Are you ready for Pay Transparency?

June 06, 2023

Guest post by Lisa Blackham, Global HR executive, talent and culture builder, change agent and TAP Network member

Pay Equity and Pay Transparency along with commitments to Diversity, Equity and Inclusion (DE&I) are key drivers behind a growing number of pay transparency laws. With this significant shift underway globally, many People and Culture practitioners and executives are evaluating their compensation structure and systems to meet the requirements and be ready for the wave of questions and concerns that will come from employees, managers, and potential future hires.

It's important to understand the difference between Pay Equity and Transparency. Pay Equity is the concept that equal work deserves equal pay no matter the person, their race, gender identity or age. Simply put, if two people perform the same work, they should receive the same pay.

Pay Transparency is the employer practice of disclosing information about employee compensation standards to others, be that internally, externally, or both. Pay transparency is not defined by a single or set of actions, instead, it's a spectrum on which employers can choose varying degrees of transparency based on Federal, Provincial, or local laws, which are then supported by an organisation’s pay philosophy and strategy.

Pay transparency helps to put into effect existing human rights laws and promotes gender equality. It is a proven and positive driver of culture and retention, and a critical element of building a trusting and honest work environment in addition to boosting open communication, engagement and productivity. Companies who publish their salaries are more likely to compensate their people fairly, manage and communicate pay for performance consistently and better link the relative value of work and level of accountability, problem solving and knowledge with outcomes and behaviours.

World snapshot:

Globally, pay equity and transparency requirements are increasingly being put in place and are driving local and wider application within global companies wanting a consistent approach.

In Canada, as part of a long standing and evolving labour equity framework, provinces that have enacted pay equity laws include Alberta, BC, Newfoundland, Labrador, PEI and Saskatchewan, with federally regulated workplaces now being required to report salary data for all workers to show aggregated wage gap information.

South of our boarder in the US, several states including California, Colorado, Connecticut, Maryland, Nevada, New York City, Rhode Island, and Washington require employers to disclose pay ranges to job candidates and current employees upon request. Additionally, more than 20 US states now prohibit employers asking applicants about their salary history.

In the UK, gender pay gap reporting requirements have been in place since 2017, and as of April 2023, pay transparency for jobseekers is mandated with employers being required to provide information about the initial pay level or range in the job advertisement or before the interview and candidates cannot be asked to provide their pay history.

In Europe, the EU Commission has submitted proposals for a new directive which is likely to be released in 2024 to strengthen the principle of pay equity through increased pay transparency of salaries and expanding further to include bonus, overtime allowances, sick pay and occupational pensions.

Many Asia-Pacific countries are focusing on broader DE&I and Environmental Social Governance (ESG) rather than specifics for pay equity and transparency, however Japan is one country that is tackling wage gap disclosure for companies with more than 300 employees.

The potential outcomes and early success of pay transparency initiatives are showing positive change in countries such as the US where practices have been evolving for some years. The recent class-action lawsuit against Goldman Sachs for alleged widespread bias against women around pay equality and promotion, however, resulted in a settlement of a $215 million payment covering 2,800 female associates. Equality of pay remains an active concern and it makes smart and ethical business sense to get ahead of the issue.

There are real challenges for companies needing and wanting to successfully comply, with many now scrambling to prepare and check the market competitiveness of their pay ranges. Others are formalising and making compensation decisions based on objective versus subjective factors, or reviewing salary pay bands/grades, job architecture, pay mix (base, bonus, equity) and other factors such as benefits. This requires new ways of thinking, time investment and dedicated resources. It’s worth noting that Pay Transparency is not a totally new concept. Many unionised workplaces and hourly paid workers already having pay ranges available to employees, and learnings can be drawn from those environments.

So where is a good place to get started?

  1. Consider your compensation philosophy and how meeting or exceeding pay equity and transparency requirements can further support the business, company culture and engagement. What other compensation and non-pay related benefits can be offered and are valued by employees, to support engagement and retention?
  2. With a career framework lens, think about salary ranges. Are they well established and are assessment measures in place, with data from reputable 3rd party providers to accurately position individuals with the ranges? Are they ready to be shared internally and externally? How are they integrated into the recruitment and compensation review process and into systems (e.g. policies and handbooks, HCM, Applicant Tracking Systems, Total Compensation Statements)?
  3. Consider existing employee positions in these salary ranges and if there are any gender or minority-based variations that can’t be logically explained due to qualifications, skills, and performance. People want to feel they are fairly paid for the work they do in a competitive market. Any unexplainable variations should be corrected without delay.
  4. How prepared are managers to handle tough questions from their employees and the inevitable comparisons people will make about their pay to others and the published ranges? Managers will need to have a solid understanding of how the pay program works and dedicate time to discuss with individual team members, in addition to having the maturity to handle these conversations, while grappling with their own relative pay considerations.
  5. Consider management buy-in and financial support to put the above actions in place. Resources and people time will be needed to establish and maintain compliance requirements and reporting obligations.
  6. Monitor and adjust on a regular basis to stay on top of market trends and pay attention to employee engagement. Posting pay isn’t a one-time event. Ongoing review of pay ranges and bands, clear and transparent link between pay for performance, education of managers, engagement and regular communication all support an aligned understanding and maturity of thought around the work an individual provides and the value placed on this by an organisation at that given time.

Employees who are aware of their value and believe they are being fairly compensated are more likely to be satisfied, engaged and productive members of the team. Pay transparency provides a real opportunity for employers to intentionally design and apply fair compensation practices, which reinforces a commitment to building trust, an engaged workforce and is ultimately a building block of a great place to work.

TAP Network’s 2023 Tech Sector Salary and Total Rewards Survey will be available on September 1st.