Companies are gaming pay transparency laws intended to bolster pay equity in the workplace.
Companies are gaming pay transparency laws intended to bolster pay equity in the workplace. According to research from Indeed’s Hiring Lab, “Salary ranges advertised on job postings are widening in tech hubs and areas with pay transparency requirements.”
Technology hubs and large cities subject to legislation requiring salary disclosures have the widest advertised salary ranges. Companies are making a mockery of the law by posting a huge range, such as $50,000 to $250,000. The significant spread makes it useless for job seekers.
Indeed analyzed salary data and found that lower-wage and frontline workers receive more accurate information in job postings. Under 50% of United States job postings included some salary information. Only about 10% of all job postings note an exact pay level.
A number of states and local jurisdictions have enacted pay transparency laws requiring companies to disclose compensation information on job descriptions. These states include California, Colorado, Connecticut, Maryland, Nevada, New Jersey, New York City, Rhode Island and Washington.
In some jurisdictions, employers must also share salary and wage information with current employees upon request. Companies are required to provide a general description of all benefits and other compensation. In some states, employers are prohibited from asking for a job applicant’s salary history.
Companies that fail to comply with these pay transparency laws may be subject to regulatory investigations, lawsuits and civil penalties.
Pay Equity
The primary goal of these new laws is to help close wage gaps for marginalized people. It greatly benefits job seekers, as they now know the prevailing compensation rates. Prior to pay transparency legislation, before any interviews were conducted, a prospective employer would demand to know how much an applicant currently earns and then base the salary offer on that person’s past pay package. This created a massive disadvantage for people since companies were able to lowball them.
Now that job hunters don’t have to disclose their salaries in certain states, people have seen increases in their compensation packages. If a person currently earns $100,000, but has the skill set, experience and background to work in another role at a company that will pay $250,000, they will no longer be held prisoner to their salary history.
Hannah Morgan, a job search strategist and LinkedIn Top Voice, said about pay transparency, “When every company lists salary ranges, we'll be closer to salary equality.” Morgan added that the lack of disclosure places applicants in a disadvantageous position, as “most people stink at negotiating and it's not a skill required in many jobs, so why make inexperienced negotiators lose out on potential income?”
Changing The Game
Let’s be honest. The primary reason for seeking out a new job is to earn more money. Without any clarity on the job description, it makes it difficult for job hunters to make an informed decision about whether or not to pursue an opportunity. For white-collar, college-educated professionals in the current job market, it could take three to six months to interview and meet with three to 10 people before you land a job offer. It is a lot of time and effort to find out at the end of the process that the pay is significantly lower than you thought it would be.
In 2018, LinkedIn conducted a study to determine what parts of the job description resonate most with job seekers.
The respondents were asked to highlight the aspects they found helpful, appealing or would make them more likely to apply. The employment-focused social media platform was surprised to learn that the salary range was the most highlighted portion of the job description (61%).
Greg Lewis, LinkedIn's senior content marketing manager, wrote on the company’s Talent Blog, “When reading a job description, candidates really want to know what’s in it for them: what work they’ll do, how much they’ll make, and whether they can realistically get the job or not.” Lewis added, “At this stage, candidates may only spend a few seconds on your job description, as they could be sifting through dozens of others. Put simply: they need to know if it’s worth investing more of their time. Once they clear that hurdle, they’ll have room to care about other priorities like culture, purpose, and engagement.”
A Headache For Management
When a company posts a job without including the salary range, it will garner more résumés since people will make an educated guess about the pay and shoot their shot. The applicants that aren't appropriate will be saved in the company’s applicant tracking system for future roles.
If a company offers a wide range from $100k to $150k, the candidate will almost always anchor to the higher number. They’ll believe they are better than the competition and deserve the upper end of the pay scale. The problem is that when an offer is made at $135k, they’ll feel cheated and walk away with bad feelings about the company and its hiring practices.
With more transparency comes more headaches for management. Recruiters refer to a concept called the “loyalty discount.” The term refers to an employee who remains at the same organization for many years.
When they started 10 years ago, their pay was relatively low. They received about a 1% to 3% annual increase. Comparatively, when white-collar employees switch jobs, they’ll likely receive a 20% premium to their base salary.
The compensation of the worker who frequently jumps around will far exceed the loyal employee. This causes a wide discrepancy in compensation between long-term workers and the newly hired people coming in with higher pay packages.
