Why Employers Should Embrace New Salary Transparency Laws
Thanks to new laws, employers in New York City and California must now include a pay range whenever they post a new job listing. In New York, this law took effect November 1, and in California, it’s just taken effect as of January 1. There’s been a lot of press about these new requirements, and some employers have been complaining. Some have even tried to circumvent the law by posting jobs with extremely wide pay ranges, like $55,000 – $750,000.
We believe this is a mistake. These laws are designed to address the persistent problem of pay disparity between demographic groups. While it does take time and effort to overhaul your pay practices, we believe that employers should embrace these new laws and view this moment as an opportunity to start this important work.
Establishing pay equity is not only the right thing to do, but it is good for your company’s brand – which can make a real difference in the level of talent you’re able to attract, even in an unpredictable market. Establishing and communicating a clear, transparent and fair set of compensation policies is a great way to both attract and retain top talent.
Here are 3 things employers should do to embrace the spirit of new pay transparency laws:
1. Do a complete pay equity audit.
Especially in rapidly growing companies, it’s common for new hires to earn more than legacy employees. Additionally, if different managers or directors have discretion to negotiate compensation, salaries can vary from department to department, or even within departments. Posting pay ranges for new hires is likely to spark conversation among current employees about their own compensation.
We recommend getting out ahead of this dynamic by doing a pay equity audit. Typically, the CEO would start by sitting down with the head of HR to look at pay bands and analyze how compensation is working currently. If your organization doesn’t have an HR lead, you should consider hiring one. Another approach is for the CEO and executive team to discuss pay bands, with guidance from the board of directors and the company’s talent leads.
We also recommend hiring a compensation consultant, who can help you understand best practices and set appropriate benchmarks based on your company’s size and stage. Company leaders should review compensation data resources and lean on professional networks and board members for additional, informal datapoints. At Battery we help our portfolio companies connect with these professionals to start this process.
2. Work to align salaries around a fair, whole-company compensation philosophy.
Of course, your compensation philosophy has to include fair and transparent pay bands for different levels of experience and seniority. But it shouldn’t stop there. Your pay equity audit should dig deeper to understand how and why any pay disparities arose in the first place. Are different managers approaching compensation negotiations differently? Is there a specific department or team that has ended up with wider disparities than similar departments? Identifying the reasons for pay disparities can help you put new systems into place to ensure that pay is fair and transparent going forward.
Creating a fair compensation philosophy will also mean realigning existing employees’ compensation to fit the new pay bands you’ve established. For some legacy employees, this will mean offering bonuses or accelerating options grants in order to bring them up to the right level. For others who may be overcompensated by new standards, you’ll need to slow down their salary increases over the next few years in order to bring them in line with your new policy. Obviously, executing these moves while retaining these existing employees will require very careful internal communication, which brings us to our next point.
3. Educate your managers.
Internal communication is crucial to a successful implementation of a new compensation strategy. But it can’t be all about writing impersonal memos or getting the CEO or head of HR to speak at an all-hands meeting. Conversations with individual employees about compensation—performance reviews, raise negotiations, even informal comments during a typical workday—are where the rubber meets the road. And it’s your managers who are having those conversations.
As a hiring manager, founder or CEO, you need to work to educate your managers about your new compensation policies and get them to buy in. Explain the philosophy behind your policies in manager training. Talk about why pay equity is important and link it to your company’s core values. Emphasize how crucial the manager’s role is in helping your organization to achieve this important goal. Role-play common questions or scenarios so they’re walking into delicate conversations prepared and ready to talk about compensation in a way that reflects your values.
Following these three steps will help your company get closer to the goal of pay equity. But don’t consider this a ‘one-and-done’ initiative. Even with the best intentions and 100% employee buy-in, pay disparities can creep in again over time. Pay audits should ideally happen every year, and manager education around your compensation philosophy even more frequently than that.
It will take time to achieve true pay equity – and we should all be doing our part to bring us closer to this goal.
The information contained herein is based solely on the opinions of Jenny Kang and Susanne Richman and nothing should be construed as investment advice. This material is provided for informational purposes, and it is not, and may not be relied on in any manner as, legal, tax or investment advice or as an offer to sell or a solicitation of an offer to buy an interest in any fund or investment vehicle managed by Battery Ventures or any other Battery entity.
This information covers investment and market activity, industry or sector trends, or other broad-based economic or market conditions and is for educational purposes. The anecdotal examples throughout are intended for an audience of entrepreneurs in their attempt to build their businesses and not recommendations or endorsements of any particular business.
Content obtained from third-party sources, although believed to be reliable, has not been independently verified as to its accuracy or completeness and cannot be guaranteed. Battery Ventures has no obligation to update, modify or amend the content of this post nor notify its readers in the event that any information, opinion, projection, forecast or estimate included, changes or subsequently becomes inaccurate.