Embracing pay transparency to drive pay equity

Pay transparency laws – laws requiring an employer to provide pay ranges for open roles, either in the job posting or through direct communication with candidates – are now on the books in ten states, with more likely on the way.

Chiefly, pay transparency laws aim to reduce pay inequity and close the gender pay gap. Armed with accurate information about what an employer is willing to pay for a position, job seekers can avoid lowballing themselves and perpetuating past pay discrimination in salary discussions with prospective employers. When pay ranges appear in job postings (or when employers share them with current employees, as some states require), employees can compare their compensation against the provided range, potentially highlighting disparities and prompting underpaid employees to ask for a raise or seek work elsewhere.

This trend has shifted expectations among job seekers. While seeing a pay range in a job posting used to be a relative rarity, norms are changing rapidly, even in states that lack a pay transparency law. A 2023 survey by the Society for Human Resource Management (SHRM) found that 74% of US workers are less interested in applying to a job posting that does not list a pay range, and 73% are more likely to trust organizations that provide pay ranges in job postings.^[1] Research by XpertHR found that candidate and employee expectations were bigger drivers of pay transparency initiatives than legal requirements.

Research supports the link between pay transparency and greater equity, with studies showing a measurable reduction in pay gaps along the lines of gender, ethnicity, sexual orientation and other characteristics when pay transparency is implemented.^[2] Yet it is not a panacea, and the details of implementation matter. For example, an employer that posts a pay range too broad to be useful or allows individual negotiation to make its posted ranges meaningless is unlikely to see the gains in pay equity that transparency can produce.

Four steps to drive pay equity through transparency

So how can employers implement pay transparency initiatives in a way that improves pay equity? It begins with a proactive approach that looks at transparency as just one piece of a larger pay equity puzzle. Here are four steps to get started:

Create or update salary structures. If an employer has previously taken an ad-hoc approach to pay, it should work towards a more standardized structure that sets compensation ranges across the organization for comparable roles and responsibility levels, with built-in adjustment factors such as location, tenure, credentials, job hazards, travel demands and other relevant dimensions. If an employer already has a salary structure in place, it is a good idea to examine it in preparation for implementing pay transparency. Does it still meet the organization's needs? Does it accurately reflect what employees are actually being paid? Is it effective at attracting and retaining talent?
Conduct a pay equity audit. The increased visibility of pay information means more opportunities for inequality to come to light. Accordingly, an organization implementing pay transparency should conduct a pay equity audit to proactively identify and address any disparities that fall along the lines of protected characteristics such as race, sex, ethnicity, age, disability, sexual orientation and gender identity. If the audit uncovers disparities - whether limited to a few underpaid workers or a more systemic problem - it is critical to make a plan to remedy these issues promptly, preferably in consultation with legal counsel. It is also important to look for the root causes of pay disparities, such as an over-emphasis in pay decisions on qualities correlated with a protected characteristic or gaps in the hiring and promotion pipeline that disproportionately impact one or more protected groups.
Examine practices around negotiation, raises and other pay decisions. Pay transparency does not necessarily mean that an employer must prohibit all pay negotiations, but it is important to have a consistent policy and a process for ensuring that salary negotiations or raises do not result in unjustified pay disparities.
Identify reasonable ranges for open positions and include context. The range should be narrow enough to be useful to a job seeker while still allowing the employer to tailor the specific offer to its top candidate. Along with the range itself, a job posting should include information about the factors likely to influence where a candidate is likely to fall within the range, such as years of experience, relevant credentials and special skills.