Keeping Up With Pay Transparency Expectations and Regulatory Demands

This blog is based on an interview of Tom McMullen, Senior Partner at Korn Ferry, by Iain Fitzpatrick, Archetype’s Chief Strategy Officer for the Fireside Chat, “Rethinking Compensation and Communications Transparency.

In the wake of rising inflation, the “Great Resignation,” and regulatory changes, more organizations are feeling the pressure to provide pay transparency to attract and retain workers in this competitive job market.

In September, California became the largest state to require employers to post salary ranges for open positions. Many states will follow, especially in this tight labor market. This push helps to close the wage gap and pay disparities for women, workers with disabilities, the LGBTQ+ community, and people of color. Experts say that while many of the newest pay transparency laws have been in the works for some time, increasing societal pressures have pushed lawmakers to act.

Not only does pay transparency help attract new employees, it also holds employers accountable for any pay gaps within their existing workforce. Research shows that people who feel they are underpaid have less job satisfaction, and as a result, companies experience more turnover. In a recent interview with Tom McMullen, Senior Client Partner at Korn Ferry, he explains that organizations hesitate on transparency because they feel they don’t have a good story to tell.

Pay Transparency Regulatory Changes

Currently, there are 17 states in the US that have laws regarding pay transparency. While not all laws require employers to share salary ranges with prospective employees, it allows employees to openly discuss their wages without fear of employer penalty.

Of the 17 states, seven states – California, Colorado, Connecticut, Maryland, Nevada, Rhode Island, and Washington have pay transparency laws. New York City also requires employers to post salaries for open positions, including promotions and transfers. Many states have also barred employers from asking job applicants to provide their pay history. A contributing factor behind this move is that women and the BIPOC community often start their careers earning less than men. By asking for pay history, it perpetuates the cycle of inequality.

In the past few years, pay equity legislation has shifted dramatically due to employers being held accountable for diversity, equity, and inclusion, as well as intense competition to recruit the best and brightest. For example, New Jersey has broadened their protected classes of employees to include sexual orientation, pregnancy status, marital status, and veteran status, going above and beyond the traditional protected classes of gender, race, ethnicity, and age.

As the push for equal pay for equal work gains momentum, it’s in the employer’s best interest to make changes toward transparency and equity now. As McMullen notes, “It’s no longer viable to do nothing, especially since the regulatory environment is forcing organizations to open up at least about a minimum salary range.”

Creating Rewards Communications Focused on Transparency

The ability to attract and retain talent is being challenged today and has affected how organizations communicate about their rewards programs. Without a clear communications strategy, pay discrepancies between the existing workforce and job prospects create friction. McMullen remarks, “When salary ranges become more available, your current employees may ask questions like what is their salary increase based on, why am I a manager and not a director… Pay transparency has opened up questions for organizations that they may be unprepared for.”

This is not just a wake-up call for salary range transparency but also the how, what, and why of compensation package structures. While pay transparency regulations may be seen as an administrative burden to some leaders, they reflect societal norms and what employees now expect from their workplace.

How can your organization create an effective communication strategy for benefits and rewards? McMullen shares some key points on what organizations should be thinking about:

  • Understand where the company currently is and where it needs to go. Conversations about rewards communications should be more than the opinion of the HR department or leadership. Stakeholders need a consensus on how transparent they want to be and what roles leadership, managers, and HR have in explaining the structure of their rewards packages.
  • Consider ROI assessments. An ongoing ROI assessment or evaluation of your organization’s reward program effectiveness can uncover gaps in employee retention.
  • Identify factors affecting compensation packages. For example, outline how the organization titles and grades jobs, define how pay is managed for leaders as well as employees, research how your compensation packages and job descriptions compare to similar roles in the market, and create governance on how individual performance, team performance, and enterprise performance impacts pay.

Developing a Story

According to McMullen, there are two moments of truth when attracting and retaining talent—getting talent in the door, either by compensation or the company’s reputation— and understanding why an employee would choose to work for their employer every day. This could be a mixture of non-financial rewards and career development opportunities. These two moments of truth provide the foundation for your organization’s transparent communications.

Think of it as a communication exercise, recommends McMullen. “What are the key messages, who should be the messenger, and how should the message be delivered.” Organizations should focus on building a good story before telling it. If an organization is just starting to fix the cracks in the foundation, McMullen recommends using a crawl, walk, run approach. “Transparency cannot be solved overnight. It begins with gathering a consensus with leaders before moving on to managers and then employees.”

Research suggests that transparency directly impacts trust and credibility in the organization in general and with leaders in particular. Your communications should provide transparency into the principles and objectives of the overall reward program and the various components of base pay, variable pay, pay for performance, and the benefits program. McMullen suggests that organizations “develop core messaging on how the base pay program works – this is why we do what we do, and this is your role as an employee in that.” With changing legislation pushing employers to be more open about compensation, every little difference in salary needs to be accounted for. In a tight labor market, companies can’t afford to wait for the transparency laws to catch up, they must start acting now.

Want to Learn More about Rethinking Compensation and Pay Transparency?

Watch the full webinar between Iain Fitzpatrick and Tom McMullen.

Read more Archetype insights.