Unveiling Corporate Secrets: An Analysis of the Benefits and Consequences of Pay Transparency Laws

Posted on by MBELR

By Anarelis Ramirez

Introduction

The gender wage gap has remained relatively stagnant over the past two decades. 1 In 2002, American women were paid 80 cents for every dollar a man earned. 2 Twenty years later, the gap closed by a mere 2 cents with American women earning 82 cents to every man’s dollar. 3 The wage gaps are exacerbated even further across race and ethnicity. In 2022, Black and Hispanic women respectively earned 70 percent and 65 percent as much as White men. 4 Several states and localities have sought to address these pay inequities via pay transparency laws. These laws have been met with resistance, however. This blog post explores arguments for and against pay transparency laws. Despite the shortcomings of pay transparency laws, I argue that these laws are ultimately beneficial for job applicants, employees, and employers.

The State of Pay Transparency Laws

Seven states have enacted pay transparency laws, including California, Colorado, Connecticut, Maryland, Nevada, Rhode Island, and Washington. 5 At the end of 2022, New York became the latest state to pass its pay transparency law, which will become effective on September 17, 2023. 6Pay transparency laws will continue to expand across the nation. Indeed, multiple states, such as Georgia, Illinois, and Virginia, have introduced salary transparency legislation. 7

The mandates imposed by these pay transparency laws differ across states, including the timing in which salary ranges must be disclosed. 8 For instance, in Washington, employers must disclose the pay range for each job posting alongside all other benefits (e.g., healthcare or paid time off) or avenues of compensation (e.g., bonuses or stock options) associated with each position. 9 In contrast, job applicants in Nevada are not entitled to receive wage or salary ranges from employers until they have participated in an interview. 10 Furthermore, employees in Nevada who apply for a transfer or promotion are not required to receive the salary range for the position until they are interviewed by the employer and request the pay information from the employer. 11

Employers covered by these pay transparency laws also face different penalties for noncompliance. 12 In Washington, applicants and employees can file civil lawsuits against non-compliant employers or may elect to file complaints against the employers with the Department of Labor and Industries (DLI). 13 Responsive to the complaints, the DLI may demand non-compliant employers “to pay to the complainant actual damages, double statutory damages (or $5,000, whichever is greater), interest of 1% per month on compensation owed, payment to the department for the costs of investigation and enforcement, and other appropriate relief.” 14 The employer may also be subjected to additional civil penalties, which vary between first and repeat violations. 15 In contrast, employers in Nevada who fail to comply with the state’s pay transparency law risk paying up to $5,000 per violation and any costs associated with processing a claim. 16

States’ pay transparency laws also differ in the scope of their coverage. For instance, California’s pay transparency law applies to employers with a minimum of 15 employees and at least one of those employees must be in California. 17 Remote positions are also covered under California’s law. 18 In contrast, employers in Colorado with just a single employee based in Colorado are subjected to the state’s pay transparency law. 19 Like California’s law, Colorado’s pay transparency law also applies to remote positions. 20

The Costs and Benefits of Pay Transparency Laws

One of the strongest arguments against pay transparency laws includes its potential to damage the corporate culture between employees due to pay compression. 21 In an effort to recruit strong talent, employers may offer applicants higher salaries than usual. 22 To neutralize these costs, companies maintain the salaries for tenured employees at a stagnant level. 23 Consequently, corporations risk experiencing pay compression whereby employees with advanced skill sets and longer tenure with a company are paid similarly to junior employees. 24 Pay compression can produce “‘low employee morale’” and cause employers to struggle with employee retention. 25

Pay compression is not a major threat to company culture, however, when companies take concrete measures to minimize its occurrence. To circumvent the dangers of pay compression, companies should implement “objective performance measurement[s] or reward system[s]” and educate their employees about how these systems are formulated. 26Employers should also provide employees with ample opportunities to understand how their performance will be measured and the rewards available to them for fulfilling certain metrics. 27 To further minimize the threat of pay compression, employers can also consider offering non-monetary rewards to its tenured employees. 28 Employers who take active efforts to educate its workforce about the organization’s pay scales can cultivate a culture of trust in a corporate environment. Indeed, a lack of open communication about pay scales can signal to employees that a corporation is not paying equitable wages. 29 Transparent practices, however, can help “foster a reassurance that leadership is committed to decreasing any inequities.” 30

