Compensation

Pay transparency: What companies need to know

September 28, 2022
The Carta Policy Team

New pay transparency laws in several parts of the country require (or will soon require) employers to publish a salary or hourly wage range in their job postings. Policymakers believe the up-front disclosure adds a new fairness measure for employees. If companies approach it correctly, it also presents an opportunity for them: It makes the hiring process far more efficient.

Pay transparency: Rationale and implications

Aligning expectations for compensation helps job candidates as well as employers. In the short term, neither side will be wasting their time conducting interviews and negotiations if their pay expectations are misaligned. Over the long term, it can protect against low morale and attrition by helping make sure that employees are paid similarly to their peers. 

A company’s approach to pay transparency can also guard against claims of pay discrimination. Even at companies that do their best to comply with laws against discrimination, unintentional biases in the hiring process can generate unequal outcomes. A growing body of research shows that one reason for these disparate outcomes is that women are less likely to benefit from the traditional negotiation process. Racial biases may have similar effects for people of color. Limiting negotiations to a published range reduces the opportunity for unequal outcomes.

The trend toward pay transparency

By making wage and salary ranges more transparent, lawmakers believe they can make recruiting and hiring more efficient—and make compensation fairer. A fixed salary range helps candidates make informed decisions about what job openings they’ll pursue and how they’ll negotiate an offer. It also helps make sure that employers fit the salary range to the role—not to the more subjective (and often biased) process that unfolds during the interview process.

NYC salary transparency law

In 2022, the New York City Council adopted a law requiring employers with four or more employees to publish a pay range—the position’s minimum and maximum salary or hourly wage at the time of hire. 

Lawmakers initially scheduled a May date for the law, but then revised it and postponed implementation to November 1, 2022. The law will:

  • Apply to positions performed in whole or in part in New York City; positions that will operate entirely outside the city are exempt
  • Allow plaintiffs to file a complaint with the NYC Human Rights Commission, which may then investigate and pursue a discrimination claim against the company under the NYC Human Rights Law
  • Provide employers 30 days from receiving the complaint to remedy a first-time violation
  • Limit the private right of action—in other words, the ability to sue the company—to current employees 
  • Enable the NYC Human Rights Commission to impose a civil penalty up to $250,000

States with compensation transparency laws

The NYC law is just one example of a growing trend:

California pay transparency law

California already has a law requiring employers to divulge pay ranges to applicants upon “reasonable requests,” defined as after the applicant has had an initial job interview. It also requires companies with more than 100 employees to submit a pay data report to the state to document pay and hours worked by company, job category, gender, race, and ethnicity. 

On September 27, 2022, Governor Newsom signed a bill that will expand transparency on both pay ranges and gap reporting. Starting next year, companies with more than 15 employees would have to publish salary ranges with job postings and provide salary ranges to current employees as well. Even if the employer isn’t advertising a new position, a current employee can request the range for their position.

Colorado pay transparency law

Colorado requires employers with even one employee in the state to post compensation ranges and general benefits in all Colorado-based job postings. 

Nevada pay transparency law

Nevada requires employers to provide applicants with a wage and salary range once a candidate has interviewed, and prohibits employers from inquiring about applicants’ prior wage histories. 

Connecticut pay transparency law

Connecticut mandates that employers provide the wage range to the applicant upon the applicant’s request or prior to the time the employer makes a formal offer—whichever comes first.

Pay transparency laws in other states

Maryland and Washington have pay transparency laws that mandate employers to disclose compensation ranges upon the applicant’s request.

These are the laws already in effect, but more are coming. Massachusetts, South Carolina, and New York State are also considering legislation to push employers to disclose more information about compensation. 

How companies can prepare for pay transparency changes

Although the U.S. Congress is unlikely to adopt a similar federal law, this trend is likely to continue. Private companies can stay ahead of coming legal requirements by developing systems and documentation to help prevent salary misalignment and pay discrimination. 

Salary bands and levels

Developing fixed salary bands (a compensation range) that correspond to defined levels for roles across the company can help you make fair and competitive compensation offers. A banding and leveling system prepares your company to comply with evolving compensation disclosure laws: Your bands will confine pay negotiations to a fixed range that you can publish in your job listings. This transparency can prevent discrimination claims by codifying your company’s pay practices in written documentation. 

Compensation philosophy and plan

A compensation philosophy documents your approach to compensation; it should go hand-in-hand with your overall business strategy by identifying your target labor market, how competitive you plan to be with salary, your approach to incentives, and your views on pay. 

Establishing a strong compensation philosophy is the first step to creating a compensation plan, which also outlines your company’s job architecture (roles and levels), your approach to performance management, and the structure of compensation-based incentives. Comp plans can help cultivate pay equity through transparency, and can help you win top talent by establishing a clear framework for promotions.

If you don’t develop coherent systems for compensation, you may find yourself faced with unexpected legal scrutiny. You might also lay yourself open to claims of discrimination—especially as the Equal Employment Opportunity Commission (EEOC), the federal agency that enforces fair employment laws, becomes more active in employer oversight. In addition, your company could see a leap in compliance costs if your local or state government joins the movement toward greater transparency. 

To avoid these costly problems—and to help keep your hiring and recruiting efficient and competitive—you’ll want to remain up to date on legal requirements and industry best practices in pay transparency. 

Stay informed

To stay on top of developments in compensation laws across jurisdictions, sign up for the Carta Policy Weekly Brief:

 

 

And to learn more about how Carta can help your company make competitive offers in line with evolving best practices around pay transparency, request a demo of Carta Total Comp.

DISCLOSURE: This communication is on behalf of eShares Inc., d/b/a Carta Inc. (“Carta”).  This communication is for informational purposes only, and contains general information only.  Carta is not, by means of this communication, rendering accounting, business, financial, investment, legal, tax, or other professional advice or services.  This publication is not a substitute for such professional advice or services nor should it be used as a basis for any decision or action that may affect your business or interests. Before making any decision or taking any action that may affect your business or interests, you should consult a qualified professional advisor. This communication is not intended as a recommendation, offer or solicitation for the purchase or sale of any security. Carta does not assume any liability for reliance on the information provided herein. ©2022 eShares Inc., d/b/a Carta Inc. (“Carta”). All rights reserved. Reproduction prohibited.