S2 E5: Is Your Company Ready for Pay Transparency?

October 12, 2022

Back in the day, salary discussions were very hush-hush in the office. Now it seems as if we’ve done a total 180. With TikTok videos trending of people openly sharing their job and salary to pay, transparency laws are popping up all across the country. But what exactly is pay transparency? We’re here to break it all down for you.
Pay transparency is growing in popularity amongst employers and employees. For some states, it has become a legal requirement. But what exactly is pay transparency? What do you need to know?
Kyle Pardo of AIM HR Solutions and Sam Larson of Associated Industries of Massachusetts join Pete Wright to look into the crystal ball at the future of pay transparency to share what is happening — and what could happen at the state and federal levels. We’ll also share some ways companies are already practicing pay transparency, how your company can get started, and the HR benefits it could bring your organization.
Links & Notes
  • AIM members can reach the HR Hotline at 800-470-6277 from 8:30 – 5:00 Monday through Friday for questions.
  • Contact Kelly McInnis at KMcInnis@AIMHRSolutions.com for more information on how AIM HR Solutions can help with a pay equity strategy.
Podcast Transcript

Pete Wright:
Welcome to Human Solutions, a show for HR professionals who love HR. I’m Pete Wright. Pay transparency is growing in popularity amongst employers and employees. For some states, it has become a legal requirement. What exactly is pay transparency? What do you need to know? Kyle Pardo of AIM HR Solutions, and Sam Larson of Associated Industries of Massachusetts join me today and we’re going to look into the crystal ball of the future of pay transparency and share what’s happening at the federal level, in Massachusetts, and what could happen … Let me change that. Pay transparency, what’s happening at the federal level and what could happen at the state levels. We’ll also share some ways companies are already practicing pay transparency, how your company can get started and the HR benefits it could bring to your organization. Kyle, Sam, welcome to Human Solutions. Thank you so much for joining us on this conversation today.

Kyle Pardo:
Thanks for having us.

Sam Larson:
Hey, Pete, happy to be here.

Pete Wright:
I am very much looking forward to this conversation. I feel like there’s a lot of meat to it, and so we’ll try to keep this concise and to the point. I want to start with an announcement of thanks to our listeners. We crafted this show as a show of service to our association members, largely in Massachusetts. And what we have discovered is you people are listening from all over the world. To our listeners in Canada and Spain and South Korea and Australia and the United Kingdom, thank you for being here. We appreciate you. We appreciate your ears and your time and your attention. You should know that today the topic is going to be fairly specific to HR issues in the United States, at the federal level, and in Massachusetts. Thank you. Hope you can learn something and apply it to your work wherever you are. All right, Sam, let’s start with you. What is pay transparency? Why should we be caring about it?

Sam Larson:
Yeah, that’s a great question. Pay transparency, there’s the mandated form of it, and then there’s the kind of socially acceptable form of it. And I think I can handle the mandates and Kyle’s going to do a better job of what’s happening in the workforce. Generally, to me, paid transparency is getting a sense of what your coworkers make and what your new position is going to look like if you are transferring to a new position.

Pete Wright:
So that seems fairly straightforward. Kyle, why do we need to care about this in our workplaces?

Kyle Pardo:
It’s really interesting. I think years ago, over the past several years, what somebody makes was considered probably confidential. There were even employers who said you can not share what you make with your coworkers. I don’t think people typically would go up to somebody and ask them what they made at work. It’s different now. I’ve actually heard there’s a new trend called wage reveal parties where people get together and they chat about what their compensation is. And so I think that’s a whole new area for people to explore. Where companies need to think about that is would they be comfortable if their employees were sharing their compensation? Would they feel like they had an equitable system in place and something that they could support if their employees ask them about it?

Pete Wright:
A wage reveal party. I feel like we just need to take a moment and reflect what would the cake look like at a wage reveal party.

Kyle Pardo:
Exactly.

Pete Wright:
All right. I’ll tell you, honestly, I think you said it, Kyle. The whole issue of sharing what you make, in my career I don’t remember this being an issue because it was sort of implicitly verboten to ask what your peers made, to talk about what you make publicly, but it does feel very much like a cultural issue in the organization and not so much a legislative issue. That brings us back to Sam, what is going on legislatively that we need to be thinking about?

