Companies need to increase salary transparency or workers will quit

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Salary transparency laws are spreading across the US, requiring companies to list salary ranges on job applications. While that’s good news for job seekers, it’s also raising the chances of upheaval as existing employees quickly find out what colleagues are being paid.

Roughly 1 in 20 workers will quit if they find out they’re making less than their coworkers, according to a November 2022 ResumeBuilder.com survey of 1,200 American workers.

“As more people understand what their positions are being paid by their organizations, it’s going to have ramifications for people already working at the company,” said Stacie Haller, a career expert at ResumeBuilder.com. “Our survey also found that 63% of those folks will demand a raise for equal pay, and I think a lot of employers will take notice.”

As these laws prompt companies and leaders to reorganize how they talk about compensation, experts recommend increasing salary transparency provided to current and potential employees in order to retain and attract the best talent.

Create payment practices that work for your business

Early this month, New York City joined Colorado in mandating salary ranges on job applications, with California soon to follow in early 2023.

Cheryl Fields Tyler is the owner and chief executive officer at Blue Beyond Consulting, a firm in California, which will start adding pay ranges to job postings on Jan. 1, after a state transparency bill passed in September.

Fields Tyler said she’s relieved pay transparency is required now for her company. Before the law, she said it was difficult to navigate when and how to talk about what a particular position paid. If it’s required, then it’s easier for companies not to have fragmented policies on pay.

“Having a good, solid rationale for why we pay people what we pay them and the factors that change any individual situation is good for business, and honestly good for people,” Fields Tyler said.

She advises her clients, including some Fortune 500 companies, to make their philosophy and practice on pay and reward clear to employees, so they can have straightforward and fair conversations.

“Pay transparency isn’t just willy-nilly going out and posting salary ranges on a job posting, because there are more steps that companies need to take internally before they can get to that point,” said Lulu Seikaly, a senior corporate attorney focusing on employment law at Payscale, a compensation software and data company.

Seikaly recommends companies build standard salary ranges for positions across the entire organization, in addition to new job postings.

“Organizations need to objectively build salary ranges before they even talk to any candidates,” Seikaly said. “That way, it’s an objective evaluation, and they’re benchmarking salaries to competitors, what the market is calling for, and looking at internal equity.”

Companies can use tier levels to decide salary ranges, Seikaly said, where exact salaries are based on experience, education, time with the company, and managerial level, for example, but overall, employees in comparable positions know they’re all making the same rank as their peers.

“For example, what does a level one engineer make? What is the range for that job?” Seikaly said. “What does the internal leveling look like in your company?”

Increased transparency attracts and retains the best talent

The ResumeBuilder.com survey also found 85% of workers say they’re more likely to apply for a job that lists a salary, and the war for talent could be based on how transparent companies are with their pay structure, especially among younger generations of workers.

“This is the next step in how employees and the workforce gain more power in the marketplace,” Haller said. “First, we had work flexibility, and now salary transparency is taking hold, starting to spread, and it’s great for everyone.”

As more companies share salary ranges, it’s going to create a competitive issue for the companies that don’t increase pay transparency, says Aaronde Creighton, chief diversity officer at the Leadership Circle, a business leadership development firm.

“In the long term, organizations that are more resistant to pay transparency will begin to see a decrease in the number of applicants and a lowered quality of candidates applying to their roles,” Creighton said. And he added that in a tight labor market, companies that want the best talent might need to increase pay transparency, even if it’s not mandated by law.

Another component of increasing pay transparency is for companies to invest in manager and supervisor training on how to speak with employees about compensation.

“The frontline managers in most organizations are the ones that need to talk about pay with their employees,” Fields Tyler said. “Even if they’re not able to share this information, employees are going to their managers to understand when and why they’re getting paid a certain amount.”

If companies don’t prioritize pay transparency and equip managers for these conversations, workers are more likely to apply at companies that do offer these benefits.

Don’t stop with pay transparency at entry-level roles

Pay transparency, as it becomes a cultural shift starting with frontline and entry-level employees, will increase overall morale and trust within an organization.

“The most personal and private thing that we have within our employment environments are our salary compensation packages,” Creighton said. “When we can be transparent about this, we have less questions and less uncertainty among our employees.”

But it shouldn’t stop at lower levels of the organization, Creighton said. Companies should disclose salaries at the management and senior leadership levels as well.

“In a publicly-traded organization, you can see [pay] information for the C-suite,” he said. “But how transformative would it be for the workplace environment for people at the director, senior director, and VP level to know what the pay looks like in those arenas?”

Inequity within a company is most common at the senior level, according to Creighton, and increasing pay transparency not only attracts and retains the best employees, but it has the power to transform the entire workforce across every industry.

“When a company pays transparency at all levels, it becomes a driver and motivator for people to stay with those employers, because workers won’t feel like their company is holding anything back from them,” he said.

To join the CNBC Workforce Executive Council, apply at cnbccouncils.com/wec.

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