Pay transparency has left middle managers unprepared to defend salary discrepancies

As more cities and states implement salary transparency laws, it's falling on managers to deal with a barrage of questions, concerns and frustrations this new knowledge can reveal. 

Currently, seven states as well as individual cities across the U.S. have salary transparency laws in place that require an organization to include the minimum and maximum pay ranges in job postings. But while 92% of employees are in favor of transparency laws, 63% say these policies will cause problems among coworkers, and 5% would quit if they found out a coworker made more than them, according to data from Resume Builder. 

Often, middle managers are the ones handling the fallout when employees discover they're making less than a new hire or even their peers. Managers themselves are even finding out that they're being paid less than some of their direct reports, according to new data from people analytics platform, Visier. 

"It's part of the employee experience to know: Do I get paid fairly or not?" says Andrea Derler, principal of research and value at Visier. "It's something that needs to be carefully handled. If you don't adjust the salary of the existing team members quickly, they will leave for another job somewhere else for more salary." 

Read more: Pay transparency in job postings is responsible and equitable 

Visier conducted research on the impact of compensation strategies and found that when employees discovered pay differences between themselves and new hires, they were nearly two times more likely to resign if their pay was not adjusted within six months. Employees whose salaries remained the same over one year were 2.3 times as likely to resign. 

Managers are often unprepared to handle these types of conversations, Derler says, especially since decisions around appropriate salary bands and benchmarking may not even be up to them to begin with. But managers can still educate themselves so they can explain to an employee how pay is decided, why differences in pay may persist, and what plans an organization has to resolve them. 

"Managers need to be armed with knowledge around what they can say to employees if they ask straight out, 'Why am I earning less than a new team member?' Not many managers are trained to talk about that," Derler says. "Ideally, they would analyze their workforce first to see if there are any substantial pay inequities. Having the right data can help managers discuss this in a meaningful way." 

Read more: Pay transparency laws support equity — but will they force employers to overextend their budgets?

Managers and employees also have more than a dollar figure to debate when discussing fair compensation, Derler says. Things like flexible work schedules, remote work arrangements and employee benefits can all play a role in enticing an employee to both join or stay with a company, even if the base pay may not seem adequate. 

Yet those conversations still must be backed by solid evidence, Derler says. Arming managers with data around market rate value for certain roles, and how much negotiating room they may have, can make conversations around pay and benefits fair and balanced. 

"You need information about what's right and what's not — understand what are the salary ranges, benchmarks and market rates for my employees externally and internally," Derler says. "What's the value of the position to my company? And how much do they know about salary changes and retention risks?" 

If employers need to level up their salaries to match transparent ranges, Visier's data found that there is a sweet spot for how much of a salary boost will make a difference. Paying someone 20% over market rate leads to the highest retention rates — going above that number will actually lead to higher resignations. For employees themselves, this should be a bit of a warning, Derler cautions. 

"It's a message to employees to not ask for too much, because your employer knows that you may not even stay if you get paid 20-30% more," she says. "It needs to be a more personalized conversation and decision." 

Read more: Which countries have the best salary transparency? How 19 nations rank 

To help managers and employees navigate these discussions and understand the metrics behind compensation, Visier provides a compensation tool tailored to managers specifically. While not all organizations are currently in a situation where they need to be transparent about salary and compensation strategies, it's better to prepare now than be caught off guard when more transparency laws take effect. 

"The urgency of understanding salary is part of the employee experience, and most [organizations] are not ready, for sure," Derler says. "Compensation professionals are quite siloed, but they're going to have to come out of their shells and work with HR, because the implications of salary on retention and resignations can't be denied."