Pay Transparency Mandates Require Preparation for Managing Compensation

The world is witnessing a long overdue and significant shift in the realm of pay equity and transparency. On March 30, the European Parliament passed the Pay Transparency Directive, mandating pay transparency and equity within organizations in an effort to close the gender pay gap and ensure equal pay for equal work. This legislation comes with teeth, providing strict mechanisms for enforcement including shifting the burden of proof from the worker to the employer in the event of legal challenges, and stiff fines and direct remuneration for non-compliance. Although not yet passed, similar legislation is under consideration in the U.S. Congress in the form of the Salary Transparency Act and the Pay Equity for All Act of 2023. Combined, these laws and proposals are signaling that this trend is likely to become a global standard. Many organizations have already adopted progressive pay transparency and equity practices, but for those that have taken a wait-and-see approach, preparing for the inevitability of pay equity and transparency mandates could prove challenging.

The concept of pay transparency aims to create a more equitable and fair work environment by making compensation information readily available to employees and candidates. This transparency fosters a culture of trust, reduces wage gaps and enables better-informed decision-making for employers and their workers. Pay transparency laws are already in place in several states and municipalities, but not everyone is complying within the spirit of the laws. We’ve all seen the job postings with pay ranges that span $100,000 or more, which may technically be compliant but are certainly neither transparent about actual budgeted compensation nor fair if that range is actually based on current salaries of individuals performing the same work. To be fair, our research reveals that most organizations have the desire to be fair and equitable in their compensation practices and beyond. In fact, we assert that by 2025, in one-half of organizations the notion of equity will extend beyond regulatory compliance to encompassing the perception of fairness, starting in compensation, and branching to other areas of the employee experience. The challenge is knowing where to start and how to formulate a plan to get there, and technology vendors can play a pivotal role in guiding and supporting their customers on that journey.    

For most organizations, the road to full pay transparency and equity is a long and winding one, requiring them to redefine and compress their job and salary structures, implement methods to actively monitor for pay discrepancies, and create budgets to fund pay gap closures. It may also require reconfiguration of the applicant tracking system so that true salary ranges can be listed on job postings, or even investment in new technology if their current stack lacks the required functionality. Further, navigating the cultural shift and managing employee expectations are also critical to the success of such a large-scale shift. As with any journey, the most difficult step is the first one, but organizations that proactively evaluate their current position and invest in the resources required to create and execute their pay transparency and equity plans will fare much better in the eyes of their stakeholders than those whose hands are forced through regulatory changes.

As organizations adapt their culture and practices to the pay transparency movement, they will increasingly rely on their vendor partners to help them implement the necessary changes to support a total compensation approach. I articulated this necessity as an imperative for every organization to address in managing compensation and it requires the right technology to meet these requirements. HCM technology vendors play a crucial role in providing the tools and services that enable organizations to get ahead of, and comply with, pay transparency requirements. Compensation management, talent acquisition and management, and core HCM software providers all have a role to play, as each of their systems will likely be impacted. The savviest will lead the charge, proactively approaching their customer base to highlight their deep understanding of the regulatory environment and their ability to provide expert guidance on how to navigate the complex landscape of pay transparency requirements, thus positioning themselves as experts, trusted advisors and partners. In order to earn that role, vendors must critically evaluate their own offerings to ensure they are fully prepared to meet the growing demand for pay transparency solutions. I recently assessed the market and provided my view and the landscape of vendors to support total compensation and the needs for pay equity that you can use as a reference. Where gaps are identified, vendors must be willing to evaluate and shift their product roadmaps in order to fully support their clients’ needs.

The enactment of pay transparency and equity legislation is accelerating globally, and for most organizations, there is considerable work to be done before compliance is possible. Even in the absence of mandates, proactively addressing the issues and making plans to resolve them will serve to underscore commitments to fairness and equity, leading to improved trust and engagement in the workforce. I strongly advise organizations to immediately evaluate both their internal resources and their technology partners’ ability to support their desired outcomes, and I recommend that vendors take a proactive leadership role in conveying the urgency of the message and offering expertise and support in helping their customers achieve their pay equity and transparency goals.

Regards,

Ventana Research