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Copyright © 2017 HRsoft Page 2
Effective Strategies for Dealing with Pay Transparency Demands
In recent years, “transparency” has become a buzzword within the business world. More and more organizations
are striving to become more transparent in a number of areas such as financial reporting and business
relationships. The human resources function has also faced pressure to improve transparency in a number of
areas, particularly ones related to executive pay.
Below the executive level, there are increasing calls for greater pay transparency. For HR professionals and
managers alike, these demands can be challenging and overwhelming. While transparency is ultimately
meant to improve employees’ perspectives regarding pay equity, sometimes it can be difficult to determine the
approach that will also minimize risk and ensure regulatory compliance.
In this guide, we’ll help you navigate the topic of pay transparency and make your organization better prepared to
meet the demands of today’s employees and stakeholders. Some of the topics we’ll address include:
What is pay transparency?
How to address stakeholder demands
What are the primary laws and regulations that protect pay equality?
Where is pay transparency headed?
What employers should do (and not do) to prepare
How to factor in market pay
How much transparency you should provide and how to achieve it
We’ll begin by discussing exactly what the term “pay transparency” really means. Let’s get started!
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Effective Strategies for Dealing with Pay Transparency Demands
What Is Pay Transparency?
At the basic level, pay transparency is the
practice of providing clear insight as to how much
employees are paid for the jobs they perform and
how that pay is determined. There is, however, a
more significant and powerful reason as to why
pay transparency has become a hot topic. In many
ways, pay transparency can be viewed as a means
to an end, with the end being pay equity. Pay equity
is a goal shared by employees and employers
alike. To the extent an organization can practice
and clearly demonstrate pay equity, the better off
it will be in attracting, retaining, and motivating
employees. Becoming an employer of choice or a
best place to work with the ability to hire the best
and the brightest can contribute positively to an
organization’s market reputation, its performance
versus its peers, and the bottom line.
What Else Is Driving Pay Equity?
In addition to pay transparency, there are three other driving forces behind pay equity. These factors are:
Inherent fairness
Stakeholder demands
Legislation and regulations
Like pay transparency, each of these factors contributes towards improved pay equity for all employees. Let’s
take a closer look at these factors.
What is Inherent Fairness?
Defining “fair” can be tricky since fairness is often in the eyes of the beholder. Although people may disagree
about how much pay is fair, there is an inherent belief that such a number can be identified once it is put into
the right context. The meaning of fair as it relates to pay includes multiple perspectives such as gender equality,
internal equity, and market value. The relative importance of each of these elements to an individual will shape
one’s definition of what is inherently fair. Regardless of one’s personal perspective, the notion that a worker
should receive a fair day’s wages for a fair day’s work is a long-standing principle that most people accept.
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Effective Strategies for Dealing with Pay Transparency Demands
Addressing Stakeholder Demands
In recent years, shareholders of publicly traded companies have taken a keen interest in the matter of executive
pay and have demanded and received some say in the matter. Job search websites like Glassdoor have
furthered the demand for pay information beyond the executive level and into the general employee population
by encouraging greater disclosure and sharing of wages and salaries. There are even websites that will provide
you with basic information on typical pay levels for a number of popular jobs.
As pay becomes more transparent and public, topics like the gender pay gap are thrust into the spotlight. Take for
instance the U.S. Women’s National Soccer Team and the U.S. Women’s National Hockey Team. Members of both
teams have recently exerted pressure to pay players the same as their male counterparts.
Such instances have drawn greater attention to Equal Pay Day – the day, usually in April, that signifies how far into
the current year women must work to earn what men earned in the previous year. As we’ve seen in recent years,
it’s important for companies to take action – not just vocalize their support – in complying with pay transparency
demands. Thus, there are two critical actions to take away here. The first is that your organization’s actions will
ultimately determine your level of pay transparency. In other words, you must also “walk the talk.” Secondly, it’s
always best to be prepared for your pay decisions to be challenged. We’ll cover some vital preparation strategies
shortly.
First, however, we’ll take a brief look at how both past and more recent regulations have impacted the ways we
determine pay.