Sam Larson:
Yeah, sure. I think we’ll start nationally and get smaller locally. Nationally, I think there’s been a big change in what you’re mandated to report. There’s a form called the EEE01 and it’s a data collection form that the Trump administration discontinued. You didn’t have to report it anymore. It’s back under the Biden Administration, I don’t think most people know that they have to be mailing it in because they have reported that it’s under reported, but you have to have a full breakdown sent to the federal government of your wage discrepancy by race and gender for a variety of roles in your company. It’s a pretty intense, pretty detailed form, and the federal government uses it to track wage data and things like that and try and get a handle on the pay gap. I know several employers who aren’t aware of this application, and first and foremost, we want to make sure members know they’ve got to be sending that in annually.

Pete Wright:
That’s at the federal level. How does that drill down to New England, Massachusetts? What’s going on locally?

Sam Larson:
Massachusetts does have wage transparency and equal pay obligations that currently exist. Then we can talk about the ones that I think may exist in the future.

Pete Wright:
Sure.

Sam Larson:
Massachusetts, you can’t seek the salary, if you’re the hiring entity, you can’t ask about salary, you can’t ask about past pay transparency, but if you are the employee, you are allowed to disclose yours to your coworkers without fear of retaliation, and kind of ask around in the office. Those are the wage transparency issues as they currently exist. Employers, if they want to receive some shield from liability, there’s some things they can do to make sure they can share some more information with the state and allow for more transparency there if they want to avoid liability.

Pete Wright:
You’re talking about liability. What are the consequences of discovering that there are wage disparities? If pay transparency becomes a cultural thing among your employees.

Sam Larson:
You’re on the hook for twice the wages owed to the employee. If you can prove that it’s class wide or by a specific subset of employees, your female managers are being paid less, you’re on the hook for all of them and all of those wage discrepancies times two plus attorneys’ fees. It can get pretty expensive pretty quick.

Pete Wright:
I think the legal term for that is nontrivial. That is nontrivial liability. Given those consequences, it is important then it would seem needed to be said that companies get their arms around pay transparency, both logistically, practically, legally, and culturally. Kyle, what are companies doing to get started with pay transparency as an initiative?

Kyle Pardo:
Great question. I always recommend that companies have a pay structure in place. There are a lot of companies that don’t. Over the years, they may have said, “What do you need to make to work here?” I don’t think that’s the best way to go because you’re going to end up with rates all over the place. Really the best way to do it is to do some market analysis, see what’s appropriate for that position, do an internal look to see what’s comparable positions are being paid in your company and come up with a pay range. What’s good about that is that, Pete, if you come apply for a position with me, I’m going to tell you probably pretty early on in the process, this position pays between $50,000 and $60,000. You can then make an assessment. Is that what you are expecting to make? Is that what you think is fair for this position?
If it’s not and we’re not matching up, we will know that early in the interview process and we won’t waste either one of our time. That’s helpful about it. Then once you move further along in that interview process, I’ll decide where you fall within that range, probably based off of your experience, based off of some type of certification or other skills you might have and make sure you’re at an appropriate place within that range. What’s difficult about that is, if I tell you you’re going to make somewhere between $50,000 and $60,000, how much do you think you’re going to make Pete?

Pete Wright:
Well, now I feel like that’s a leading question. I think I’m probably not going to make that judging by the tone of your voice.

Kyle Pardo:
Most people hear the high end of the range. Of course, people hear 50 to 60, I should be getting an offer 60.

Pete Wright:
Yeah, you immediately told me that now I need to be focusing on my certifications because that’s going to lock me at 60 plus and then I’m ready to go for my next promotion. Right?

Kyle Pardo:
Yeah.

Pete Wright:
New class.

Kyle Pardo:
Yeah. that’s where it gets a little bit tricky. So it’s great to have a system in place, be really clear as an employer of what your range is so that you’re sure you have an equitable process, but it’s a lot of the communication as well, so that you’re not coming in disappointed when I offer you 52.

Pete Wright:
I want to put a pin in that particular point because we’re going to come back to it. I’m really interested in if you guys collectively or visually have guidance on industries or employers that have done this very well, that are already ahead of the curve of structuring the organizations in such a way that they, they’ve already got a handle on pay transparency.

