How companies can respond to new salary transparency laws

In 2023, one of the largest trends in the U.S. will be the push for pay transparency. After a flurry of local and state legislation last year, 2023 begins with employers facing uncharted hiring territory.

How companies can respond to new salary transparency laws

Pay transparency is one of the biggest trends in hiring for the United States in 2023. In 2023, employers will be faced with uncharted territory in hiring after a wave of legislation at the local and state level last year. More than one-fourth of Americans already live in cities and states that have laws requiring transparency in pay practices in hiring.

A robust, sustained hiring market, and the democratization in access to employers via online job boards, have also contributed to this trend. Job candidates are now more selective about where they apply. Employers are ready to take action, as 6 out of 10 job seekers (62%) report that a salary range included in a job description is the main factor in deciding whether or not to apply for the position.

Several companies have already embraced this trend, and are finding that leading the way in pay transparency gives them a competitive edge when it comes to attracting and retaining top talent. Employers must decide how they will adapt to the new environment and not be left behind.

However, effective action on pay transparence is complex and could easily backfire. If recruiting teams do not have a clear compensation philosophy, visibility into salary bands can lead to top talent leaving. Recruitment leaders have to convince executives who are worried about losing bargaining power when hiring. In the wake of the Great Resignation, and the soaring salaries, the new transparency into pay ranges could leave current employees feeling behind. This will affect workplace morale, and may cost companies their best talents.

To be successful in implementing a pay transparency initiative, nuance and intentionality are required. If done correctly, pay transparency can give organizations a competitive edge. Two key elements are required to develop a pay transparency policy that will help you sell your organization to top talent.

A philosophy of compensation and roles is the first step in creating a pay transparency policy. Many companies are reluctant to embrace pay transparency because they fear that their pay bands may be lower than the market value. The foundation of competitive salary ranges is a proactive definition of the key skills and experiences for a particular role, along with their market value.

When pay bands are below market value for a job, hiring teams can use a clearly articulated framework to convince leadership of the need for an update in salary bands.

Before starting the hiring process, recruiters should work with hiring managers to address three important questions.

Pay transparency is a boon to the hiring process. While all salary bands are subject to institutional guidelines and restrictions, transparency in pay begins with a clearly defined compensation philosophy. It promotes a competitive salary and gives recruiters a clear explanation of pay ranges when talking to candidates. This streamlines the hiring process, allowing for more equity in offer decisions.

A common complaint is that the company has less leverage in negotiations as more recruiters begin to post specific salary ranges. Leaders worry that candidates may demand the highest salary range posted and transparency in pay will limit the negotiating room of recruiting teams. Many teams are struggling to decide what salary ranges to publish. Identifying "good" benchmarks and how to maintain bargaining power when making offers are top of mind concerns.

Pay ranges are a great way to attract high-quality candidates, but they must be informative in order to win them over. Ranges that are overly wide can hurt recruitment effectiveness. The risk of misaligning candidate expectations increases when posting extremely wide salary ranges. This can lead to more declined offers and wasted recruiter efforts, as well as a longer time before hiring.

Salary bands that are too broad can damage your employer brand, as candidates will perceive them as a sign that you're only promoting a policy of equity and not really committed to it. This is especially harmful to diversity hiring, since women, BIPOCs, and LGBTQ+ candidates view a company's commitment to pay equality as an important indicator of a positive work culture.

Use the following guidelines instead to communicate pay ranges that are informative and attractive to candidates.

The difficulty in sourcing candidates for their pipelines is one of the biggest challenges facing recruiting teams. Despite signs that the U.S. economic climate is cooling, the job markets remain hot. Four out of ten jobs are left unfilled each month. In essence, sourcing talent is about selling - standing out from the competition and getting potential candidates to apply to your position versus your competitors. Pay transparency can help you sell talent by reducing uncertainties and communicating your company's value.

Pay transparency is a key element of attracting talent. It can be achieved by establishing a clear pay philosophy, which should then be communicated in the job description. Even considering a job change is time-consuming and costly. By showing candidates the dollar value of a job change, you can remove a major barrier to applying.

Dr. Andrew Monroe, a social psychologist and director of talent research for experienced candidates at Veris Insights, is an expert in recruiting analytics.