Of all the changes we’ve seen in the labor market over the past year, we believe that the Pay Transparency Laws will have the most profound and lasting effect on how we hire. Here’s a brief explanation:
What are they? Essentially, state pay equity laws require employers to publish or make accessible the compensation bands, for each position within their organization. They’re a legal offshoot of the Federal Equal Pay law enacted in 1963. Although these laws are relatively new (about 17 states have enacted some version), their passage is having an impact nationwide.
Purpose of the laws – To help eliminate pay discrepancies among underpaid employee classes including women and minorities.
Analysis – These laws will obviously impact employers and candidates in different ways. Here’s a look at some of the major ramifications we foresee:
- The laws will change the playing field on employee/employer negotiations. As recently as a year ago most applicants would blindly apply for a job without knowing what salary range the employer had in mind. Withholding the salary number gave the employer an advantage in finding people who were qualified, but who were being paid under market value. One of the first rules in negotiations is to have the other party state their ask first and then have negotiations take off from there. The employer is now the party forced to show their hand.
- Publishing salary bands can be a real disadvantage for certain types of employers, especially for startups and smaller companies who often turn to alternative compensation models like stock options and performance bonuses. A salary at one company is not necessarily a valid comparison to a salary option in another.
- We also foresee a loss of the flexibility that can benefit both parties. Not all employees are the same, even if they occupy the same position. The employer will lose flexibility in offering a person more or less money depending on their soft skills and other qualifications. We believe that companies will begin publishing wide salary bands to work their way around the flexibility factor.
- Salary is often among the final things discussed in the interview process. Candidates will now self-select their employers based on the published pay bands, so there should be less wasted time negotiating in situations where the salary was not going to work.
- An employee in one company can now easily see that perhaps other companies are offering a higher salary band than their own employer and will shop for the highest published salary rate.
As things unfold and these practices begin to take root it will be interesting to see how employers and candidates alike navigate the new system. Will the result be more equal pay as intended? We’ll be interested to watch this develop over the next few years.
Questions about the new pay transparency laws? Contact Peak Partners for answers.