major company milestone, such as a merger, acquisition, or financing raise)?
Does performance factor into compensation decisions? If so, how?
If you already have a compensation philosophy, this could be a good time to revisit it to ensure it still applies to your current practices and re-train managers on your approach.
Define Career Levels
Career levels generally refer to the steps an employee takes from position to position as they move toward their ultimate career goal.
Leveling traditionally has been a back-end process to inform pay decisions. Companies historically have waited until they were 100+ employees to establish levels for different jobs. Given pay transparency laws, companies should start adopting career levels and pay ranges earlier.
For example, California’s law applies to companies with 15+ employees. Even tiny startups will be required to define their pay ranges, which can prove difficult when you sometimes have just one person in a job.
Clearly defined roles and responsibilities are key to developing well-defined career levels. Forward-thinking companies are using levels as a strategic advantage to:
Guide daily conversations between employees and managers on career feedback and growth
Create more mobility within the same job - potentially add more levels with more narrow pay bands to create greater equity and growth opportunities
Just-in-time career progression tool, Pando, helps companies define meaningful career levels and competencies. Check out Pando's IC5 Engineer example below:
Pando takes it a step further with their approach to clear and transparent competencies. Here’s an example of how a manager could communicate with an employee about how they are progressing in their career and how that may impact where they fall in the pay range:
Develop Pay Ranges
Once career levels are defined, you can market price your jobs and develop pay ranges. The laws require you to set the pay range as “the salary our hourly wage range that the employer reasonably expects to pay for the position”. However, setting pay ranges is sometimes more art than science.
When setting pay ranges, you can pull from multiple sources to define a “reasonable range”:
Market data - benchmarking your company’s pay with market-based pay. However, not all market data is created equal. See more on market data below!
Compensation consultants - compensation experts can also be brought in to analyze market data and develop your pay ranges if you don’t have the skills or resources available to do this analysis internally
Internal data - review what you are currently paying employees in that role
Recruiting data - incorporate input from recruiters on what salary expectations they’re hearing from candidates
Free and paid market data sources are available. Do not use the data unless you can parse it by company size, pertinent financials and or industry, and location — and unless you can verify that jobs are compared based on skills and scope of responsibility, not title alone. If you have an available budget, it’s best to use a paid data source that has a representative sample from peer companies.
Document Pay Policies & Practices
Once your compensation philosophy is established and you’ve developed a process for consistently publishing pay range information in internal and external job postings, you must document and follow these practices.
You will also need to determine and document your processes for merit increases, bonuses, and promotions. This includes creating consistent guidelines and criteria, as well as scheduling merit cycles.
Be clear that things change and that you’ll continue to monitor, evaluate, and update as necessary. Many companies are moving toward reviewing compensation ranges every ~6 months.
Companies should conduct an audit of current employee pay to ensure there are not any significant discrepancies or inequities. Flag outliers and adjust salaries to ensure what you’re posting externally aligns with what you’re paying internal employees. It’s better to proactively resolve pay discrepancies and inequities rather than reacting to employee complaints.
Training & Internal Communications
Companies should train managers, recruiters, and people team professionals on these new laws, their compensation philosophy, and their internal pay practices. More pay transparency means more proactive communication is needed.
If you expect managers to communicate to employees about how you approach pay transparency at your company, you must give them the tools, documentation, and scripts to support these conversations. Explain to managers and employees how your compensation program works and the actions you will take to remediate inconsistencies and inequities.
Consistency and accuracy are key! Access to compensation information out of context can be dangerous. If the context isn’t provided regarding the nuances of career levels, how market ranges are developed, and why someone falls where they do within the market range, employees will be confused, frustrated, and angry.
Consult with Employment Counsel
Given the complexities and nuance of the laws state-to-state, companies should consult with employment counsel on their job postings and pay practices to ensure compliance.
Public Posting Examples
Companies are still figuring out the best approaches for communicating their compensation philosophy in job postings and sharing pay ranges. Here are a few examples to jumpstart your process!
Tiered Zones: Remote (US)
The base salary for this position will vary based on geography and other factors. In accordance with Colorado and New York law, the base salary for this role if filled within Colorado is $223,975 - $263,500 and within the city limits of NYC is $263,500 - $310,000.
Tiered Zones: Remote (US, Canada, Ireland)
For candidates hired in Colorado, the expected salary/On-Target Earnings (OTE) range for the role is $163,200 - $192,000 - $220,800. This salary/OTE range represents the low, middle, and high end of the salary or OTE (Sales roles) range for this position and is subject to change. To determine starting pay we carefully consider a variety of factors, including primary work location and an evaluation of a candidate’s skills, experience, market demands, and internal parity. Salary/OTE is just one component of our total rewards package. All regular employees are also eligible for the corporate bonus program or a sales incentive (target included in OTE) as well as stock in the form of Restricted Stock Units (RSUs).
Tiered Zones: New York
Our cash compensation amount for this role is targeted at $133,000 - $164,000/yr in Denver & most remote locations, and $156,000-$193,000/yr for San Francisco & New York. Final offer amounts are determined by multiple factors including candidate experience and expertise and may vary from the amounts listed above.
Tiered Zones: Remote (New York)
We take a market-based approach to pay, and pay may vary depending on your location. U.S. locations are categorized into one of four zones based on a cost of labor index for that geographic area. The successful candidate’s starting pay will be determined based on job-related skills, experience, qualifications, work location, and market conditions. These ranges may be modified in the future.
Zone A: USD $167,300 - USD $204,500
Zone B: USD $158,900 - USD $194,300
Zone C: USD $150,600 - USD $184,000
Zone D: USD $142,200 - USD $173,800
To find a location’s zone designation, please refer to this resource. If a location of interest is not listed, please speak with a recruiter for additional information.
Pay Transparency Tools
Compensation is such a high-priority topic right now, given these new laws, globally distributed teams, a greater focus on pay equity, and how competitive the market is for talent.
There are many new great tools on the market to support the evolving needs of companies. Below are some tools to check out. There are more besides what’s listed here and they are ever-evolving!
ChartHop - compensation planning, talent planning, and people intelligence platform
Pando — just-in-time career progression tool to structure, measure, and accelerate employee growth; includes career level templates and a competency library; goal setting and performance reviews
Kamsa — software providing real-time global market data and resources for job leveling and compensation planning
Lattice Compensation — leading performance management platform, which also covers goal setting, engagement, compensation, leveling, competencies, and career paths
Carta Total Comp — total compensation management, in addition to their core equity management platform
Syndio — helps companies measure, achieve, and sustain workplace pay equity
Radford (AON) — most widely used global database for private and public company data; takes a considerable time commitment to participate and an analyst is needed to interpret data; data is often lagging in-the-moment market trends versus more modern solutions
Need help thinking through your pay transparency plans? I’m here to help.
Here are three ways I can help, whenever you’re ready: