New pay transparency laws in states including California, New York, Washington, and Colorado require companies to post salary ranges in 2023 job postings. Be forewarned that enacting pay transparency is not limited to adding pay ranges on job postings though. This addresses only new employees joining the company. Pay transparency will also impact existing employees and requires strategic planning and a communication rollout plan.
Historically, company-wide employee compensation data has been guarded and typically accessible only to the CEO, CFO, and HR. Although publicly sharing compensation data may put some people outside their comfort zone, the cultural benefits of building more equitable and inclusive pay structures builds employee trust and often eliminates compensation misunderstandings.
A pay transparency strategy starts by defining the company’s compensation philosophy. How to do this is shared in Pay Transparency: Define Your Compensation Philosophy.
Once the company’s compensation philosophy on salary, variable pay, equity, and benefits is determined, the company can move on to the next phase of planning; defining job levels, defining roles, developing compensation ranges, adjusting employee compensation, and communicating the company’s pay transparency policies.
1. Define Job Levels
Job levels are categories with groups of different job titles and salary ranges within a workplace. They can help a company make more consistent decisions about how it develops its employees and scales its organization. Job levels also provide a career path for an employee to take as they move toward their ultimate career goal.
Until recently, early-stage companies have waited until they hit critical mass to establish job levels. Given pay transparency laws in California, Colorado, New York, and Washington, companies as small as four or more employees must comply and start publishing career levels and pay ranges.
This will be challenging for early-stage companies, which may have just one person in a job level. Though challenging, it will be a helpful planning exercise for the leadership team to think through short and longer-term organizational design, leading to more efficient hiring.
2. Define the Role
Clearly defined roles and responsibilities are key to developing well-defined job levels, which leads to higher functioning, more autonomous employees. Forward-thinking companies tie roles to company goals, and base regular performance conversations between employees and managers on the employee’s progress toward achieving their goals.
Well-designed role definitions and job levels can also be an effective way to create increased mobility for an employee; more levels with narrower pay bands can create greater equity and growth opportunities.
3. Develop Pay Ranges
Once career levels and roles are defined, companies can market-price jobs and develop compensation ranges. The new pay transparency laws require that companies set the pay range as the salary or hourly wage range for what they “reasonably expect” to pay for the position.
Building pay and equity ranges can be challenging for many reasons, including; salary survey market data often has lags and the data can be spotty, companies are getting increasingly creative with new job titles making it challenging to group similar roles, and fundraising and going public timing is less predictable.
When setting pay ranges, a company can pull from multiple sources to define a “reasonable range”:
- Market data – benchmarking the company’s pay against market-based data.
- Internal data – referencing current employee’s pay in the same or similar role.
- Recruiting data – requesting desired compensation from applicants.
Types of Market Data
There is both free compensation market data (Option Impact, Salary.com, Glassdoor) and paid compensation market compensation data (Payscale, Pave, Complete, Carta, Radford Data). The most important consideration when selecting compensation data is to make sure it aligns with the company’s compensation philosophy. The company should be able to parse the data by company size, revenue, industry, and location, so the company is comparing “apples to apples, not apples to oranges”.
A good compensation tool allows a user to filter the data so a “Series B, early-stage Biotech startup based in Colorado with employees located globally” can filter the compensation data, analyze it and build pay and equity bands that are right-sized for their organization.
Compensation advisors like Burkland People Partners are available to analyze market data and develop company pay and equity ranges for businesses that don’t have the experience or resources available to do this analysis internally.
4. Audit and Adjust Employee Pay
Once pay and equity ranges have been established, companies should conduct an audit of current employee pay and flag any significant discrepancies or inequities of pay. Outliers below range should be adjusted after conversations with the employee’s manager and employee to explain why the employee’s salary is getting adjusted.
It is critical to identify and proactively resolve inequities before the pay transparency company-wide rollout begins. The compensation team responsible for the pay transparency programming should plan to continue to monitor, evaluate, and update the company’s salary bands every 6 months.
5. The Art of Communicating Pay Policies & Practices
More pay transparency means more proactive communication is needed.
Once the company’s compensation philosophy is established, and a source and process to publish pay range information are in place, companies may begin communicating their pay transparency program to their employees.
Companies should train managers, recruiters, and people team professionals on how to communicate the company’s compensation philosophy, its stance on pay transparency and pay practices, and create tools including FAQs, a summary of links to the new pay policies, and access to the compensation bands.
A company-wide “Pay Transparency Rollout Meeting” should be hosted so leadership can share details on how its compensation program will work, the actions the company will take to remediate inconsistencies and inequities, and answer employee questions.
Pay transparency is intended to build trust by paying employees equitably, so the tone and content shared at the company-wide meeting should be well thought out. Investing the time to properly create the policies and programming around pay transparency is important, but communication of the new initiative is key. This is a meaningful step for a company!