Legislation & Regulation
One of the most challenging aspects of equal pay compliance is the fact that federal regulations are spread
across a number of entities. These federal agencies include: the U.S. Department of Labor (DOL), the Equal
Employment Opportunity Commission (EEOC), the Internal Revenue Service (IRS), and the Office of Federal
Contract Compliance Programs (OFCCP). Each agency has its own set of regulations when it comes to pay. For a
better understanding of how legislation impacts pay, let’s take a brief look at the history of equal pay laws.
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Effective Strategies for Dealing with Pay Transparency Demands
The 1960s
One of the most frequently cited federal pay laws
is the Equal Pay act of 1963, which is actually
an amendment to the Fair Labor Standards Act
of 1938 – the law that determines the federal
minimum wage and overtime pay requirements.
The amendment enforced equal wages between
men and women in “the same establishment,”
but as you can imagine, there tends to be some
confusion surrounding this term. What, exactly,
does “the same establishment” refer to?
A few other aspects of the amendment are equally tricky to decipher. It cites that men and women who
perform jobs requiring “substantially equal” skill, effort, or responsibility should not face gender-based wage
discrimination. Again, the verbiage is less concrete than perhaps it could be, but as we’ll discuss in an upcoming
section, there are steps you can take to make sure you’re erring on the side of caution with your pay strategy.
Another well-known federal pay regulation is part of Title VII of the Civil Rights Act of 1964. In addition to
prohibiting wage discrimination based on sex, it also provides protections based on race, color, religion, and
national origin. Additionally, it covers all aspects of employment – not just pay.
In 1965, Executive Order 11246 was implemented. This order was passed to help protect the rights of employees
who work for contractors and subcontractors with federal government contracts that exceed $10,000.
The 90s to Now
As you can see, wage discrimination was a central issue during the 1960s. Things were relatively quiet, however,
until the 1990s. In 1997, the Paycheck Fairness Act was introduced, which would narrow and modify certain terms
in the Equal Pay Act. It would also protect employees against retaliation for discussing pay with colleagues,
and prohibit employers from using salary history during the screening or hiring processes. While it has been
introduced in every session of Congress since, the bill has not been passed.
In 2009, the Lily Ledbetter Fair Pay Act was enacted to extend the statute of limitations for equal pay lawsuits.
Then, in 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act was passed. This law brought
with it requirements for determining the CEO pay ratio and “Say-on-Pay,” which refers to stakeholders’ ability to
weigh in on executive pay packages.
More recently, a new set of overtime rules were introduced under the Fair Labor Standards Act, though the rules
were quickly appealed and are currently on hold. However, it’s important for HR professionals to recognize that
the proposed rules opened up questions among employees about who’s exempt and who’s not, which has likely
spawned other pay-related discussions.
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Effective Strategies for Dealing with Pay Transparency Demands
Where Is Pay Transparency Headed?
Currently, the District of Columbia and 48 states (not including Mississippi and Alabama) have equal pay
regulations. Thirteen states also have also introduced laws to enforce pay transparency protection. Most recently,
Maryland, Delaware, and Massachusetts have enacted laws prohibiting employers from taking action against
employees who discuss or disclose wages.
These laws allow employees to discuss pay information without the risk of facing adverse action from their
employers. Employers may also be prohibited from requiring employees to waive the right to discuss their
wages. Keep in mind, however, that pay transparency laws do not require employers to disclose individuals’ pay
information.
Some cities are also developing their own pay regulations. Philadelphia recently became the fi rst city in the
U.S. to prohibit salary history inquiries during the hiring process, while New York City passed a bill prohibiting
employers from doing the same during any stage of employment. New Orleans, Pittsburgh, and Washington,
D.C., have their own laws as well. Some of these laws are under appeal so it is important for employers to monitor
developments.
While the primary intent of these laws is to make the workplace fairer for everyone, they may also make HR’s job
more diffi cult. According to a HRsoft poll, 52% of respondents said they were most concerned about all three of
the following: federal, state, and local pay-related legislation; versus any one or two of these areas alone.
