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EFFECTIVE STRATEGIES FOR DEALING WITH PAY TRANSPARENCY DEMANDS

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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!



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.



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.



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.



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).



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.



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.



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.



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.



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.



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.



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.

Resources

HRsoft is a cloud-based, High Impact Talent Management™ software

company that specializes in improving employee engagement

and retention for mid-large sized employers. Our High Impact

Talent Management System™ includes modules for compensation

management, applicant tracking, management software, total rewards,

stay interviews, and content management.

Phone: 866.953.8800 | Email: [email protected] | Web: http://hrsoft.com

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EFFECTIVE STRATEGIES FOR DEALING WITH - hrsoft.com · by encouraging greater disclosure and sharing of wages and salaries. ... minimum wage and overtime pay requirements. ... the