Pay Transparency: What Is It And How Will It Help Your Recruitment Process?
If you’re losing candidates to mismatched pay expectations, this article is for you. Pay transparency is a big factor for candidates during the recruitment and hiring process.
Do you have your pay ranges posted on your job ads? Are your recruiters comfortable talking about roles’ pay and compensation with candidates? Does your organization fairly compensate your current employees too?
If you’re struggling with any of the above, then it might be time you added the pay ranges to your job ads. Many U.S. states currently – or will soon – have pay transparency laws where employers must disclose wage information as a part of the hiring process.
Laws aside, adding pay ranges to your job ads is a great practice and will actually make your recruitment process more efficient, saving you time and helping you find the right match sooner.
So, let’s talk about what exactly pay transparency is, the laws and compliance behind it, and how you can optimize your recruitment process!
What is Pay Transparency?
Pay transparency, according to PayScale, is where employees have an “understanding of their company’s philosophy, strategies, and practices.” Every company has its level of transparency, and pressure has undoubtedly been put on companies to be far more transparent than ever before.
PayScale measures pay transparency on a spectrum (see below). The bare minimum – Level 1– is telling an employee how much they make and nothing more. As you work your way along the spectrum, a company will share pay ranges for different roles and the strategy behind each calculation.
Many companies rarely venture into Level 5 but are working on being more transparent with how they calculate pay and where employees can grow.
At its core, pay transparency aims to help employees understand how and why they’re paid the way they are and what is needed to move up the ladder.
State Transparency Requirements
Unfortunately, pay gaps and inequities are still very common and have been for some time. For example, In 2020, the Pew Research Center found that women, on average, were still only earning 84% of what men earned.
Luckily, we’ve recently seen an uptick in state legislature to address these systematic pay gaps and inequities. This momentum was sparked in 2018 when California first required employers to provide a pay scale if an applicant requested it.
In 2021, pay transparency laws changed with laws passed in Connecticut, Nevada, Rhode Island, and Colorado requiring proactive disclosure of pay information such as in a job posting.
Many other states are considering similar legislation to encourage employers to be more transparent with their compensation and pay scales. You must know the laws and requirements for pay disclosure in your state to remain compliant. It’s even better to be proactive with the pay transparency you take on in your organization.
So, now you have an idea of pay transparency, let’s dive into what this means for your recruitment and hiring process.
Transparency, Recruitment, and Hiring
Level 1: “What”
Employers at this level will disclose the least amount of information possible to candidates. They will usually only tell candidates what their immediate compensation is and nothing more.
Level 2: “How”
A company will use market pay data to set a basic compensation strategy. They will then share a limited overview or summary of this strategy with candidates.
Level 3: “Where”
A company at this level will create a philosophy, strategy, and pay range for roles to create a salary and wage schedule. This schedule will usually be shared with candidates to see where they could fall on the pay spectrum.
Level 4: “Why”
Companies at this level will align their compensation strategy with their company culture. They’ll train their managers on openly sharing salary ranges and the rationale behind each with candidates. This requires explaining how candidates’ skills and experience align with different business objectives.
Level 5: “Whoa”
Again, this is rare for a company to be here because this would mean releasing a massive chunk of compensation data to the general public. Candidates would be able to find (or request) the pay rate for all positions within the company and how the company arrived at this rate.
When deciding the level of transparency during the hiring, you must realize this applies to everyone. Level the playing field by providing potential candidates with the same access to pay data during the recruitment process as you would to current employees.
Deciding where your company should fall on this spectrum isn’t easy. It usually takes a lot of work, discussions, and market research to conclude what you want to share, how you want to share it, and why you’re doing so.
Benefits of Pay Transparency in the Hiring Process
Many benefits come with pay transparency when applied to recruitment and hiring, but here are a few key ones:
1. Avoid losing candidates to a mismatch of pay expectations in the interview process. Talking about pay and compensation up-front will attract the right candidates with the best pay alignment. Research shows that job posts that included salary ranges attracted 43% more applicants than posts without this information. This helps you avoid getting to the end of the interview process and realizing the candidate is looking for higher pay than you can offer.
2. Ensure that you’re paying current employees and new hires equitably, proactively working to close the race and gender gap. If there’s less mystery about how and what people are getting paid, it becomes harder to hide any pay inequities. Transparency opens the door for conversations about potential or current pay inequities. It puts pressure on the company to re-evaluate its pay structures so that everyone is being paid equitably for equal work.
3. Build a sense of trust and honesty from the start of the candidacy. Pay transparency sets the tone for a culture of transparency. Candidates tend to find it attractive when people within the organization openly discuss pay information, and there is nothing to hide. Candidates will know on day one what they can expect from you as the employer and then what it will take to get to the next rung of the compensation ladder.
4. Increase retention by creating an environment where people know how to grow in the organization. PayScale’s Fair Pay Impact Report found that employees who felt their organization had low pay transparency were 183% more likely to seek a new job than those who felt their organization had high pay transparency. Employees that know how they can grow in the organization and the impact it’ll have on their total compensation are far more likely to stick around.
Optimizing the Recruitment and Hiring Process
Beyond the legal piece, neither current employees nor job seekers settle for companies that lack pay transparency and wait for legislation to force their hand. The pressure is on for companies to be far more transparent with their pay information to break down pay inequities and help employees feel valued at their job.
So, how do you ensure that you’re attracting top talent through pay transparency? Here are a few of our recommendations:
- Include pay and compensation information in your job ad.
- Train recruiters and hiring managers on discussing pay and compensation with candidates during the interview process.
- Review your internal equity and use market research to develop a comprehensive compensation philosophy consistent with internal employees and new hires.
- Get feedback from new hires and current employees to refine your hiring process and improve pay transparency.
Not sure where to start on your pay transparency journey? Don’t sweat it; HR Annie and True Calling Recruitment do! We can help you build comprehensive pay and compensation systems that will help promote equity and sustain your business for the long term.