Wage Transparency: A Growing Trend
Prepare for the inevitable by understanding the benefits and pitfalls of wage transparency.
As of July 2023, eight states and at least nine major municipalities required employers to practice wage transparency at varying levels. Other states have considered similar legislation, with Illinois on the verge of becoming the ninth state with a wage transparency law. In March 2023, U.S. Rep. Eleanor Holmes Norton introduced a federal “Salary Transparency Act“ that would require covered employers to disclose the wage range for open positions in job postings made publicly and internally.
Current regulations vary in the extent of wage transparency employers need to practice, as well as what size and type of firms are affected. California and Washington, for example, require full disclosure of a reasonable range of total compensation in all job ads for firms with 15 or more employees. Other jurisdictions demand that companies reveal the pay range for a position when they hire, promote, or, in Connecticut’s case, upon request. The fine for noncompliance can range from as little as a few hundred dollars in some states to as much as $10,000.
Every state and local law is different, but the message is clear: It’s only a matter of time before wage transparency is the rule for most U.S. businesses.
Catch the transparency wave
Job posts for mechanical engineers and similar engineering disciplines are among the least likely to include a wage range, according to a report by Indeed, "Pay Transparency in Job Postings Has More than Doubled Since 2020." In February 2023, industrial engineering had the lowest frequency of job posts showing a wage range among all occupational groups, at 30.6 percent. Chemical engineering was the second lowest, at 31.4 percent, and scientific research and development was the fifth lowest, at 33.1 percent. Mechanical engineering was only slightly higher at 34.2 percent.
Despite lagging the field in job post wage transparency, these disciplines are making strides toward catching up. All four were among the top 10 fastest-growing occupational groups for including a wage range in their Indeed job ads from February 2022 to February 2023. The percentage of mechanical engineering job posts with a wage range more than doubled, from 16.8 percent, in that period.
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Companies, such as PAE Engineers in Arlington, Va., are getting ahead of the curve. The 360-person MEP, technology, and lighting design firm began posting pay ranges for all job listings in 2022. This was several months before the pay transparency laws took effect in California and Washington, where the firm has seven total offices. The company also posted wage ranges for positions in its two Oregon offices, even though the state has no wage transparency laws on the books.
“In a few years, wage transparency laws are going to be much more the rule than they are now,” said Shiloh Butterworth, PAE’s Oregon Region leader and chief people officer. “That’s not the only reason we’re doing this, though. On top of the legal requirements, data shows that when prospective candidates look for a new role, job ads with pay ranges are much more likely to be opened and explored.”
A stated pay range can also establish a candidate’s early expectations, said Butterworth. It can limit time wasted by both the candidate and the employer when those expectations are misaligned.
PAE Engineers took the initiative further by supplying employees with their individual position’s pay range and disclosing to the management team the pay scale for every position and where each employee sits within it.
“We wanted to make sure that all of our employees had all this information before they started seeing it online,” said Butterworth. “We also wanted our managers to have the tools to identify any potential problems that might arise. That was really helpful because we quickly became aware of anyone we might have an issue with, so we could address it beforehand.”
Prepare for transparency
Wage transparency is a relatively new concept that runs counter to salary secrecy traditions that have been in place for decades. Kate Conroy, a senior consultant with human resources consulting firm Red Clover, Kinnelon, N.J., encourages her clients to embrace pay transparency, despite the perceived risk.
“Employees are already talking about their wages with each other, so by embracing wage transparency, the company is taking ownership and control of the conversation,” said Conroy. “It’s transforming something that’s typically negative between employees into a positive conversation. When we roll out wage transparency, we do it in a way that creates a line of sight for employees. They see that they can grow their wages and understand the steps they need to take to do so.”
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While this dynamic can lead to a motivated workforce and improved firmwide performance, it also bears the risk of directing the staff to focus more on personal financial goals than on doing what’s best for the company. This is where strategic leaders need to step in.
“To set people up for success while also setting the company up for success, management has to make sure its performance metrics are correct and aligned with what makes the business successful,” said Conroy. “If the business doesn’t have cash to put into payroll, there won’t be opportunities for an increase. If the business is successful, it will have the opportunity for its people to grow. It’s very simply interconnected.”
Deal with disparities
Another potential pitfall that firms face is addressing the pay disparity in various geographies. This is especially common for large firms with multiple offices, as well as companies that allow employees to work remotely in a location where the company does not have an office. In some cases, with the job market still tight, firms may find that the cost of bringing in a much-needed new hire could rise well above the established pay scale, regardless of where they physically work.
How can companies publish a salary range that could entice a superstar prospect to move while paying people in a similar role much less? If you shift the company’s pay scale to accommodate one candidate, it could skew your entire compensation program and cause the company widespread financial pain.
“I recommend against making a long-term base salary decision based on a short-term circumstance,” said Conroy. “Instead, look at more creative strategies to bridge the gap. Potentially add a signing bonus or an incentive compensation program designed to meet their needs while mitigating the long-term risk of inflated salaries throughout the company.”
The differences in current state and local laws, combined with the uncertainty of what may be on the horizon, speak to a singular truth. Said Conroy: “Pay transparency laws are relatively easy to comply with when you have a defined pay structure that is adhered to. A lot of small businesses haven’t gotten there yet, but we encourage any business that doesn’t have a defined pay philosophy or salary structure to take the time to develop one. The benefits reach far beyond wage transparency.”
Jerry Guerra is an independent writer in Lynnfield, Mass.