The laws around pay transparency in the U.S. are quickly changing because of employee and state pressures. States such as California, Colorado, Connecticut, Nevada and Washington have passed laws requiring employers to include salary ranges in job postings, with more planning to follow their example.
The change, in part driven by people in underrepresented or minoritized groups demanding fair pay, presents both major opportunities and challenges for employers. Laws and industry standards around publishing pay in job descriptions don’t account for the overall impact these changes have on current employees, nor do they consider the ways in which employers may use incentives to keep their existing inequitable practices in place.
However, for organizations hoping to capitalize on this shift as a push toward equity, strong change management practices and a larger equity-based pay strategy may provide the transformation both employers and their employees want.
The challenges around pay transparency range from formalizing and standardizing processes in a short period of time, bringing along employees with a change that may be unevenly applied, and bridging the gap between business interests and employee expectations. The upside to addressing these challenges now, apart from being compliant with the law, is that you have more time to metabolize the new information, strategize the best way to incorporate policies and practices, and identify how to make existing employees feel valued.
Defining and communicating pay equity
Pay transparency is simply publishing publicly what pay is. Even that process may involve only publishing salary ranges on job descriptions, publishing pay bands inside of the organization or publicly listing all compensation. You are free to publish pay ranges that are unequal or inequitable, just as you are free to offer signing bonuses or other one-time bonuses to some candidates and not others.
Pay equity is something else entirely. Equity itself is the combination of equal access – to resources and opportunities – and meeting individual needs created by cumulative disadvantages. In its simplest form, equal pay means paying the same salary to people performing the same role. Equitable pay does not have a uniform definition.
It’s up to your organization to define what equitable pay may mean. Generally, it will start with: we pay people the same amount for performing the same role. After that, you may consider adding a multiplier for folks living in more expensive geographies or during times of higher inflation.
One recommendation for equitable, rather than equal pay, is to consider two questions:
Do I value my team members the same amount as the market does?
Often, market-based databases offer generic views of roles, such that we must audit job descriptions and create composite ones in our databases. Even then, the market values roles based on supply and demand for a given role, not necessarily how much value that role produces. For our nonprofit clients, for example, field workers are the organization – without them, there are no programs or services. Yet, they often are valued least by the market. For this reason, we often recommend setting a higher bar for pay, such as paying people at the 75th percentile rather than the 50th or below.
What does a good life look like?
This question is harder to answer because it’s so fundamentally subjective. At the same time, it’s one of the most vital questions leaders in an organization can address. Equal pay just means parity; it doesn’t guarantee a living wage, and it certainly doesn’t guarantee a living wage for caregivers who are the sole earners in their households. When considering equitable pay, it’s worth talking to your employees about what a good life looks like to them. The answers might be more tied to total compensation, specific benefits like paid sick time and leave time, and then base pay. Or they might advocate for higher base pay.
When considering both questions, it’s up to you to know your budget and financials well enough to communicate what is and is not possible. You must also clearly set expectations during your listening process so employees understand you are synthesizing their responses to develop a definition of pay equity.
Once you have that definition in place, create a compensation philosophy that anyone can understand, detailing how you make pay decisions, when they are made and how employees are affected. Make sure your pay equity definition shapes each section in the philosophy. Then, share it with your organization. If it’s aspirational, include the steps you plan to take to turn the vision for pay equity into a reality.