If this applies to you, you’re in the right place. Next, we’ll discuss what employers could consider doing (and not
doing).
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Effective Strategies for Dealing with Pay Transparency Demands
What Employers
Should Do (And NOT Do)
Since pay regulations vary by location it’s important
to know the different laws. In addition, here are a
few best practices for employers to consider.
Know the Lingo
Pay equity terminology can differ significantly
from one law to the next. Terms like “substantially
equal,” “equal,” “similar,” and “comparable” are
found throughout the legislation, but it doesn’t
mean their definitions are interchangeable. Each
term has its own unique meaning and application.
Avoid Using Pay History
As we’ve seen, a growing trend in many areas is
the prohibition of using pay history to determine a
new hire’s starting pay level. You can stay ahead
of any potential legislation that could eventually
affect your organization by discontinuing this
practice now.
Pay Employees at or Above Minimum
Paying employees below the minimum of the pay
range for their jobs puts employers at high risk for
pay equity claims. Make sure you can afford to pay
employees the minimum (at the very least) before
hiring someone new. In addition, make sure new
hires meet job requirements. If they do, don’t let
their pay history fool you into paying them below
minimum. The money you save can be lost five-
hundred fold in a pay discrimination law suit.
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Effective Strategies for Dealing with Pay Transparency Demands
Have Defined Pay Criteria
Avoid making pay decisions on a case-by-case
basis. It’s best to have defined criteria and written
guidelines, and to follow them. Any exceptions to
those criteria should also be clearly documented.
Establish Checks and Balances
A manager’s input may be one of the most
important factors determining an employee’s pay,
but avoid giving managers complete discretion
when it comes to starting pay amounts, raises,
and promotions. Instead, implement a system of
checks and balances to avoid personal biases and
ensure consistency across business groups and
functions.
Develop a Stated Compensation Philosophy and Strategy
Make sure your organization has a written philosophy and strategy on pay. This should encompass starting pay,
pay increases, bonuses, and all other aspects of compensation. Also make sure that managers and supervisors
have a copy and understand it.
Refine Your Pay-for-Performance Approach
If your organization uses performance-based pay, make sure you are defining the criteria used to measure
performance. Employees want to know how they are doing relative to those criteria and managers must be able to
justify their performance rating decisions. Pay-for-performance is as much about performance as it is about pay.
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Effective Strategies for Dealing with Pay Transparency Demands
What About Market Pay?
By this point, you may be wondering how market pay factors into pay equity. According to a HRsoft survey, 63% of
respondents use market pay data as a guideline for making pay decisions, while also considering other factors. A
quarter of respondents use it as the sole factor. Relying exclusively on market pay to make pay decisions carries
with it some risk.
Using market pay is perfectly legal, but opposition to this approach may intensify over time. One reason is
that male-dominated jobs tend to be paid higher than female-dominated job. Thus, using market pay could
perpetuate pay disparities because market data shows a historical bias in favor of males. With the spotlight on the
gender pay gap, relying exclusively on market pay could mean treading into dangerous territory.
If you’re like the majority of organizations that still find market pay to be one of the most convenient and
trustworthy sources for helping you make compensation decisions, here are a few guidelines to consider:
Use multiple compensation survey sources and make sure they’re credible.
Document job matches and have them reviewed by multiple parties. Never rely on one person’s opinion
alone.
Once you establish a market reference point, make sure that it is applied without gender or other bias.
When making pay-related decisions, consider implementing a plan, system, or process through which
you can account for factors other than the market. Some variables to look at are skill, effort, responsibility,
working conditions, seniority, and performance.
Remember to evaluate jobs – not people – which can be particularly challenging in cases of single-
incumbent jobs.
Review and test compensation programs, processes, and results that were developed based on market
data. Check carefully to make sure there are no systematic biases or unexplained gender-based
correlations.
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Effective Strategies for Dealing with Pay Transparency Demands
How Much Transparency
Do You Need?
The answer to this question will vary from
organization to organization, depending on things
like philosophy, strategy, and culture. Generally
speaking, sharing more information about how
pay decisions are made is better than sharing
less. When employees understand how their pay
is determined and what they need to do to earn
more, they tend to respond positively and perform
accordingly.