Some opponents of pay transparency laws argue that these laws can hinder efforts to diversify workforces. Before New York City’s pay transparency law took effect, the five borough chambers of commerce and a nonprofit organization, Partnership for New York City, sent a letter to the New York City Council highlighting some of the shortcomings of the law. The authors explained that in an effort to increase diversity in executive teams, employers “may offer higher compensation for BIPOC job candidates.” 31 They claimed that the pay transparency law would stifle diversity efforts because “…the posted maximum may be significantly higher than the historical salary ranges, creating dissatisfaction in the workforce and demands to adjust existing pay scales that the employer may be unable to afford.” 32 This argument has little merit.

Companies seeking to increase diversity as a business objective should be honest about this priority with its employees. Diversity in the workplace benefits all employees. Indeed, companies with greater levels of gender, ethnic, and cultural diversity in leadership earn more profits than companies with less diversity. 33 A company that wishes to improve its business by increasing diversity should be transparent about its intentions. Furthermore, maintaining secrecy about pay structures causes more harm than good to candidates from diverse backgrounds. 34 In fact, the persistent wage gap across gender and race suggests that the non-disclosure of salary ranges has failed diversity efforts. 35 Women of color lose hundreds of thousands of dollars over the lifetime of their careers due to the wage gap. 36 Contrary to critics’ claims, pay transparency laws can help encourage employers to implement equitable pay practices. 37

Conclusion

Pay transparency laws are not flawless and can introduce consequences in the workplace. The benefits of these laws, however, outweigh the costs. Even if employers are not required to disclose pay ranges by law, they may want to consider adopting pay transparency as a corporate practice anyway. By 2030, Generation Z will make up 30 percent of the workforce and will change workplace norms. 38 Indeed, Adobe’s Future Workforce Study found that 85 percent of undergraduates and recent graduates are less likely to apply for a position that does not include the pay range in the job posting. 39Generation Z is also more likely to speak about their salaries with coworkers than older generations. 40 The corporate practice of pay transparency is the future, and companies should prepare to act accordingly.

  1. Rakesh Kochhar, The Enduring Grip of the Gender Pay Gap, Pew Research Center (Mar. 1, 2023), https://www.pewresearch.org/social-trends/2023/03/01/the-enduring-grip-of-the-gender-pay-gap/#how-the-gender-pay-gap-increase-with-age. ↩

  2. Id. ↩

  3. Id. ↩

  4. Id. ↩

  5. Becca Damante Et Al., Quick Facts About State Salary Range Transparency Laws, Center for American Progress (Mar. 9, 2023), https://www.americanprogress.org/article/quick-facts-about-state-salary-range-transparency-laws/. ↩

  6. Id.; Harris Mufson Et Al., New York State Enacts Pay Transparency Law, Gibson Dunn (Jan. 17, 2023), https://www.gibsondunn.com/new-york-state-enacts-pay-transparency-law/#:~:text=On%20December%2021%2C%202022%2C%20Governor,in%20job%20postings%20and%20advertisements. ↩

  7. Becca Damante Et Al., Quick Facts About State Salary Range Transparency Laws, Center for American Progress (Mar. 9, 2023), https://www.americanprogress.org/article/quick-facts-about-state-salary-range-transparency-laws/. ↩

  8. Id. ↩

  9. What States and Cities Have Wage Transparency Laws in 2023?, Poster Compliance Center (Jan. 23, 2023), https://www.postercompliance.com/blog/wage-transparency-laws-2023/; Yesenia M. Gallegos Et Al., Washington State’s Pay Transparency Law Takes Effect January 1, 2023, McDermott Will & Emery (Dec. 6, 2022), https://www.mwe.com/insights/washington-states-pay-transparency-law-takes-effect-january-1-2023/. ↩

  10. Jennifer Liu, All the U.S. States, Cities and Counties Where Companies Have to Share Salary Ranges With Workers, CNBC (Jan. 3, 2023, 10:46 AM), https://www.cnbc.com/2023/01/03/where-us-companies-have-to-share-salary-ranges-with-workers-by-law.html#:~:text=Nevada,an%20interview%20and%20requests%20it; What States and Cities Have Wage Transparency Laws in 2023?, Poster Compliance Center (Jan. 23, 2023), https://www.postercompliance.com/blog/wage-transparency-laws-2023/. ↩

