This story is a guest contribution from ClearCompany, an integrator of data-driven best practices, expert-informed content, and tailored software tools to recruit, ramp, recognize, and retain employees, uniting people and processes to achieve business success.
It’s been 60 years since the pay equity laws we follow today became federal law. The Equal Pay Act of 1963 required equal pay for men and women, and Title VII of the Civil Rights Act of 1964 introduced further protections against employment discrimination, including wage discrimination, based on race, color, religion, sex, and national origin. Despite these protections, many workplaces heavily discouraged or banned employees from discussing pay to the extent that it became a societal taboo.
The result? A persistent gender wage gap that we’re still working to close all these decades later. That gap often exists in other areas of compensation, too, from base pay and bonuses to stock options and growth opportunities, despite the fact that equal pay laws apply to each component of compensation.
Luckily, times are changing, and Gen Z workers are doing away with old taboos. Nine in 10 have discussed their salaries, compared to just four in 10 workers from the Gen X and Baby Boomers generations. Pay transparency laws are also now in the news and on the radar of human resources teams everywhere as efforts to achieve pay equity increase.
Small businesses are exempt from some of the new rules, but there are still many states that have yet to regulate pay transparency. Keep reading to find out how your small business can increase pay equity in every area of compensation and other ways you’ll benefit from pay transparency.
Pay equity vs. pay transparency
Pay equity is the concept that employees should receive equal pay for equal work. Pay transparency is when a business openly shares and gives employees access to information about pay across the company, including salary ranges, criteria for determining pay, and how pay decisions are made.
Pay transparency has been in the news because it can be used as a tool to hold businesses accountable for maintaining pay equity, which we’re far from achieving both globally and in the United States. American women working full-time make only 84 cents to every dollar earned by their male counterparts. Research estimates we won’t close the gender pay gap until 2056, three decades from now.
That’s too long to wait for pay equity, and that’s why we’re seeing an increase in laws requiring employers to disclose pay to job applicants. The specifics of the laws vary depending on your state and locality, with some requiring pay ranges and other benefits to be listed in job descriptions. Other laws prohibit employers from asking about candidates’ salary history, while some mandate employers share wage information when applicants or employees request it or before the final stages of the hiring process.
The benefits of pay transparency for small businesses
We’re in the early stages of pay disclosure regulations, but so far, small businesses are not being excluded. For example, Maryland, Colorado, and Connecticut apply their laws to all employers, while California’s applies to businesses with 15 or more employees. More than one-quarter of U.S. employees are now protected by wage transparency laws, a rate estimated to reach 50% in the next few years.
On top of the growing number of regulations, support for pay range transparency is growing, with 60% of people saying they support it. It’s even becoming a nonnegotiable for attracting diverse talent. Younger employees and women of color are more likely to say they didn’t apply for a job because no pay was listed. Companies are responding to this demand, and 72% of employers say they include pay information in every job listing.
It’s understandable if pay transparency is intimidating for HR teams at small businesses. You’re competing with compensation packages offered by much larger companies. Fortunately, transparency around pay practices isn’t just a good thing for pay equity. It’s an all-around win for your entire organization because it fosters trust, accountability, and fairness within workplaces. It also helps you build an equitable company culture, attract a diverse range of like-minded employees, and retain them for as long as possible.
Transparency around pay practices fosters trust, accountability, and fairness within workplaces. It helps build an equitable company culture, attract a diverse range of like-minded employees, and retain them for as long as possible.
Best practices for pay equity and transparency
Doing your part to eliminate pay inequity requires consistent effort and accountability. As an integral element of a well-rounded diversity, equity, inclusion, and belonging (DEI&B) strategy, fair compensation should be an ongoing initiative for the lifetime of your business. That doesn’t mean just when it comes to base compensation. Consider all the different types of compensation at your organization, including bonuses, stock options, and even access to career development opportunities.
Follow these best practices to ensure pay equity and build transparency into all parts of your compensation strategy.