How to Improve Your Pay Transparency
If you think your pay transparency could be improved, start by looking at your compensation philosophy and
strategy. If you don’t have one yet, now is a great time to create it. Make sure it reflects your current business
strategy, aligns with your pay programs, and that employees will be able to understand how their actions
influence their compensation.
It’s also a good idea to think about implementing a specific pay transparency policy. You’ll want to take a look at
who makes decisions about pay, who informs employees about pay changes or incentive payments, and who will
respond to questions about pay from employees. You may need to implement the policy in several stages.
Your organization’s ability to pay fairly hinges largely on your compensation communications. Thus, it’s critical to
revisit communication channels, as well as the topics you’ll need to cover. For instance, in addition to base pay,
you might also want to communicate details surrounding both long-term and short-term incentives. Remember,
base pay is only one piece of the puzzle; making it fit well into the total rewards strategy is crucial.
Also, pay communications don’t have to consist of a once-a-year conversation. Train managers on how to hold
engaging and insightful conversations with employees about pay. Make sure the information they’re providing
is accurate, authentic, and in line with your organization’s compensation philosophy and strategy. You can offer
some sample scripts or questions and answers for particularly challenging topics.
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Effective Strategies for Dealing with Pay Transparency Demands
Summary
Now that you have a firm idea of where the business landscape is headed in terms of pay transparency and pay
equity, you can begin taking the steps to ensure your organization is prepared for the future. By following the tips
listed in this guide, your organization will be better prepared to meet increasing pay transparency demands.
For a brief review, here are the key concepts covered in this guide:
Pay transparency is a means for achieving pay equity by making information as open and accessible as
possible. There are other factors that influence pay equity – the concept of inherent fairness, ongoing
stakeholder demands, as well as changes in regulations and legislation.
In recent years, stakeholders have taken a keen interest in pay levels. As topics like gender pay inequality
in sports and Equal Pay Day generate increased publicity, organizations’ pay decisions are coming into
question more frequently.
Many of today’s equal pay laws were developed in the 1960s. From then until the late 1990s, there was
little legislative activity. Some states and cities have taken up the pay equity cause by passing their own
local laws that can vary by location.
By taking note of pay transparency trends, organizations can prepare themselves for the future. For
instance, a number of cities have enacted legislation prohibiting employers from basing starting pay on a
candidate’s salary history.
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Effective Strategies for Dealing with Pay Transparency Demands
It may be prudent to adopt this practice
across business locations as a proactive
step in ensuring compliance with future
pay laws.
Having a stated compensation philosophy
and strategy is one of the most important
ways to promote pay equity. Some
additional tactics include defining
and measuring performance, paying
employees at or above the minimum of
the pay ranges for their jobs, establishing
some checks and balances around pay
decisions, and basing pay decisions on
factors other than market data alone.
Determining how much pay transparency your organization should provide depends on your specific
needs and objectives. It’s important to align your organization’s pay transparency policy with its
compensation philosophy and strategy.
You can improve your pay transparency by training managers on carrying out pay conversations and
communicating compensation-related information more widely throughout your organization.
While the new world of pay transparency may require some adjusting to, employers and employees alike may
benefit from the heightened level of visibility. In being more forthright and open about pay decisions, you can
demonstrate to your employees your organization’s commitment to fairness, which will ultimately help foster a
culture of dedication and excellence.
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Effective Strategies for Dealing with Pay Transparency Demands
About the Author
Tom Burke | Principal & Global Practice Leader, Conduent
Tom Burke is a Principal and the Global Leader of the Career Consulting Practice at
Conduent Human Resource Services. In this role, Tom serves as the leader of the
fi rm’s consulting services associated with compensation and talent management.
He is accountable for client and employee satisfaction and retention, business
development and growth, oversight of projects and client relationships, staffi ng,
team collaboration, as well as resource and fi nancial management.
Tom holds a B.A. degree in Economics from Duquesne University and has more
than 30 years of consulting experience.
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