For businesses operating in New York City, yesterday was a big one. It was the first day a much-anticipated ‘pay transparency’ law came into effect.
Put simply, any company employing more than four people is no longer allowed to write job ads (for either internal or external audiences), that fail to show pay details.
Clarity – from now on – is king.
An attempt to improve pay gaps
Equality proponents have long been waiting for this change, arguing that the days of doing secretive wage negotiations and clandestine deals can finally come to and end.
And it’s for very good reasons they can celebrate this law.
It’s well known that men almost always negotiate bigger starting or mid-career salaries than women – with many men taking advantage of the fact women often don’t want to be seen as overly pay assertive.
The result of this is that wage inequality has steadily been allowed to worsen. HR commentators brand this the ‘ask gap’ – where data shows women typically ask for 6% less than men, even though they have comparable qualifications.
A recent survey of US doctors in residency showed that women’s ideal starting salary averaged 92% of men’s ideal. Not surprisingly, data from PayScale in the US reveals that the median job offer for women with similar qualifications to men is $2,200 less than for men – at $69,200.
The worst thing about this is that these differences don’t often improve. Research has shown that a difference of just $1,000 in a person’s starting salary can lead to a cumulative loss of a half-million dollars over the course of that person’s entire career.
Why this could spark nationwide pay transparency
The penalties for New York firms not being transparent about wages should be enough to deter most employers to change their ways.
But to those who think this is only impacting employers in New York – the message is definitely ‘think again’.
Currently some 17 states in the US already have some laws around pay transparency (see a selection below), and more are planning to.
But, in addition to this, moves are already being made – by employers themselves – to not just restrict pay transparency to New York City, but to extend it nationally too. American Express has already committed to this, and it’s behavior that will no doubt put pressure on more to do the same.
“Contextualizing pay as a component of the entire employee value proposition will be critical for organizations moving forward,” suggests Tauseef Rahman, partner in Mercer’s career practice.
He adds: “How an organization addresses pay transparency is increasingly important to employees. Organizations need to come up with a national approach to addressing pay transparency if they haven’t yet, and an international strategy for multi-national organizations to prepare for proposed legislation such as the 2024 EU Pay Transparency Directive.” He adds: “It is imperative to go beyond just meeting the legislative requirements, and make sure the foundational elements of pay transparency are strong.”
New research reveals the benefit of pay transparency
But perhaps the most compelling reason for all organizations to consider implementing pay transparency can be found by new research by Adzuna.
Last month it published findings that are quite categorical. It revealed that when companies fail to show pay data at the job application stage, prospective employees won’t repay this by showing trust, and will simply walk away – even before they bother applying.
It finds that a significant 28% of people surveyed said seeing either ‘no salary’ or ‘a lack of salary clarity’ on job ads was their biggest frustration when looking for a job.
A third (33%) of jobseekers said they would not attend a job interview before knowing the salary the employer is willing to offer; while 73% thought making salaries more transparent would make the workplace fairer.
As Doug Monro, co-founder & CEO at Adzuna observes: “Our research has confirmed what we have thought for a long time – jobseekers are fed up with the job application process and the lack of salary transparency on job ads is one of the main issues.”
Pay transparency saves time, money and reputation
Not having pay transparency not only wastes job seekers’ time [Adzuna analysis on job hunting activity in the last five years shows US workers wasted 480 million hours applying for jobs with the wrong salary], but more importantly, it also wastes HRDs’ time too.
This is because abandon-rates rise as pay disclosure worsens. Adzuna found 54% of jobseekers declined a job offer once they they finally found out the salary they’d be offered. These are people that will have been through multiple rounds of interviews, assessments, and selection. All – it seems – for nothing.
The brand reputational damage of this is likely to be immense too. Adzuna finds a third (32%) of jobseekers said that if there’s no transparency on pay, they assume the company is hiding something from them.
In addition to this, 30% believe it meant the company would underpay them. Others thought it makes the company look untrustworthy (28%), or that it shows that the company will be biased in how it pays their employees (31%).
National pay transparency – it’s coming
So strongly does Adzuna feel about it, that it’s recently launched a campaign to make salary transparency a federal law in the US.
The inference is clear: those who have not considered disclosing their own salary ranges might soon have to.
Why it’s best to be prepared
Fears that existing employees might now spot what employers are advertising, and demand higher wages for their own, similar roles, is justified.
But according to Monro, the benefits of pay transparency outweigh the negatives, arguing that organizations are better able to attract the right candidates for their open roles. “Employees want to know their worth and waste less time on applications,” he says. He adds: “To combat gender pay gaps, salary transparency is the start of an important journey.”
So, while pay transparency may not (yet) be nation wide, there seems to be a clear direction of travel that HRDs won’t be able to avoid.
The cat is out of the bag. Pay transparency is coming. It’s being demanded by employees, and it’s also becoming increasingly important among those in the ESG community.
The chances are your business will need to be ready for it coming.
So, what are you waiting for?
Your one minute read: Who has pay transparency?
- California was the first state in the US to legally require employers to provide the pay range for a job, if the candidate asks for it after the first interview. This law was passed in 2016.
- Since 2021, Colorado’s Equal Pay for Equal Work Act requires employers to list the pay range and benefits for every job opening.
- Employers in Connecticut have to provide a pay range for any instance where someone is moving into a new role.
- Employers in Maryland are also prohibited from asking candidates about their previous salary history.
- The Rhode Island Equal Pay Law will require employers to provide candidates with a pay range if the interviewee requests it, from January 2023.
- If an employee in Washington State asks for a pay range, the employer must provide one.
- Nevada employers must provide a salary range to candidates after the first interview automatically.
Which States are the most transparent?
- Washington, DC is the best area/district in regard to salary transparency, with 19% of job ads including salary.
- In New York 6% of job ads show a salary, and in California it is 5%.
- Delaware, Wyoming, Oklahoma, Maine and Rhode Island come bottom in regard to salary transparency, all with less than 1.5% of job ads including salary.
Which industries are the most transparent?
- Charitable jobs (10%) are the most transparent.
- The next most transparent sector is trade and construction jobs (5%).
- Jobs in the retail (0.5%) and travel (1%) industries are the least transparent.