Pay transparency is gaining momentum, with several states enacting laws requiring employers to disclose salary ranges. Companies must comply with state pay transparency laws in California, Colorado, Connecticut, Hawaii, Illinois, Maryland, Nevada, New York Rhode Island and Washington. Some employers have adopted pay transparency policies for all new hires, even if they do not have employees or seek candidates outside of the states where they must comply. Its purpose is to create an equitable job market through fair hiring practices that will reduce the potential for pay discrimination through the disclosure of salary ranges. But what does it truly mean beyond hiring new employees?
Beyond the Basics: Transparency After Hire
While some employers view pay transparency solely as disclosing salary ranges during recruitment, Wilson Group believes it extends beyond that initial stage. True transparency involves informing employees after hire about how pay decisions are made and their earning potential. Wilson Group addresses pay transparency when market assessments are conducted and salary structures and ranges and incentive programs are designed implemented.
Competitive Compensation Data: Where Did It Come From?
Employees may inquire about the market data for their job and source of market data. Be prepared to explain your methodology, for example, focusing on similar companies in terms of industry, location, and size. This might not be necessary if the salary range reflects market data within a reasonable range (e.g., + or – 10%). Some employees may even ask for the individual data points that make up the market data When this data is not the same as the employer’s market data, it is important to explain what the 50th percentile means – 50% are paid above and 50% below. Often employees have their own version of market data and need help from their manager to understand that company sourced market data is valid.
Salary Ranges: Different Levels of Transparency
Transparency can be implemented in various ways:
- Individual Employee Ranges: Disclose the employee’s own salary range, this is the most common level of transparency.
- Most Employee Ranges: Share the ranges for most positions within the company except the highly paid.
- Career Path Transparency: Provide clear salary structures with grades and ranges for different career paths within the organization.
- Full Transparency (Advanced): Allow employees to access salary ranges for any position in the company.
Salary Administration: Why Am I Not at the Top?
Knowing their salary range often leads employees to ask, “Why can’t I be paid at the top?” Salary administration guidelines outline how pay decisions are made within those ranges. Factors like performance, experience, and specific skills usually determine an employee’s placement within the range.
Managers need to be prepared to discuss pay policies with every employee, relative to their performance in their current job, specific career development goals and opportunities available within the company. Employees who want to take a step back to a lower-level job (demotion) or continue in their same job need to know what that means for their salary opportunity.
Annual Incentives: Eligibility and Opportunity
Transparency regarding incentive compensation involves clarifying eligibility (based on job title/level) and explaining the potential payout range, criteria for awards, and any terms impacting payments (e.g., employment status at payout time). Employees typically appreciate understanding the incentive opportunities for their role and career path but sharing it company-wide might not be as common. Additionally, discuss the connection between company performance and individual payouts.
Long-Term Incentives (Equity): Understanding the Value
Communicating the value of stock options and restricted stock can be complex. Time-based equity is simpler to grasp, but performance-based plans require more explanation. Investing time in helping employees understand these programs ensures they maximize their value. For private companies with phantom stock or less readily available share prices, providing clear plan documentation and examples of potential payouts is crucial.
The Competitive Advantage of Pay Transparency
Transparency can be an advantage in attracting and retaining talent. To achieve this:
- Clearly define what you’re willing to share.
- Train managers to discuss compensation effectively.
- Communicate regularly about the value of compensation and opportunities for increased earnings.
- Ensure consistency in explaining how company, division, and individual performance impact all elements of employee compensation.
By prioritizing transparency, you can foster trust, improve employee satisfaction, and attract top talent who value a fair and well-communicated compensation structure.
Wilson Group: Your Partner in Pay Transparency
Wilson Group can help you develop a comprehensive pay transparency strategy. From market analysis and salary structure design to crafting clear communication plans and training managers, we help you navigate this evolving landscape with confidence.
