Why pay transparency won’t work without real pay equity transformation

When it comes to the drivers behind increased pay transparency, a new survey has found that the stick is taking priority over the carrot.

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According to WTW’s 2023 Pay Transparency Survey, regulatory requirements are, by far, the most commonly cited (81%) factor for encouraging greater levels of pay program communication. Coming in a distant second, third and fourthin a near dead heatare company values and culture (55%), employee expectations (54%) and an ESG/DEI agenda (53%).

Regardless of the motivation, the good news is a majority (60%) of employers are communicating components of their pay program information to current employees, WTW found in the survey of more than 1,300 business leaders, including nearly 450 from the U.S.

While pay equity communication mandates are still only enacted in less than 10 states, regulatory requirements are driving employers in other locations to communicate pay information. For example, nearly two in five respondents are communicating or planning to share pay rate or pay range information with prospective employees regardless of their jurisdiction’s requirements.

A rise in regulations

According to Mariann Madden, North America Fair Pay co-lead at WTW, over the last year, organizations have taken a broader approach to sharing pay information. She attributes this to the growing complexity and variability of pay transparency laws.

“The U.S. laws aren’t consistent in terms of what should be shared and with whom,” Madden says. “The most common are the laws that require employers to provide pay ranges in job postings.”

Mariann Madden
Mariann Madden

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However, she adds, some state and local laws require employers to disclose pay ranges during the interview or offer process or upon request of the job seeker. Many do not yet cover employees’ rights when it comes to this informationbut WTW sees this as the next trend in U.S. pay transparency legislation.

While the changing legal landscape is pushing more employers toward transparency, the shift is not without concerns for business leaders. Half of employers surveyed said they worry that communicating pay rates or ranges will increase questions from current employees about pay programs. Plus, manager effectiveness concerns are also top of mind for employers (47%); however, only 38% of organizations report being effective at educating managers about this complex topic.

Consider the context beyond compliance

To address those concerns, Madden says, employers should shift their mindset on pay transparency: away from being forced in this direction by changing laws and instead toward a commitment to broader institutional change around pay equity.

Brian Levine, a partner at Merit Analytics Group LLC, agrees, noting that while enacting stronger transparency requirements can help mitigate future bias (” Indeed, that is the hope,” he says), employers need to be proactive about understanding and addressing bias that already exists within their systems.

Brian Levine
Brian Levine

According to Levine, for example, an effective pay equity analysis can ensure that employees are properly positioned relative to their peers, minimizing potential concerns that might arise with increased information on employee pay.

He adds that such an analysis would identify the factors most associated with different positions in a rangee.g., experience and performanceto help inform communications. This information can also support managers who need to be ready to respond to questions from employees.

See also: 6 questions to ask about pay equity assessment tools

“Most critically, a pay equity analysis can be acted upon to eliminate pay differences by gender or race/ethnicity, which would otherwise eventually be revealed when an unwelcomed ‘bright light’ is shined on differences in pay outcomes,” Levine says.

As more organizations provide visibility into their pay programs and practices, Madden says, HR leaders will be key to ensuring the sea change is more than surface-deep.

“Boards of directors are taking ownership for pay equity and pay transparency and are looking for organizations to define, monitor and report on their commitments and priorities,” she says. “Pay equity and transparency are closely linked; it will be very difficult to have confidence in one without the other in place.”

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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].