California, Washington and Rhode Island's pay transparency laws went into effect at the beginning of 2023. Employers in those states will be forced to be
"[Employers] have to be ready to start having those conversations with employees about what the range for their job is," says Jesse Meschuk, senior adviser with compensation consultancy Exequity. "They'll get questions like, 'What does this mean? What's the plan to help me get further up the range? How did you come up with this range? How was it developed? How do I compare to my peers?'"
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Meschuk is based in California, where employers with more than 15 employees must put a "reasonable salary range" in every job posting, as well as maintain job titles and wage history for three years after somebody leaves any given position. If a company has more than 100 employees, the law will require companies to compile and submit a pay equity report to the state beginning this spring.
"Companies will have to really [be strategic] about where they want to be when you're sharing ranges. Are they going to be pretty broad? Are they going to be more narrow?" Meschuk says. "If you currently have people below the minimum of the range, that's going to be hard to explain and you have to fix it."
Given today's economic climate,
How could a recession challenge employers who are working to comply with salary transparency laws?
These laws are going to put pressure on companies. On the one hand, you've obviously got to comply with the law. But on the other hand, you also may be facing some economic uncertainty. So if you have a lot of people who might be either low in the range or below the range, getting them to within the range will have a cost — and that might be difficult to to absorb at the moment.
It will also force companies to think a lot more critically about their ranges. For example, how are these the right ranges for certain jobs? Do we value these roles? At what level do we value them and where do we want to position our compensation versus the market for those jobs? It's creating more conversations about that. Companies might also adjust their ranges to make sure that they're more reasonable for what they can afford.
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It will also create more power for employees, because they will have access to more information than they've had in the past. They can see what their competitors' job postings are for the same job they have, they can see what their own company is paying and how those compare. They're going to know where they are in the range and it will create necessary discourse about being paid fairly. And that was really the intent of the laws.
A lot of companies can't provide competitive ranges right now, especially if they're smaller organizations with limited resources. What can they do to retain employees?
COVID already forced a lot of discussion on that front. We're seeing some of the impacts of that in whether you need to be in the office or not, and how flexible the work environment is. This will continue to put pressure on employers who may find it difficult to compete for talent in really aggressive markets, like San Francisco or Los Angeles or New York City. They might even have to take a step back and move their hubs outside of these hyper-competitive markets and into more affordable locations, like Colorado or Texas, or even other countries where they can be maybe more competitive from a wage point of view. People are already working where they want and this will just reinforce that trend.
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It will also depend on the demographics of your workforce. If you have a relatively older workforce, things like medical benefits and comparable 401(k) match and part-time work policies are going to start getting more attention, because for them, that's just as valuable — if not more so — than salary. We're going to see the diversification of how companies think about rewarding employees. They're going to start customizing based on what makes the most sense for each employee segment, and what also helps them stay competitive while dealing with wage pressures.
Are there any unintended consequences of these transparency laws?
You will likely see companies put pretty broad ranges out there as transparency becomes more and more enforced. The broader these ranges are, the harder it is for employees to fully understand. What we'll see here, initially at least, is just added information. I don't think it's going to drive huge amounts of change. I wouldn't be surprised if there is then some pressure around trying to look at what people are actually paid and shifting the focus on more pay equity analysis.
For example, California having that pay equity report, where you actually have to show by job level how people's pay compares across race and gender and ethnicity. We'll start to see that become a broader trend, creating even more transparency into pay fairness, and how to really assess that.
