The Legal Loophole
States like New York, California, and Chicago are knee-deep in the waters of having to comply with pay transparency laws, and others like Illinois are seeing their turn coming in the very near future.
There have always been reasons to hide pay ranges. Whether it’s to avoid competition or attract a wide range of applicants, many companies made this strategic decision under the belief it would help them attract the best candidates. However, the hiring process is shifting right before our eyes.
To try and hold on to the benefits from hiding pay ranges, some companies in these states with pay transparency laws have found a new loophole. If the job posting needs to include pay expectations, some companies are using overly broad salary ranges as a way of maintaining some mystery and staying competitive in the hiring market.
But it’s that mystery that the laws are trying to prevent.
Pay Equity as a Path to Fairness
The goal of pay transparency is to strengthen equity and actively close wage gaps affecting women and people of color. According to the U.S. Department of Labor:
“For every dollar paid to white non-Hispanic men:
- white, non-Hispanic women were paid 80 cents,
- Black women were paid 67 cents, and
- Hispanic women (of any race) were paid 57 cents.”
These discrepancies in pay can be attributed to the presence of bias during the hiring process, whether conscious or unconscious. Without any knowledge of what pay expectations should be for a role, women and people of color are then likely to accept offers that are significantly lower than what would be considered equitable. By ensuring pay equity, people from various identities have better access to financial security and economic independence, which in turn will support the quality of life for future generations.
Needless to say, the stakes regarding pay equity are fairly high, so companies looking to use a loophole are taking a big risk.
How Hidden Pay Ranges Impact Job Seeker Trust
Hiding pay ranges used to be a competitive strategy, but now it’s the opposite. As job candidates seek pay equity, coming across a posting with a less-than-realistic pay range feels almost deceitful and as if the company is untrustworthy.
In a similar vein, a study from SHRM revealed that 73% of U.S. employees are more likely to trust a company that includes a pay range than a company that excludes it.
The foundation of a relationship between employers and employees should be trusted, or else employee morale, or even the possibility of recruiting the best candidate, is at risk.
Balancing Transparency and Morale
Unfortunately, some companies complying with pay transparency laws are experiencing backlash—even without using loopholes.
After companies started posting salary ranges, some employees noticed the posting was a higher pay than what they were making for the same job. When they see these postings, they don’t automatically understand the various factors that go into determining pay. They only see a reason to believe that they are worth less than a new employee would be. This allows for room to compare themselves, become frustrated, and disengage with work. In some cases, offended employees may even leave for another company.
What Can HR Do About This?
To stay competitive in the hiring market while retaining employee morale, HR will have to shift how they handle their strategies around salary. Take a look at these tips to get started:
- Transparent Pay Structures: Define salary bands that are justified by job roles, previous experiences, and performance metrics. Helping employees understand the rationale behind pay will help foster trust and reduce conflict in some pay differences.
- Routine Pay Equity Audits: To avoid pay gaps between employees doing the same work, conduct audits and highlightany gender or racial pay gaps that need addressing.
- Job Postings Aligned With Employee Pay: The salary included in the job posting should be within range of what current employees are making. Allowing for misalignment can lead to a breach of trust and disengagement from employees.
- Open Conversations about Pay: Encourage employees to discuss the reasoning behind their compensation and be ready to provide clear and honest answers. This level of transparency will strengthen trust while ensuring your employees feel respected.
- Stay Competitive With Industry Standards: Keep track of industry trends to ensure salaries offered to new and current employees remain competitive to ensure higher employee retention and low turnover.
Build Trust and Retain Talent
In an era where transparency is becoming non-negotiable, companies must rise to the challenge or risk losing trust and talent. Creating broad pay ranges to comply with transparency laws while maintaining ambiguity can backfire, leading to disengaged employees and reputational harm. HR teams need to embrace clear, consistent pay practices and communication strategies to build trust, stay competitive, and uphold both the spirit and letter of these laws.