  11. Jennifer Liu, All the U.S. States, Cities and Counties Where Companies Have to Share Salary Ranges With Workers, CNBC (Jan. 3, 2023, 10:46 AM), https://www.cnbc.com/2023/01/03/where-us-companies-have-to-share-salary-ranges-with-workers-by-law.html#:~:text=Nevada,an%20interview%20and%20requests%20it; What States and Cities Have Wage Transparency Laws in 2023?, Poster Compliance Center (Jan. 23, 2023),https://www.postercompliance.com/blog/wage-transparency-laws-2023/. ↩

  12. Becca Damante Et Al., Quick Facts About State Salary Range Transparency Laws, Center for American Progress (Mar. 9, 2023), https://www.americanprogress.org/article/quick-facts-about-state-salary-range-transparency-laws/. ↩

  13. Yesenia M. Gallegos Et Al., Washington State’s Pay Transparency Law Takes Effect January 1, 2023, McDermott Will & Emery (Dec. 6, 2022), https://www.mwe.com/insights/washington-states-pay-transparency-law-takes-effect-january-1-2023/. ↩

  14. Id. ↩

  15. Id.; What States and Cities Have Wage Transparency Laws in 2023?, Poster Compliance Center (Jan. 23, 2023),https://www.postercompliance.com/blog/wage-transparency-laws-2023/. ↩

  16. April Boyer Et Al., Help Wanted: What Employers Need to Know About Pay Transparency Requirements in Job Postings, K&L Gates (Oct. 31, 2022), https://www.klgates.com/Help-Wanted-What-Employers-Need-to-Know-About-Pay-Transparency-Requirements-in-Job-Postings-10-28-2022#:~:text=The%20law%20can%20be%20enforced%20with%20fines%20between,and%20US%2410%2C000%20per%20violation. ↩

  17. What States and Cities Have Wage Transparency Laws in 2023?, Poster Compliance Center (Jan. 23, 2023), https://www.postercompliance.com/blog/wage-transparency-laws-2023/; Jennifer Liu, All the U.S. States, Cities and Counties Where Companies Have to Share Salary Ranges With Workers, CNBC (Jan. 3, 2023, 10:46 AM), https://www.cnbc.com/2023/01/03/where-us-companies-have-to-share-salary-ranges-with-workers-by-law.html#:~:text=Nevada,an%20interview%20and%20requests%20it. ↩

  18. What States and Cities Have Wage Transparency Laws in 2023?, Poster Compliance Center (Jan. 23, 2023), https://www.postercompliance.com/blog/wage-transparency-laws-2023/; Jennifer Liu, All the U.S. States, Cities and Counties Where Companies Have to Share Salary Ranges With Workers, CNBC (Jan. 3, 2023, 10:46 AM), https://www.cnbc.com/2023/01/03/where-us-companies-have-to-share-salary-ranges-with-workers-by-law.html#:~:text=Nevada,an%20interview%20and%20requests%20it. ↩

  19. What States and Cities Have Wage Transparency Laws in 2023?, Poster Compliance Center (Jan. 23, 2023),https://www.postercompliance.com/blog/wage-transparency-laws-2023/. ↩

  20. Jennifer Liu, All the U.S. States, Cities and Counties Where Companies Have to Share Salary Ranges With Workers, CNBC (Jan. 3, 2023, 10:46 AM), https://www.cnbc.com/2023/01/03/where-us-companies-have-to-share-salary-ranges-with-workers-by-law.html#:~:text=Nevada,an%20interview%20and%20requests%20it. ↩

  21. Leon Lam Et Al., Research: The Unintended Consequences of Pay Transparency, Harvard Business Review (Aug. 12, 2022), https://hbr.org/2022/08/research-the-unintended-consequences-of-pay-transparency; Allen Smith, NYC Pay Transparency Law May Result in Pay Compression, Society for Human Resource Management (Aug. 1, 2022), https://www.shrm.org/resourcesandtools/legal-and-compliance/state-and-local-updates/pages/nyc-pay-transparency-pay-compression.aspx. ↩