Conduct regular pay audits
To maintain pay equity, it’s essential to analyze your pay data regularly. Experts recommend partnering with an outside firm to conduct these audits to guarantee an unbiased evaluation of pay equity practices. Look at the data across demographics, job roles, and experience levels to ensure you address any pay disparities. When auditing your compensation structure, you should also be sure to take into account total rewards packages, including benefits and bonuses.
Regular pay audits also enable greater transparency. Let your employees know when inequities are discovered and what you’re doing to correct them.
Adopt transparent compensation structures
Thirty-five percent of employees say transparency is the key to eliminating pay disparities. To be honest about how your company determines compensation, you first have to define salary ranges, the criteria for determining pay, and the factors that impact compensation decisions. This way, employees can be assured that their pay is being determined objectively rather than depending on who’s involved in the discussion.
Standardize bonus distribution
Base compensation isn’t the only factor in compensation where fairness is paramount. It’s also essential to standardize bonus allocation. Tie bonuses to specific performance metrics and distribute them fairly to all eligible employees — you can’t offer different bonus plans to people doing the same (or a reasonably similar) job.
If bonuses are performance-based, you may inadvertently contribute to pay gaps if the criteria are biased or without a transparent evaluation process. A standardized bonus structure and performance review process, along with regular audits, help ensure transparency and fairness.
Address unconscious bias
Unconscious bias can inadvertently affect decisions about pay. Your managers and decision-makers need training so that they can recognize and mitigate these unconscious biases. Taking this step is extra assurance that bias plays no part in determining pay — only the objective criteria of your compensation structure. As with pay equity audits, you should employ an outside firm to provide effective, unbiased training for HR team members and leadership. Continue training on a regular basis to ensure unconscious bias stays out of your pay structures. HR and management can also benefit from specialized training as pay equity and transparency laws continue to change.
Consider stock options distribution
Stock options can significantly impact total compensation, especially in industries like tech, where they’re a more common incentive. They are also significantly impacting the gender pay gap — the average value of male employees’ shares was $104,902, compared to $26,361 for female employees.
Stock ownership also tends to be unevenly distributed, especially if certain groups are excluded from eligibility or have limited opportunities for advancement. Promote fairness with inclusive stock option programs and a regular review of participation rates across demographic groups.
Provide equal access to career advancement
Employees’ level of access to professional development affects their future earning potential. Mentorship availability, backing for high-profile projects, and access to training programs all play a part in unequal career trajectories.
Provide equal chances for growth to all team members with equal access to professional development resources, mentors, and networking opportunities. Your company should also create structured career development plans and establish transparent promotion processes to advance pay equity.
Offer fair benefits
Benefits may not be directly tied to pay, but disparate access to benefits still contributes to pay inequity. For example, if some employees are offered less comprehensive healthcare coverage or fewer parental leave benefits, it can affect their financial well-being and work-life balance.
To extend benefits access to all employees, offer packages for groups based on whether they work full-time or part-time, their geographic location, or their start date or length of employment. You can also offer different amounts of PTO to exempt and non-exempt employees. The important part is to ensure that decisions about benefits plans are nondiscriminatory.
When all employees have access to benefits options, you promote employee satisfaction, retention, and a healthy work-life balance. Don’t forget to review benefits often to meet diverse employee needs and promote transparency in your policies.
When all employees have access to benefits options, you promote employee satisfaction, retention, and a healthy work-life balance.
Encourage open conversations
The culture of honesty and openness created with pay transparency is strengthened when employers welcome conversations about pay. You can start the conversation by being transparent even if it’s not required, including pay ranges in job listings and bringing it up during candidate screenings. Continue the dialogue by encouraging employees to discuss pay-related issues and ask questions about your company’s compensation practices. This will help everyone feel more comfortable discussing their pay and understand how it's determined.
Do your part for pay equity
Pay equity is a must for every business whether it has four employees or 4,000. Pay transparency helps you get there faster while reaping the benefits of honesty, trust, and empowered employees along the way. Do your part in closing the gender wage gap by embracing pay transparency.
