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Monday, Jun 24, 2024

Are pay transparency laws working?

Are pay transparency laws working?

The laws requiring companies to post salary ranges help level pay disparities in some ways. But these steps may not go far enough.

Throughout the past year, more and more states and cities across the US have introduced laws designed to force companies to be more transparent about how much they pay employees. The most high-profile recent moves came in the states of California and New York – two major job markets – which signed off on pay transparency legislation mandating employers post salary ranges in job adverts in late 2022.

According to experts, the legislation is designed to stamp out pay gaps, particularly along gender and racial lines, by preventing both unconscious bias and outright discrimination that skews compensation in favour of certain groups. Employer discrimination drives some pay gaps, but research also shows that women and minority workers, for example, tend to ask for less money than their white, male counterparts. Experts say transparent pay standards can help address these issues.

Now that several months have passed since some of the most far-reaching legislation has come into effect, human resource experts and employees are taking stock of its effects. The verdicts are mixed.

While some data shows many employees are reluctant to even apply for jobs that don’t include salary ranges, which can benefit their earnings, many critics say that the legislation isn’t powerful enough to effect a notable change in the discrepancies that are still ubiquitous across many organisations. Some say that while employers are generally complying with the letter of the law, there’s also evidence that many aren’t complying with the spirit of the law.

While employers are generally complying with the letter of the law, there’s also evidence that many aren’t complying with the spirit of the law

This raises a question around whether – in the long run – well-intentioned salary transparency laws will actually move the needle in a notable way at all.

Demands for transparency

Amid the legislative changes in the US, most estimates say approximately a fifth of the American labour force is now covered by some kind of law relating to pay transparency. These laws have a similar essence, though the details vary.

California’s move, in November 2022, now mandates that employers with least 15 employees must publish a pay scale alongside any job advertisement. That law also requires all companies employing more than 100 people to submit an annual pay data report to California’s Civil Rights Department, providing a snapshot of employees by race, ethnicity and sex as well as the median and mean hourly pay rate for each group.

New York City’s Pay Transparency Law, which came into effect shortly after, now requires employers to disclose the compensation – or pay range – in any advertisement for a job, promotion or transfer opportunity. Maryland also requires pay disclosure for job postings upon request; and laws in Connecticut, Nevada and Rhode Island are similarly designed to ensure compensation levels are disclosed during the hiring process. A spate of other states are slated to follow soon.

Some data shows, following these new mandates, many employees now would be disinclined from even applying for a role if a salary range is not made available. An April 2023 survey of more than 1,000 Americans from ResumeLab, a resume advice website, showed four in five individuals said that they would be unlikely to apply for a job if it lacked pay information.

The legislation is designed to stamp out pay gaps by preventing both unconscious bias and outright discrimination


Sofia, a 28-year-old tech worker, who was recently laid off in California, is part of this majority. “If I can’t see a salary range on a job, it makes me wonder what the company is trying to hide,” she says. Fundamentally, says Sofia, whose last name is being withheld to protect job prospects, she’s looking for an employer who is comfortable with transparency on everything – and that extends to compensation.

She also says that a general move towards greater transparency across the labour market has made her feel more confident advocating for herself and asking for an estimated salary – even if the job in question is in a state without pay range legislation. “In the past, I’ve often been asked in job interviews what my salary expectations are. But I always feel like that’s a trick question because I might be underselling myself,” she says. “I’m definitely not going to fall for that again.”

And she believes, more fundamentally, the laws that have passed have moved the conversation around pay equity into the mainstream. This is good, she says, as it creates more public scrutiny, and encourages self-advocacy among employees who might consider themselves undervalued.

Too many loopholes


Beyond this, however, both academics and legal practitioners are sceptical about their larger effects.

Even though there’s no data yet to illustrate the impact of the new laws, some say they’re not sure how effective they’ll be. In principle, laws like this are a good thing, they say, but in practice, the evidence that they can effectively remedy pay gaps and stamp out inequity has yet to stack up.

One of the key shortcomings of many of the state laws is that loopholes exist that can relatively easily be exploited. The New York law, for example, is based on “good faith”, and mandates companies to determine ranges based on their best estimates. But there’s no mechanism to check whether ultimate offers fall within the ranges initially provided. And almost immediately after the New York pay range laws came into effect, companies began posting intentionally broad on some job advertisements. Some workers have observed range differentials of more than $100,000 on posted listings. Companies also aren’t required to list exact figures around bonuses or equity, which changes the compensation calculation, too, and can also reinforce biases.

If I can’t see a salary range on a job, it makes me wonder what the company is trying to hide – Sofia


This sort of behaviour indicates that there’s still much work to be done, says Tom Spiggle, an employment lawyer based in Virginia. “Employers posting wide salary ranges does little to help prospective employees know how to negotiate an appropriate salary,” he explains. He’s hopeful, however, that “courts and regulatory bodies will eventually weigh in as contested cases move through the system.” This, says Spiggle, will offer an “opportunity to curb abuses”.

Jennifer Gant, a lecturer in law at the University of Derby in the UK, explains that the underlying problem with requiring strict or narrow salary ranges is that it limits flexibility in terms of negotiation.

And employees who are able to negotiate salaries report that the ads feel ineffective. Tim, a 28-year-old finance professional, who’s based in New Jersey but works in New York City, said that he received a job offer that was $10,000 dollars above the range stipulated in the advertisement. “I negotiated hard and managed to get them up higher,” he explains, “which makes me thing the pay range legislation is pretty useless.”

Part of a broader solution


Ultimately, experts agree that even though some elements of pay transparency laws are effective, they’re generally only part of a broader solution for fixing inequity in the workplace.

In addition to more transparency, the scholars suggest companies need to address structural inequities by conducting honest pay audits, offer better policies relating to things like parental and carers’ leave.

“It’s a great first step,” says Spiggle. “As someone who represents employees, pay disparity cases can be difficult when employers claim that pay data is confidential.”

He says transparency laws are a “crucial first step”, because they provide employees a tool to use to find out what their peers are paid. “This is particularly important for women, as women in some industries are systematically paid less than their male counterparts,” he adds. “These laws provide a little bit of sunshine into compensation practices.”

Gant agrees. “Salary transparency is definitely worth it, as it will have reduced discriminatory practices,” she says. “It may not be a perfect solution, but it is a good start.”

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