What HR needs to know about the growing push for pay transparency

The Great Resignation has prompted many employers to explore why their workers are leaving in droves. One recent survey suggests a major driver of the exodus could be frustration and misunderstanding around pay—news that comes amid a growing push for pay-transparency laws at the state and federal levels.

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According to the 2022 Compensation and Culture Report from beqom, a cloud-based compensation management software provider, around one-third (29%) of employees feel that their employer does not pay workers fairly, and 22% think pay gaps have increased over the past year. Other top reasons employees are resigning include the desire for unlimited paid leave, greater flexibility in working location and executive pay connected to environmental, social and governance (ESG) initiatives.

“Educating employees about their organization’s pay practices and the decisions that go into determining their total compensation is critical for employers to address misunderstandings around unfair pay,” says Tanya Jansen, beqom co-founder.

To prevent potential pay gaps and create more fair and equal compensation, Jansen notes that some states are moving forward with legislation that requires increased pay transparency.

“This legislation also aims to hold employers accountable for potential inequitable compensation practices,” she says.

For instance, after the EEOC recently halted its requirement that employers report pay data by demographics of employees, several states stepped in, says Joanna Kim-Brunetti, vice president, regulatory affairs at Trusaic, a regulatory compliance software provider. California effectively reinstituted the reporting requirement, while Illinois went even further, requiring employers to report and certify compliance with pay-equity laws. Also, California’s proposed Senate Bill 1162 would require employers to not only report pay data, but publicly disclose that data, making it the strongest pay-transparency measure in the country if passed, with significant penalties for non-compliance.

On the federal level, one goal of the Biden administration’s Equity Action Plan is to improve data collection and reporting. The EEOC also has renewed pay equity as a priority and the return of Component 2 pay data reporting is seen as imminent.

Kim-Brunetti explains that, on the employer front, pressure to disclose pay gaps is coming from multiple fronts: employees, legislators, investors, the SEC, peer companies and consumers. It all adds to the growing cultural shift toward pay transparency, she says.

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“Employers must respond to these demands by getting out in front of the issue and implementing strategies and policies around pay transparency,” she says.

Jansen adds that, while legislation has the capability to help employees gain access to salary information at their organization, when employers implement pay transparency just to avoid breaking the law, it can come off as forced or inauthentic. So, by “kickstarting conversations” on pay transparency before this legislation comes to fruition, organizations can build trust with employees and help them understand their earnings.

“We know pay transparency drives accountability and is critical to achieving pay equity,” she says, adding that requiring disclosures of salary information and publicly reporting pay data are effective ways to uncover and reduce wage discrimination, empower employees to pursue fair compensation and even the playing field for women and people of color in the workplace.

However, Kim-Brunetti says employers can’t “effectively solve a problem that they can’t see,” highlighting the need for better data collection methods.

Employers should conduct a proactive pay audit that analyzes pay practices at the intersections of gender and race/ethnicity to truly understand compensation within the organization, Kim-Brunett advises, noting that step can help HR and employers identify and remediate pay disparities long before pay data-reporting time. Some states, she notes, like Massachusetts, Colorado, New Jersey, Oregon and most recently, Rhode Island, even offer safe harbors to employers that proactively conduct comprehensive pay equity audits.

Regular pay-equity monitoring, she adds, can prevent “backsliding and combat complacency,” as well as facilitate dialogue around the company’s efforts and progress.

Executive buy-in is also key, with Trusaic research indicating that successful pay-transparency efforts begin at the C-suite. When leaders are invested, it promotes trust and demonstrates that the employer is listening. This commitment plus measurable action helps drive authentic change.

“Employers that report the greatest success in this area work much harder to track whether their leadership supports all staff equitably across measures including compensation and promotion,” Kim-Brunetti says.

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Tom Starner
Tom Starner is a freelance writer based in Philadelphia who has been covering the human resource space and all of its component processes for over two decades. He can be reached at [email protected]