Salary transparency is growing across the U.S. This is how leaders can prepare

Three months have passed since California’s pay transparency law went into effect, and roughly five months since New York City’s law on pay disclosure was implemented. In total, eight states have now passed pay transparency laws, meaning more than 44.8 million people, or 27% of the United States, can ask for the salary range for their position or the role they are applying for.  

For companies and employees, it’s important to reflect on what we’ve learned, what we should expect moving forward, and what steps companies and HR teams should take now related to this dynamic development in the world of work.  

What we’ve learned so far

Candidates are embracing the information and saying it influences their job choices and how they view their employer. Research from the Society for Human Resource Management (SHRM) found 82% of U.S. workers are more likely to consider applying to a job if the pay range is listed in the job posting. That is similar to the 91% of workers who said that including a salary range in a job posting would affect their decision to apply, according to a recent talent blog from LinkedIn. The increased transparency is helping build trust as well. That SHRM study found that 73% of employees are more likely to trust their organization if they are transparent about their salary ranges.

Salary-range transparency is expanding fastest where transparency laws have passed but are increasing even in states where no laws yet exist. A study by Indeed looking at all the postings on its platform indicates that more than 40% of U.S. job postings now include salary range information, up 137% between February 2020 and February 2023. Transparency is most common in the West, where many states have passed transparency laws: California had 8 of the top 10 metro areas with the fastest growth in salary transparency.

Interestingly, there is still a significant increase in a number of areas where laws have not been passed. For example, 51% of postings in Salt Lake City, Utah, now have a salary range; 41% in Raleigh, North Carolina; and 36% in Boston; with rates increasing significantly over the last three years. And further polls of HR staff from SHRM indicate when it is not required by law, more than two in three HR teams (67%) state they are voluntarily listing salary ranges in job postings, and that nearly a third of companies made that decision in the last year, likely influenced by the recent laws passed in California and New York City (and preparing for New York State, which goes into effect in September 2023).

Larger companies with significant hubs in NYC or California are adopting an all-U.S. strategy. Companies, such as Citigroup, Google, and Microsoft, have stated and begun to post ranges for all their positions, regardless of the state the jobs are located in. This is not only a smart employment-branding and trust-building move, but also a prudent one.

Explaining to candidates or employees in one state why most of their counterparts in other states get information and they do not would be difficult to justify, and creates disparities by state where historical practices around employee communications have been consistent. This may be a primary driver behind increased transparency rates in states without transparency laws.

Fears of significant disruption have not materialized. Many companies were feeling nervous that salary transparency would cause significant disruption, but for the most part, there have not been huge disruptions or turnover caused by pay transparency. In fact, some employers have said posting salaries have made their applicant process more effective, as someone who is not interested because of the salary range no longer takes up hiring managers’ time in the process.

And fears that a salary range may create fewer applicants have not materialized, either. In fact, HR teams report to SHRM that 70% of organizations have seen an increase in the number of applicants, and 60% are saying transparency has brought more qualified applicants.

A recent article by the Financial Times highlighted one real drawback: differentials between contract labor and full-time hires, who are often paid differently, have surfaced more directly. It has required companies to explain the differences, sometimes not to the satisfaction of their staff. Those who did not handle salary disparities for similar roles have faced some issues, prompting employees exhibiting less loyalty after bonus payouts to look for another organization.

Salary ranges are broad and only tell part of the story. The quality of disclosure has varied, but most companies have elected to disclose their full salary range. This means the “spread” between the minimum and max may be 50% to 60%, which is designed to ensure candidates of varying ability levels can apply. That makes it so broad, it may be less helpful for candidates who are looking to understand the more likely salary range.

That said, most companies do try to pay close to the midpoint of their ranges on average, so employees and candidates can still use the information by thinking about the midpoint as the “truer anchor.” Also, disclosure is limited to salaries, and for some roles, bonuses or equity are a significant component and consideration for joining, and for now, those remain something companies disclose verbally or at the offer stages. 

Moving forward

The wave of pay transparency laws will continue to gain momentum nationwide and across the world. The National Women’s Law Center indicates that 16 more states and D.C. are considering passing laws this year around salary transparency, including Illinois, Massachusetts, Virginia, Missouri and Oregon, which would increase the percentage of the country covered under a transparency law to nearly 50%.

Nationwide action could be coming soon as well. United States Representative Eleanor Holmes Norton (D-D.C.) has introduced HR 1599, the “Salary Transparency Act” which would require employers to provide the “wage range” for job postings, following similar state laws.

In Europe, the EU Pay Transparency Directive passed on March 30, which requires any company in the EU with more than 100 employees to analyze their pay differentials, and where the gap is more than 5% for the same role to provide justification. However, that law will have to be ratified by member states and won’t go into effect for up to three years.

Disclosure requirements will increase, starting this year. California’s Pay Reporting Obligation comes into effect in 2023, requiring employers to provide pay data to the state including the median and mean (average) hourly wage rates for each combo of race, ethnicity, and gender within a job category. 

Take the next steps

Companies looking to stay on top of pay transparency should look at these trends and further prepare.

If your company has posted salary ranges only in states that require them, consider your readiness to post ranges across the U.S., and potentially your other global offices as well. It’s likely that transparency laws will continue to gain steam. If your competitors are voluntarily disclosing, even without a requirement, you may find yourself at a disadvantage for attracting and retaining talent if you don’t have a more holistic disclosure approach. Think through your range approach outside your core offices, look at internal employees versus the range and make adjustments, and consider your all-employee communication strategy.

Prepare for pay equity reports, get ahead of potential implications, and prepare employee communications. If you have sizable operations in California, the first pay equity report will be publicly available, so it will be important to understand what the report will say about your practices, and make adjustments or have explanations ready to help your employees and other stakeholders understand your approach to pay equity and the improvements you are making. 

Consider broader education efforts for your employees. With salary ranges and pay equity reports available, it is even more important for employees to understand the “why” behind your company’s approach. That includes who you consider your talent peers, your desired pay positioning, how you constructed your ranges and pay levels, and what they can do to improve their compensation over time. 

Those companies that lean into this as an opportunity to have open, transparent conversations about their compensation philosophy and structure will find this deepens trust and drives a culture of performance, iteration, and improvement.

Jesse Meschuk is a career and human resources expert, and a senior adviser with Exequity.