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In 2018, California became the U.S. state to adopt pay transparency legislation, prohibiting employers from asking applicants about their salary history.
As of January 2024, there are nine states with pay transparency laws on the books, with a further state’s legislation (Illinois) set to come into effect in 2025. Colorado became the first state to pass a pay transparency law on job postings, where employers face a fine of up to $10,000 per violation if they do not disclose salary information or total compensation on listings.
In March 2023, the Salary Transparency Act and Pay Equity for All Act were introduced in Congress, and if passed, would mandate similar requirements to disclose wage rates and not ask for salary history across all U.S. states.
Employment lawyer Mark F. Kluger argues the current combination of legislation across states, counties, and local governments has created a complex melting pot. “Combined with a significant increase in remote workforces, it has made the task for HR leaders in crafting policies and practices around such laws incredibly difficult.”
With such legislation becoming more widespread, compensation professionals are in high demand. No organization wishes to face fines, lawsuits, or the bad press that comes with such misdemeanors.
Kluger outlines the implications this has for HR. “It is incumbent upon HR leaders to know themselves or have employment lawyers that counsel them on the applicable laws in every state and city in which they hire.”
“If an employer hires an exclusively in-person workforce in one state, accounting for pay transparency laws is easy,” he continues. “The current alternative to crafting different practices for each state in which an employer hires, is to have a single, comprehensive pay transparency practice that complies with the broadest state and local law.”
But there is also a knock-on effect with the rise in publicly available data on compensation. Like many other roles across HR and the business, and in part thanks to the rise of people analytics, there is now a greater push for compensation professionals with strong data literacy skills.
What pay transparency means for your organization
Greater pay transparency presents both an opportunity and a challenge for compensation and HR professionals. Whilst delivering richer market data input into compensation strategy, it also places a greater demand than ever on organizations to get their compensation strategy right.
There are many causes behind the rise in demand for pay transparency, from generational shifts in the workforce to broader candidate resentment with the recruitment process. But the ongoing Gender Pay Gap also presents a clear rationale for transparency.
2023’s Equal Pay Day on 14 March was far from a celebration. Studies across the U.S. confirmed that the Gender Pay Gap has barely budged in the past 20 years.
The National Partnership for Women & Families found that the most prominent driver of the ongoing gap is occupational segregation, which it describes as “The reality that women are concentrated in certain jobs, typically low-paid service sector positions”.
Equally alarming is that, due to limited data, plenty of such studies only consider the binaries of men and women in full-time work. Data on LGBTQ+ Americans is very limited (we still do not know the pay gap for non-binary US workers,) and although there is better data on race, it confirms larger pay gaps for women who are Black, Asia American, Latina, Native American, or Pacific Islanders.
This has shifted the conversation around pay transparency, argues Maria Colacurcio, CEO, Synd.io. "The transparency conversation has moved on from salary ranges to pushing for disclosure of the unadjusted pay gap, which is quickly becoming the metric to measure whether a company is fair and equitable."
Accordingly, the introduction of pay transparency legislation aims to improve the amount of data organizations have on pay, and to encourage organizations to close their Gender Pay Gap (and other cases of shady compensation practices) through greater disclosure and accountability.
In turn, organizations seek to build more mature compensation teams and strategies, with a heavy focus on data and analytics.
Aligning your compensation strategy with pay transparency
The increase in publicly available data on salaries and compensation is welcome, but it should not become the sole source of data for your organization’s compensation strategy.
Whether you are aiming to establish, audit, or overhaul pay ranges and salary bands, your compensation strategy must draw on analytics from a range of potential sources.
Market data offers one input into the process of defining pay ranges and compensation structures. When defining your compensation strategy, other factors may include existing roles and levels, locations, financial status and size (or ‘stage’) of the company, and current pay structures including differences between departments.
Compensation analysts will play a crucial role in architecting (or re-architecting) the pay structures within your company as they bring together data from this suite of sources.
Technology will also play a crucial role. "When looking at software requirements, be sure to assess the credibility of the provider," says Colacurcio. "Do they have expertise working with companies of your size and scale? Do they have capabilities to move from a one and done, backward looking static analysis to getting the right analytics in the hands of the front line managers at the time pay and promotion decisions are made?"
Upskilling compensation professionals
The compensation industry is not alone in its shift towards greater data-driven decision-making. As HR in particular moves to business-driven operating models, where the impact on business-level KPIs is measurable, functions across HR from talent acquisition to L&D must adopt analytics and data into every decision-making process.
A promising study from Harvard Business Review found the leading firms that “most effectively managed their workforce using analytics” improved their firm’s profit by as much as 65%.
So, how to go about making this shift? Firstly, increasing the headcount of compensation analysts and other similar professionals who have the skills to take a data-led approach. Indeed, the number of job postings for compensation professionals in the U.S. has increased substantially since 2018. Unfortunately, many companies are stuck with hiring freezes, face layoffs, and must contend with the data science talent gap.
Secondly, HR and compensation teams must work closely with L&D to close competency gaps within their organization. Building close partnerships between compensation and specialized data science teams; workshops with functions where data analytics is a mature practice; and personalized training on configuring pay ranges using compensation platforms may be in order.
Ultimately, this transformation must be part of a larger HR initiative to redesign its operating practices and procedures from the ground up. Compensation leaders must work closely with other business leaders across HR to ensure a co-ordinated effort towards data-driven decision-making.
