A Game Changer for Pay Disclosure

New or pending state laws will require companies to disclose salary ranges of job postings for the first time. Are companies ready for the fallout?

The candidate sees the job posting. It goes on for pages, from the job’s duties to its importance to the organization. But there’s usually one thing the posting doesn’t include—how much the job pays.

That appears to be changing. In what may potentially be a game changer for how firms handle disclosure of compensation, a series of states from Colorado to Connecticut to New York have passed, or are planning to pass, laws that would require firms of certain sizes to indicate minimum and maximum salary ranges in job postings. By far, the biggest state passing the law in terms of number of workers is California, where the labor force numbers 17 million. “It’s a big deal for companies,” says Tom McMullen, senior client partner for ESG and inclusive rewards at Korn Ferry, who notes that only one in five organizations currently posts salary ranges. “It’s certainly going to shake things up.”

The legislation is aimed in part at creating transparency to help reduce pay inequities for women and underrepresented groups. Already, other laws with the same goals have prevented firms from asking candidates about their compensation history. But critics say that mandating salary ranges could make hiring and retaining employees far more difficult—at a time when firms are already struggling with labor shortages that remain stubbornly high. In the wake of the Great Resignation, organizations are watching newly hired workers “leapfrog” incumbent employees into higher-paying, higher-grade jobs. Disclosing salary ranges has the potential to only heighten concerns about employee morale. “The loyal, more experienced, but lower-paid, employee may look at these ranges and say, ‘How can this be?’” says McMullen.

How transparent companies will have to be remains unclear. Experts say the legislation leaves a lot to employers’ discretion. Will firms narrowly comply with the law and disclose salary ranges for California-based positions only? Or will some firms operating in the state extend their salary-range disclosures to include every open position across the country—or even the world—thereby forcing the hand of other organizations? Microsoft, for instance, recently said it would disclose pay ranges for all US-based positions, not just those in its home state of Washington. At the opposite end of the spectrum, the California bill faced strong opposition prior to its passage from several business groups in the state. Brian Bloom, vice president of global benefits for Korn Ferry’s human resources department, says the magnitude of California’s new law “forces the conversation among all companies, not just the ones in the state.” 

McMullen suggests that companies may want to use the laws as a rationale to reexamine their own compensation programs. “It starts with an understanding of your own organization and the purpose and clarity of its reward strategy,” he says. Firm leaders should be sure logical reward processes and structures are in place. “They need to ask, ‘Is our reward program relevant, aligned with our business, understood -- or is it a black box?’” Is organizational leadership aligned with the intent of the reward program, and is the foundation of the program in place -- from clear compensation policies, to how job grades and titles are set and benchmarked, to how individual performance is rewarded? He says a good reward-program design will enable companies to have a good story to tell. Then they need to effectively and transparently tell that story.

This advice is supported by Korn Ferry research, which has repeatedly found that the most significant differentiators in an effective rewards program are in the communication and implementation of programs. “The ultimate value in improving pay transparency is that it improves trust and credibility in the organization and ultimately employee engagement and retention.  However, organizations can’t be transparent with a reward program on a shaky foundation,” says McMullen.