  22. Allen Smith, NYC Pay Transparency Law May Result in Pay Compression, Society for Human Resource Management (Aug. 1, 2022), https://www.shrm.org/resourcesandtools/legal-and-compliance/state-and-local-updates/pages/nyc-pay-transparency-pay-compression.aspx. ↩

  23. Id. ↩

  24. Id. ↩

  25. Id. ↩

  26. Leon Lam Et Al., Research: The Unintended Consequences of Pay Transparency, Harvard Business Review (Aug. 12, 2022), https://hbr.org/2022/08/research-the-unintended-consequences-of-pay-transparency. ↩

  27. Id. ↩

  28. Id. ↩

  29. Tanya Jansen, How Employers Can Use Pay Transparency Laws to Their Advantage, ALM Benefits Pro (Dec. 1, 2022, 09:47 AM), https://www.benefitspro.com/2022/12/01/how-employers-can-use-pay-transparency-laws-to-their-advantage/. ↩

  30. Id. ↩

  31. Katy Feinberg, Employers Call on City Council to Amend Salary Posting Law, Partnership for New York City (Apr. 4, 2022), https://pfnyc.org/news/employers-call-on-city-council-to-amend-salary-posting-law/. ↩

  32. Id. ↩

  33. Sundiatu Dixon-Fyle Et Al., Diversity Wins: How Inclusion Matters, McKinsey & Company (May 19, 2020), https://www.mckinsey.com/featured-insights/diversity-and-inclusion/diversity-wins-how-inclusion-matters. ↩

  34. Kim Elsesser, NYC Pay Transparency in Limbo as Businesses Claim Law May Hinder Diversity Efforts, Forbes (Apr. 6, 2022, 04:42 PM), https://www.forbes.com/sites/kimelsesser/2022/04/06/nyc-pay-transparency-in-limbo-as-businesses-claim-law-may-hinder-diversity-efforts/?sh=79b00bdf3b27; Jennifer Liu, NYC Business Groups Say Salary Transparency Would Make it Harder to Hire Diverse Candidates, CNBC (Apr. 11, 2022), https://www.cnbc.com/2022/04/11/nyc-businesses-say-salary-transparency-law-would-make-it-harder-to-diversify-hiring.html. ↩

  35. Kim Elsesser, NYC Pay Transparency in Limbo as Businesses Claim Law May Hinder Diversity Efforts, Forbes (Apr. 6, 2022, 04:42 PM), https://www.forbes.com/sites/kimelsesser/2022/04/06/nyc-pay-transparency-in-limbo-as-businesses-claim-law-may-hinder-diversity-efforts/?sh=79b00bdf3b27; Jennifer Liu, NYC Business Groups Say Salary Transparency Would Make it Harder to Hire Diverse Candidates, CNBC (Apr. 11, 2022), https://www.cnbc.com/2022/04/11/nyc-businesses-say-salary-transparency-law-would-make-it-harder-to-diversify-hiring.html. ↩

  36. Robin Bleiweis Et Al., Women of Color and the Wage Gap, Center for American Progress (Nov. 17, 2021), https://www.americanprogress.org/article/women-of-color-and-the-wage-gap/. ↩

  37. See Cara Eisenpress, As Pay Transparency Law Takes Effect, Some Firms Discover a Culture Benefit, Crain’s New York Business (Nov. 7, 2022), https://www.proquest.com/docview/2734716270?accountid=14667&parentSessionId=NgQJttNJCx7kytua7PYnVUCHHAeaFa18XWDsCIoxhgc%3D. ↩

  38. Vaishali Sabhahit, Adobe’s Future Workforce Study Reveals What Gen Z is Looking for in the Workplace, Adobe Blog (Jan. 24, 2023), https://blog.adobe.com/en/publish/2023/01/24/adobes-future-workforce-study-reveals-what-next-generation-workforce-looking-for-in-workplace. ↩

  39. Id. ↩

  40. Gianna Prudente, Gen Zers Want to Peek at Your Paycheck. Here’s why They’re Pushing for Pay Transparency, LinkedIn (May 11, 2022), https://www.linkedin.com/pulse/gen-zers-want-peek-your-paycheck-heres-why-theyre-pushing-prudente. ↩

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