Each year carries the promise of change and 2023 brings an important one in the form of the pay transparency act. With this legislation, California joins a host of other states and cities that have passed similar laws aimed at narrowing pay disparities for women and people of color by requiring employers to disclose salary ranges for job openings. As new legislation takes effect in some of the country's largest job markets, questions about the efficacy and benefits of these transparency laws remain, leaving employers to wonder if they will actually achieve pay equality, or if they will have unintended consequences. To further our understanding of the likely implications, I discussed this important topic with several talented human resources thought leaders.
Founder of Leadby and former Chief People Officer at Fresno Chaffee Zoo
Discussing salary and an individual's value to an organization can be challenging for even the most seasoned HR executive. However, having open and honest conversations about pay can help employees better understand what they are actually getting from the relationship. Laura Martina, who led human resources for Fresno Chaffee Zoo for 11 years before recently establishing her consulting practice at the start of this year, noted that the zoo started moving towards pay transparency within their organization long before the California law was announced. "I think responsible employers have been working towards [pay transparency], and I would include the zoo in that group”; she added, "our employees are looking for transparency, and that's one way we’ve worked to build trust." Increased transparency helps create a culture of openness that positively impacts employees' engagement and performance. The Fresno Chaffee Zoo was not alone in anticipating the need for transparency; "I think best-in-class organizations—and I have worked with some of them—have already had compensation transparency as a part of their employee experience philosophy.” She elaborated, "most of our positions have finite and common starting salaries based on predetermined criteria on the positions, our funding sources, etc." Martina emphasized that discussions must include the full picture of the benefits that employees get from their employer while the organization works on remaining competitive.
The long-term effects of these laws are currently unknown but, at a minimum, the transparency will encourage organizations to evaluate existing compensation structures. Martina further shared, "transparency of wages requires employers to take a very intentional look at it: I believe the outcome will absolutely enforce the Equal Pay Act." She added, "when the Equal Pay Act went into place, it was the first time some responsible employers looked at their practices and asked, 'How can we really make sure we're following the law right now?” However, Martina believes the legislation has the potential to do more; she explained, “as salary information becomes available, it's time for organizations to pose a new, slightly more difficult question: are our allotted wages something we feel confident standing behind publicly?"
Chief People and Diversity Officer for Children’s Bureau, Managing Principal and Senior Vice President of Operations with The GarrettSpioni Group, and Talent Acquisition Leader and Managing Principal Consultant at Worldwide Talent Management and Search Services
At the core of pay transparency laws is the hope that having information about pay discrepancies widely available will encourage diligence in addressing unknown biases and pay inequities. Kymberly Garrett shared, "This legislation serves to hold us accountable through self-auditing practices to review our demographics against any intended or untended biases. The spirit of the transparency law will shift how organizations build their compensation strategies. It will also—at least it is my hope—serve as a blueprint for organizations to create a well thought out and intentional approach to pay structures."
While the jury is still out on employee reactions to public pay ranges for many organizations, Garrett noted that she has not personally experienced related recruitment challenges; "we [Children’s Bureau] have a robust referral program, so I don't think it's a huge shift for our staff to know how the positions are compensated." However, she does anticipate that salary ranges could be challenging to explain to some employees. She added, "despite the published range, most of our positions start at a common rate or salary. But, of course, seeing that there could be a larger spread in the range could pose an issue, and we have started to create meaningful dialogue for our staff to best grasp this. [The topic of pay] is all very sensitive, and a lot of education has to be embedded for many to really understand how compensation ranges are created and their purpose."
Chief Human Resources Officer at Pomona College
While the concept of pay transparency seems to be widely accepted by most managers, some are hesitant about the unintended consequences that could result from the mandate. Even organizations committed to fair compensation may struggle in the current market—WorldatWork's Salary Budget Survey revealed that salary budgets in the U.S. climbed to an average of 4.1% in 2022, a 20-year high. While mandates like pay transparency can positively impact recruitment, it can also make retention more challenging during periods of salary inflation and talent shortage. While this law aims to make compensation more equitable, some employers question its benefit to prospective employees. Brenda Rushforth has some concerns about her organization's ability to reallocate funds as pay disparities and salary inflation impact the college. As HR executives navigate salary compression issues and the great resignation, adding another perceived burdensome task is not welcomed by all. With most candidates now requesting the top end of the published salary range, it is hard to level the playing field for the entire workforce. Rushforth stated, "new hires are being paid at higher rates than long-tenured staff that are doing stellar jobs." She added, "new candidates are creating a level of salary inflation that I have never seen before." This can negatively impact retention as current employees evaluate their compensation against what is advertised in job postings.
California's tendency to lead legislative efforts that inspire other jurisdictions did not escape Rushforth, who noted, "I do know here in California we tend to lead the country on making these different changes in laws. And I'm not always really sure that they're really thoughtful changes that we're making. I think it forces us in a certain direction, and other states fall in line, and then [these states] wonder why they're having recessionary issues. Because they can't keep up financially." There is also some concern about this new legislation specific to areas like California that have a high cost of living. Rushforth explained, "the other piece is not being able to fill these positions, and it's not necessarily because of the great resignation; we cannot attract people to come to California. There are more people leaving the state versus moving here. And why is that? Because the cost of living here is so high, and California employers struggle to pay people well enough to have quality of life in addition to life’s necessities, such as rent, mortgage, groceries, education, etc." In constellation, all of this provides a challenge for employers trying to compete in the war for talent.
Director of Human Resources at Omaha's Henry Doorly Zoo and Aquarium
Municipal or state regulations may be confined to specific geographies but, as more are enacted, it encourages similar discussions in other parts of the country. Though pay transparency is not currently federally mandated, some organizations outside these jurisdictions have already started self-regulating independently. Craig Jacobs shared, "I spent the greater part of my adult life in the military. This notion of [pay] transparency has always existed." He added, "I believe it's going to be a tremendous help; it is unquestionable that women and minorities have been at a disadvantage when it comes to pay. [Pay transparency] is a very positive step when it comes to hiring."
In addition to education around salary ranges, Jacobs highlighted the importance of communicating total compensation (i.e., salary, health insurance, benefits, etc.) "I don't think that our population understands their total compensation package. On a national level, organizations have not done a good job of educating their staff on what it takes to actually employ them." Communicating pay practices that help employees understand how their compensation is set in the context of business and market conditions is essential for the promise of pay transparency to be realized.
The new level of transparency can serve to narrow the pool of qualified candidates willing to accept the boundaries of an available job position; this is not always seen as a negative. Having the range out in the open may limit your applicant pool, but these are candidates who would not have been attainable anyway, which saves valuable time for both employers and applicants. Jacobs opined on the importance of having only viable candidates in a selection process, "the pandemic taught us quite a few lessons. One of those had to do with recruiting talent. I'd rather not waste resources on a candidate who we cannot afford to hire. Moving forward, this is the logical thing to do, and I am going to push for us to always work with this level of transparency.”
Despite the understandable concerns, pay transparency laws offer the chance to engage in timely discussions about compensation. These conversations can serve to build trust and facilitate a culture that engages current and prospective employees while helping historically underpaid groups. Most data and discourse on pay equity shows that women and workers of color are more likely to undervalue their contributions when discussing salaries. Advocates hope that pay transparency will ensure no employee is exploited because of this bias that can undervalue their worth. Shelli Herman and Associates, Inc. remains committed to advancing DEI, and it is our hope that pay transparency will prove to be a vital step in advancing those efforts.