Sam Larson:
I think one I remember we like to highlight is [inaudible 00:10:02] is a real leader on this. They’ve been ahead of the curve and just they have some pretty specific structures in place and they are defining their roles better. Those salary bands are entirely more specific. I think they’re taking a very serious audit on who they hire and what they pay to make sure they’re reducing their wage gap. It’s something I think we really want to highlight when our members are ahead of things and really doing the right thing. I would point to State Street to someone who’s kind of a national leader on this issue.

Kyle Pardo:
Yeah, Google is one that has recently announced that they’re going to be really transparent about their pay and they’re going to post it and list it. If you post a job now on Indeed, it asks you for the pay range for the position. If you don’t have a pay range that you enter in there, it will put an estimated pay range in there for you.

Pete Wright:
Based on what? The market that Indeed already knows about?

Kyle Pardo:
Exactly. Similar positions that they’ve listed for other companies. That estimate that’s put in there may or may not be reflective of what your company is going to pay. That might be an incentive for some companies to say, you know what? I should put something in there so I’m attracting the right people.

Pete Wright:
Let’s not let machine learning determine our pay ranges for us.

Kyle Pardo:
Exactly.

Pete Wright:
Let’s go ahead and do that ourselves by doing this. It seems really natural to be a huge benefit for HR in terms of just massive clarity in what you’re hiring for, but also a huge benefit for people seeking employment. Like you said, Kyle, this whole idea of reducing confusion, not wasting time. What are some other benefits of an initiative like this for the HR role?

Kyle Pardo:
I think it makes the process actually a lot easier when you have almost like, it’s almost a formulaic approach when you’re interviewing somebody, when you’re doing performance increases, when you’re doing promotions, anything like that, just to really have a system in place so that you can explain to an employee when an employee comes to you and asks you, why am I getting paid what I’m getting paid? Well, this is what our starting salary is, our philosophy is that we compensate people based off of seniority, based off of merit, based off of additional skills or degrees or whatever our philosophy is. It makes it a lot easier than not having any response at all or saying, we just kind of pulled a number out of thin air. I’ve always recommended that that companies have that system in place. I think culturally, employees accept that. If I come in for a position, I know Sam and I are doing the same job, I can feel pretty confident I don’t need to know exactly what Sam makes, but I can feel pretty confident that we’re being fairly paid for the role that we’re doing.

Pete Wright:
That leads to our fictitious manufacturing organization, Fantastic organization. They’ve been doing very, very well. I don’t know if you’ve been keeping track since season one, they’re growing and in fact they’re growing so much that they’ve been acquired. Here we have a paid transparency challenge. The challenge is, thus the acquiring company has decided we’re going to offer bonuses and a new hiring range for new employees, but we’ve decided we can’t quite afford to offer the same salary benefit to existing and tenured employees. How does that run afoul of pay transparency regulations or does it? I feel like that’s a presumptive question.

Kyle Pardo:
We’ve actually seen a bit of this in Massachusetts and other states have as well, where minimum wages have gone up over the last couple of years. What some companies have done is obviously they have to pay the new minimum wage, and so they’ve moved that minimum threshold up, but they haven’t done anything for the people that were currently in the company. Someone a couple of years ago that was making $16 an hour when minimum wage was $13 an hour, they were sitting in a good position, they were $3 ahead of minimum wage. Well now minimum wage is up to $14.25.
Now that’s a little bit of a closer gap, and it’s going to be $15 an hour this coming January 1st. Now they’re only making a dollar more than minimum wage if the company hasn’t done something to keep up with that. Those are some of the other concerns people have done where with hiring bonuses and people say, “Well, I’ve been here, I’ve been committed and staying, but I haven’t received anything. It becomes part of a really overall pay philosophy of what, again, I’ll go back to the word system. What system do you have in place and how are you going to continue that to be equitable so it’s transparent, everybody knows what your process is.

Pete Wright:
Sam, is this the sort of thing that we might see ultimately legislated?

