Will Pay Transparency Laws Bring Pay Equity?

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Pay transparency is becoming a trend. Eight states and six local governments have passed pay transparency laws since 2020, and more are looking to follow. But will this kind of transparency truly bring about thorough pay equity? I have some doubts.

Pay transparency laws require employers to publicize the salary ranges for jobs, typically when posting job openings. Currently, California, Colorado, Connecticut, Maryland, Nevada, Rhode Island, and Washington State have passed laws requiring pay transparency. So have several local governments, including Jersey City, New Jersey; Ithaca, New York; New York City; Westchester County, New York; Cincinnati, Ohio; and Toledo, Ohio. Illinois and others are considering similar regulations.

When employers advertise or post a job opening, these laws require that the posts provide an accurate salary range for the position being advertised. The aspiration for these laws is to make pay based on legitimate job duties, without influence of by explicit or implicit bias. According to Harvard Business Review, pay transparency is “reducing pay inequities across gender, ethnicity, sexual orientation, and other dimensions.”

Because remote work options are available at many companies, these laws can have significant reach. A job posted in Colorado must provide a salary range, even if a candidate in Texas applies. Similarly, a posting in Texas, which does not require pay transparency, for a remote position that could attract candidates from across the country might require disclosure of a salary range. On their face, these laws seem fairly effective.

On the other hand, they may be less effective as workers rise through the ranks at an employer. Most pay transparency laws apply solely to salaries. Yet, many employers use bonuses as the largest bucket of income available to executives. This is especially true in sectors such as financial services. In fact, a study by PricewaterhouseCoopers found that bonuses can create substantial gender pay gaps. Among other pervasive gaps, the study found that more than 10% of companies had a bonus gap of more than 70%.

Employers also have started using wider ranges in job advertisements that enable them more control over final salaries. While this practice may not necessarily impact pay equity, it does allow for bias to play a role in pay decisions.

Employees still have the power to discuss their income—and protections from the National Labor Relations Act make it illegal in many circumstances for an employer to stifle such discussions. But the practice remains taboo, primarily for older workers, as more younger workers demand transparency from employers.

Ultimately, it appears that pay transparency laws will push pay equity forward, but full transparency remains elusive.