States Are Implementing Wage Transparency Laws — But Are They Effective in Achieving Equal Pay?

The coronavirus pandemic has created a new work-from-home reality for many office workers, with company leaders nationwide posting new job listings that allow candidates to work in any state. Anywhere except Colorado, that is.

Earlier this year, Colorado's Equal Pay for Equal Work Act became effective, making it the first state to require companies to list a salary range for any job posting. But rather than comply with the state's new law, many large companies have opted not to accept Colorado-based candidates for remote roles.

"Companies push back on transparency laws for reasons ranging from operational limitations, to worry that it will harm competitiveness,"  Kaitlyn Knopp, Founder and CEO of compensation platform Pequity, says. The postings can also cause discontent with current employees if a company isn't already transparent or communicative about compensation, and then an employee sees their salary at the low-end of the posted range.

But keeping wages and salary ranges under wraps has long contributed to the pay gap between men and women, and between white and non-white employees. In fact, a lack of pay transparency has been directly correlated to the gender wage gap, according to a survey conducted by PayScale. This gap has also been shown to be smaller for jobs in the public sector, where salary ranges are transparent and public, versus roles in the private sector. And one study on a large private company, even found a noticeable gap in compensation for the organization's women, non-white, and non-U.S. born employees when compared to U.S.-born white men with the same job and performance level. That gap existed until a pay transparency framework was put in place.

Laws like Colorado's can help push the needle forward in the fight for equal pay. But beyond that, it's going to take the work of company leaders to have a comprehensive compensation plan and philosophy that brings data and transparency to the forefront, minimizes pay disparities, and gives all employees and candidates the tools needed to fairly negotiate their pay.

The First Step Toward Equity

Complying with transparency laws is the bare-minimum step in ensuring pay equity. The Colorado law, and many of the similar proposed bills in consideration across the country, only require companies to post a salary range, which can sometimes be absurdly wide and from which companies can deviate when actually making a job offer.

"In theory, posting salary ranges helps create perfect information," Knopp says, which can give candidates more insight into market value for the position. "These laws certainly help level the information playing field, but there still needs to be internal mechanisms at companies to help create pay equity."

That needs to happen foundationally at the board-level, Thanh Nguyen, CEO and Co-Founder of OpenComp says, where members can help create a clear compensation philosophy for the company. The executive team also needs to have a data-based understanding of existing pay equity gaps, and the ability to measure and monitor performance toward narrowing these gaps. Those philosophies and goals can then help provide the necessary relevant information for both hiring managers and candidates, so both can make the best decision for a specific role.

"As pay transparency laws become more common, having compensation clarity will move up on modern employer and employees' priority lists," Nguyen says. That means companies will have to track and share pay equity data, and show progress over time. "The companies who want to build trust with their employees, and win talent will take the lead here," Nguyen adds.

How Leaders Can Better Handle Salary Conversations

Communication around compensation has only gotten more heated, with the growing hybrid workforce and the "Great Resignation" impacting how salaries are determined and advertised. Companies like Google have tried to introduce salary calculators to their employees based on geographic location, but Nguyen warns these aren't a cure-all.

"Employee-facing apps and tools are a great step-function when balancing the information asymmetries between companies and candidates, but many of these tools are skipping to the end of the line," he says. "If companies haven't done the foundational work to create their compensation philosophies, decide what data they use to establish it and how it compares against the market, then these calculators only raise more questions with employees."

And you can be sure employees and candidates are paying more attention than ever to how companies are handling these conversations. "When companies hiring remotely updated their job postings to say 'remote everywhere but Colorado' to avoid listing salary ranges, they were openly called out for it by employees and the media," notes Knopp. "This made those brands appear very employee unfriendly." To keep tabs on these companies, Colorado resident and software engineer Aaron Batilo created ColoradoExcluded.com, a platform that lists all current employers with exclusionary job openings.

Transforming Transparency

As more states work to pass pay transparency laws, experts say company leaders need to be prepared to reframe and rethink their compensation philosophies going forward.

Rather than skirt around these changes, executives can create a lasting culture of fairness and equity by communicating clear guidelines around how compensation is determined, and establish a game plan for how pay metrics will be tracked in order to close existing gaps.