Pay transparency: ‘the whole thing is a manager problem’
3 Apr 2023
Opening the pay box
There is a delicious irony for those of us who have many years of experience of fighting to realise the potential of the 1970 Equal Pay Act, to create fairer and more equal pay management, to read the complaints published in the Financial Times this week. They came from employers and the wider financial community in New York in reaction to the legislative requirement which came into effect last November that they must publish a pay range with every job advert they place.
Published under the headline ‘US transparency laws cause pay disparity disputes’, all manner of employee relations chaos has, so we are led to believe, resulted from this apparently fairly innocuous act. It has, one claims, ‘upset a lot of people’, and generally those employees (especially women and ethnic minorities) who find out they are paid below the rates advertised for new recruits.
Talk about shooting the proverbial messenger! My less-experienced but all knowing millennial daughter Genny wouldn’t think about applying for a job which didn’t have the pay rate advertised.
Data from Adzuna shows the majority of their UK job ads not only don’t include the pay range information, but also that this proportion has even declined over the last five years rather than improved.
Presenting at an excellent meeting of the People Director Partnership in Soho later in the week on managing the Gennys, Baby Boomers and all of the different generations in the workplace, I was pleased to hear that pay transparency was so high on the priorities of many of the HR directors there. This month’s gender pay gap reporting deadlines it is true, do always focus employer and HR minds on transparency and how to explain any untoward pay gaps so exposed at this time of year.
Pay transparency legislation
UK employers still have a choice on pay reporting more widely, and the government came out unequivocally last year against extending the reporting requirements to cover ethnicity pay.
Employers in a growing number of US states, and shortly in EU countries as well, have no such voluntary choice, with The Inc. Magazine labelling 2022 as “the year of (enforced) pay transparency”. The recent legislation takes two forms: as in New York, requiring pay rates/ranges to be published alongside any advertised vacancies, and banning salary history discussions once candidates are being considered. The measures are designed to present importing into employers the significant and persistent pay gaps that exist between different groups in the labour market on both sides of the Atlantic, particularly in terms of gender and ethnicity, gaps which even the Sewell Commission accepts are at least partly unexplained.
More than 20 US states now have some version of a salary history ban in place; and laws like New York’s requiring firms to disclose pay ranges to job candidates have been enacted in several states and cities including California, Colorado, Connecticut, Maryland, Nevada, Rhode Island and Washington.
Major companies—including Bank of America, Cisco Systems, Lands’ End and Starbucks - have already pledged to restrict their use of salary history as a measure to address gender and racial equity globally. But Aon’s Pay Disclosure Pulse Survey, (October 2022) of 255 US companies found only 31 per cent of firms will disclose their pay ranges in all states, showing the importance of the legislative ‘push’.
In Europe, the European Commission’s pay transparency directive was passed last December and member countries have two years now to implement its provisions. It states that ‘all companies with at least 50 employees must disclose information that makes it easier for those working for the same employer to compare salaries and expose any pay inequalities’. It also mandates ‘Pay transparency for job-seeker’s’. Employers will have ‘to provide information about the initial pay level or range in the vacancy notice or before the interview’ and ‘will not be allowed to ask prospective workers about their pay history’.
Does transparency work?
Whilst it is still early days in terms of the US experience, emerging research in the states which were the first to implement transparency legislation indicates that these policies are indeed having the intended effect:
- A California study (April 2020) found that when employers were prohibited from seeking a job candidate’s prior salary and published their salary ranges, the overall gender wage gap narrowed, largely due to increased earnings for women.Women older than 35 saw the greatest earnings increase—particularly women who were married and had children.
- Boston University’s School of Law (June, 2020) found that after similar legislation workers who changed jobs saw their pay increase by 5 per cent more than comparable workers, with significantly higher increases for women and African Americans.
IES’ own review for the Equality and Human Rights Commission of the wider international academic research on ‘what works’ in closing pay gaps, found ‘overwhelming’ evidence that greater pay transparency within and between employers promotes fairer pay systems; and it contributes to reducing unjustified disparities in pay that are evident for women, ethnic minorities and the disabled.
Moving to pay transparency and fairness
Author of the Aon survey, Kelly Voss, believes that ‘to comply with new laws and help improve employee confidence in (and motivation from) pay, organizations need to move toward clearer, more consistent and transparent pay management’.
One of Citigroup’s female IT workers complained on Twitter that she had seen on LinkedIn an advert for her own role paying over $32,000 more than her $85,000 salary. The justifiably ‘pretty upset’ Nguyen told the FT’s Taylor Nicole Rogers, ‘the (resulting) chaos on my team could be proactively resolved if they brought everybody’s pay up to par. The whole thing is a manager problem’.
Duncan will be speaking on the latest developments in pay transparency at the forthcoming IES Annual Conference, Shaping a Fairer World of Work.
If you would like to discuss any issues around pay and reward strategies our consultants are here to help, contact: askIES@employment-studies.co.uk
Any views expressed are those of the author and not necessarily those of the Institute as a whole.