Sam Larson:
Yeah, there’s a few options on the table. I think that what Kyle described is on the kind of lighter end of employer burden. There’s kind of three proposals out there. I can present these in order from least owners to most owners. The first thing out there is just a very simple, the salary band for a position, it’s available for applicants and it’s available for current employees upon request to, they can ask without fear of retaliation. You have to tell them what the salary range is for each position. That, in theory, will help negotiating. If you are Kyle’s fictitious person that’s been there for a while and you find yourself in the low end of the band, you’ll see those people asking for raises. I imagine the new applicants themselves will probably ask for the higher end of the pay band as well. That’s kind of step one.
Step two is the kind of EEO1 report I mentioned where it’s a full breakdown of your company’s demographics by, I think there’s about 15 different categories of workers. It’s by every sort of race classification, gender classification. That report, while you file it with the federal government, this would be on a state website that anyone could look up. It would be posted online. If you want to look up any company and you can break it down by any sort of wage disparity, whether women of color at your company have a worse pay ratio to white men or you can basically design it however you’d like to pull all the information and show the kind of wage disparity at your company. That’s something on the more extreme end.
On the even more extreme end, this one I’ve just heard floated to me, but it’s something people should prepare for. It would look something like when I worked at the state in which all salaries are public. When I was a state employee, it wasn’t much, but you could type me into a search database and find out exactly how little I was making at the time. That’s the third option of full extreme transparency. It’s kind of putting corporate tax returns online. There’ll be some privacy issues there, but it is out there. That’s kind of the most radical end of the spectrum.

Pete Wright:
It seems like many of the specifics we’re not yet quite able to talk about because it sounds like everything is very much in flux and you’re waiting on a lot of news it sounds like. What is the next step? Are you waiting for some specific decision to come down or some legislation to be proposed?

Sam Larson:
That’s a great question. There’s legislation out there and AIM, myself and Brooke Thompson are executive vice president of Government Affairs. We’re going to be at the table with legislators, with advocates, and we’re going to try to work out a deal on waste transparency for our members. Like I said, there’s some pretty extreme proposals out there and we’re going to fight to get a great deal for our members.

Pete Wright:
Sam, it sounds like what you’re saying is we are going to need to have another conversation in the future. I like that you proposed a part two already and you didn’t even know.

Sam Larson:
Oh, certainly with a changing of the guard of our next governor I think that this is not an issue that’s going away anytime soon and I feel pretty confident next spring there, there’ll be likely a lot more proposals out there and some we may like, some we may not like so much.

Pete Wright:
Kyle, what do we do right now? Someone in the office approaches you about what their coworkers are making. This is the cultural tide shifting. What do you do as an HR professional to address this now with so much uncertain in terms of legislation around this issue?

Kyle Pardo:
Yeah, absolutely. If you have one of those systems in place, if you have pay ranges and you have confidence in the way that you’ve put them together, I think it’s okay to go ahead and share those ranges with your employees and let them know where they’re at. If an employee thinks that they’re not being paid highly enough, be ready to explain to them where did their salary come up? If they want to move up further, what would they need to do to get there? Be ready to have that kind of honest conversation. If you don’t have a pay scale, again, I think being able to assure somebody that they are being paid fairly in the organization, that you’ve really been thoughtful about your process, I think is at least a start. It may not be as helpful because they don’t have that concrete numbers to take a look at, to know that that’s true. One thing you certainly can not do is you can not prohibit employees from talking about their pay. If you hear people-

Pete Wright:
That’s over.

Kyle Pardo:
Yeah, that was 2018 pay equity in Massachusetts and many other states, you can not prohibit employees from talking about their compensation. If you hear people having those wage reveal parties, you hear them at the lunch table, that’s-

Pete Wright:
Send a cake.

Kyle Pardo:
Send a cake, be part of it. Be ready to explain otherwise. But yes, don’t prohibit that discussion.

Pete Wright:
I’ve learned a lot I have to tell you, I did not know there was so much at play right now with pay transparency. Kyle Pardo, Sam Larson, thank you so much for illuminating this issue for us on the show today.

Kyle Pardo:
Excellent. Thank you, Pete.

Sam Larson:
Thank you, Pete.

Pete Wright:
And thank you everybody for downloading and listening. We sure appreciate your time and your attention. On behalf of Kyle Pardo and Sam Larson, I’m Pete Wright, and we’ll catch you back here next week on Human Solutions.