Pay transparency lets employees talk about their compensation or the compensation of other employees without fear of retribution. While this idea is usually associated with wages earned, it also includes overtime pay, bonuses, commissions, vacation and holiday pay, shift differentials, stock options, awards, and all benefits.
What does Pay Transparency mean for HR?
Pay transparency allows employee compensation data to be shared, collected, and reported, both internally and externally amongst employees. But more importantly, it promotes fair pay within companies and across industries. When companies have transparent pay practices in place, they’re more likely to be competitive in attracting and retaining talent.
Compensation professionals can facilitate pay transparency in their organizations by communicating with employees about how their pay is determined. In other words, your employees should know that the company ensures fair pay. Fair pay means that your pay practices are externally competitive and internally equitable. Externally competitive means that employees are paid similarly to what other employers pay for the same job. Internally equitable means that employees are paid similar to what other employees are paid for the same job or job level Show your employees that your compensation management practices support your company’s compensation philosophy.
Diving a little deeper with the concept of pay transparency, here are the two national laws that affect this topic most:
National Labor Relations Act (NLRA)
Section 7 of the NLRA grants rights to all non-supervisory employees to discuss wages, hours, and working conditions. Section 7 rights apply to most employers (depending on if the company is currently unionized or not) because discussing compensation is a necessary step when employees decide whether or not to form or dissolve a union.
Executive Order 13665
In April 2014, President Obama issued Executive Order 13665 that requires federal contractors to allow employees to discuss pay and prohibits employers from disciplining or discriminating against employees who do discuss their pay.
EO13665 also includes enhancements to the EEO-1 reporting requirements, which would capture 3,360 data points (up from 121) starting in March of 2018. The increase in data point has to do with the requirement to report EEO-1 data within prescribe pay ranges for each classification.
The primary difference between the NLRA and Executive Order 13665 is that the NLRA applies to most employers, and does not apply to management employees within these organizations. EO13665 applies to employers who contract with the federal government, and to all levels of employees within these organizations.
State Laws on Pay Transparency
Each state also can introduce laws about pay transparency that only apply in that state. Some states are more liberal than others, but there are many states in the US that are joining this movement in one way or another.
For example in California, employers cannot discriminate or retaliate against employees who discuss pay, and companies cannot restrict discussion of compensation or require secrecy by either contract or policy. Other states that protect pay transparency include CO, IL, LA, MA, ME, MI, MN, NH, NJ, and VT.
It’s no secret that transparent pay practices lead to less questions from employees on your company’s compensation policy – which brings me back to my first point: 85% of organizations reporting that that report their employees understand their compensation philosophy also report a high level of engagement. With such a clear connection between pay transparency and employee engagement, it’s important that you watch this trend closely.
For more information on the laws that apply to pay transparency and how they apply to your company, read the whitepaper by California employment attorney and HR Examiner analyst, Heather Bussing.