Pay transparency is having a moment. Here’s what you should know.
by Taylor Telford on October 3, 2022
California companies with more than 15 employees will be required to list salary ranges for jobs and make that information available to existing employees thanks to a new law signed last week by Gov. Gavin Newsom (D).
The law represents a major win in the growing push for pay transparency, which experts say is a critical lever for countering the wage gap. In California, women lose $87 billion to the pay gap each year, according to Newsom’s office.
Here’s what you need to know.
• What does the law do?
• Which other states have adopted pay transparency measures?
• Why does it matter?
• How should employers respond?
• How should employees make use of this information?
What does the law do?
Companies in California were already required to provide pay scale information for job candidates upon request, but after the new law takes effect on Jan. 1, 2023, companies with 15 or more employees will have to do so for all postings, both internal and external.
The law applies to roughly 200,000 companies, which employ about 19 million workers, the vast majority of California’s labor force.
Companies with 100 or more employees will also be required to report detailed pay information to California’s Department of Fair Employment and Housing annually. Updated pay data reports will be due starting May 10, 2023. Companies could face fines of $100 per employee for failing to comply.
California is home to scores of corporate giants, including Google, Meta, Oracle, Apple, Uber and Lyft.
Peter Bamberger, scholar with the Academy of Management and a professor in the Coller School of Management at Tel Aviv University, said that the law represents “the strongest legislative effort for pay transparency in the U.S. to date.”
“For employees, this legislation takes a good part of the guessing game out of pay negotiations and levels the playing field in such negotiations,” Bamberger said, noting that it is similar to the type of pay transparency regulations seen in much of the European Union.
Which other states have adopted pay transparency measures?
Colorado, Connecticut, Maryland, Nevada, Rhode Island and Washington have enacted some form of pay transparency laws. New York City has a law taking effect Nov. 1, while New York state’s law is awaiting the governor’s signature.
But while other state measures tend to require posting salary ranges in ads, only California’s law gives existing employees the ability to access the same information, according to Greg Selker, managing director at Stanton Chase, a global executive search firm.
Companies could face a cost — in the form of public image and talent retention — for failing to address pay inequality in their ranks, Selker said.
Why does it matter?
Pay transparency is seen as critical to reducing gender and racial pay gaps. Women in the United States earned 17 percent less than men in 2021, according to the most recent available data from the organization for Economic Cooperation and Development.
For women of color, the gap is often greater: Black women earned roughly 88 percent of the median wages of White women in the second quarter of 2022, according to data from the Bureau of Labor Statistics, while median earnings of Hispanic women were about 79 percent of White women.
Black men earn 82 percent of the median earnings of White men in the second quarter of 2022, according to the Bureau of Labor Statistics, while the median earnings for Hispanic men were 75.5 percent of the median for White men. Earnings of Asian men and women were higher than their White counterparts.
How should employers respond?
Employers should view this as “an opportunity to identify and correct potential disparities that they had not previously focused on,” according to Jennifer Cormier, a partner at Ropes & Gray, a firm with expertise in employment law.
The new law may create challenges for companies that have not been actively considering pay equity issues, so employers should work with legal counsel to ensure that they are complying, Cormier said. Employers can also conduct their own pay equity audits with an outside consultant.
Companies could also benefit from understanding their rivals’ compensation packages for similar positions if they want to be competitive in the labor market.
“Ultimately, employers who embrace pay transparency could also potentially better attract top talent and increase employee morale,” Cormier said.
How should employees make use of this information?
Employees should study the pay ranges that are made public and use that information in bargaining. In coming years, employees should request a copy of the annual pay equity reports from their employer to make sure they are being compensated fairly, Bamberger said.
Armed with the new pay information, employees can also meet with compensation and HR professionals to learn how to best advocate for themselves, said Emily Dickens, chief of staff at the Society for Human Resource Management.
“It’s going to require more than just recognizing that there are systemic gaps that do adversely impact one group over another,” Dickens said. “You can have all the laws on the books, but it’s going to take effort on both parts.”
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Source: The Washington Post