Pay Transparency Shines a Light on Compensation Decisions
By now, most of you probably know that jobs posted in California are required to include the salary range. And if you don’t know, you’ve come to the right place.
Originally required by the 2023 California Equal Pay Act, pay transparency has been further strengthened by the Pay Equity Enforcement Act, effective January 2026. The recent changes expand the definitions of “sex” and “wages” and further define what constitutes a pay range. They say the devil is in the details, and there’s plenty of detail to keep a person up at night, so let’s break it down to what all this really means.
Legal Requirements
As you may have guessed, the primary objective of pay transparency is to share pay information with interested parties, which mainly includes current employees and candidates. In doing so, the pay range becomes publicized. This is not a new concept to many industries, such as government, unions, or those bidding on contracts, but it can be unnerving for organizations that have not yet developed formal pay programs or ranges. We’ll get to that in a moment.
For now, suffice it to remember that pay ranges must be disclosed when:
- • Posting for a job in California and any other state with pay transparency laws;
- • During the recruitment process, even if there is no job posting; and
- • Upon request for anyone who has a legitimate interest in the job, such as a current employee or if a promotion is being considered.
If your eyes opened wide at the mention of other states having pay transparency laws, you read it right. Currently, more than 17 states and jurisdictions have adopted similar regulations, including local ordinances. And more jurisdictions are in the process of adopting similar laws. So, while the federal government is silent on pay transparency, it doesn’t mean that your company is free and clear of these obligations outside of California. To make things more complicated, each ordinance is written differently.
Best Practices
The general rule of employment law is that when regulations conflict, the one most favorable to the employee prevails. This is where that devil…I mean detail…can keep you up at night if you are a multi-state employer or have remote employees. While it is necessary to understand the differences in requirements wherever you post, if you take a step back and adopt practices that support the broader goals of pay transparency, you should end up with a program that provides the broadest coverage of requirements.
You can do this if you:
- • Use a job posting template that meets the broadest pay transparency requirements. This will help ensure consistency across postings, especially in an online world with no state lines.
- • Embrace the spirit of pay transparency laws. By aiming to meet the spirit of the law, you will have shown a good-faith effort to comply.
- • Include the full compensation package. This not only meets most transparency requirements but is also just good marketing, as it gives you an opportunity to advertise benefits and any other compensation plans you may offer.
- • Adopt pay ranges supported by a thoughtful compensation program. This may sound formidable if you don’t already have something in place, but it doesn’t have to be.
Common Fears
Some employers hesitate to fully embrace pay transparency for a variety of reasons, and while their concerns may be real, a defensible compensation program can address many of them. Some of the more common concerns that can be alleviated with a well-thought-out program are:
- • Employees have more knowledge of new hire salary ranges;
- • Managers not prepared to justify salary decisions
- • Candidates’ expectations to be hired at the high end of the range;
- • The range may not properly target the best candidates
- • Losing the flexibility to make exceptions in general
- • Lack of confidence or understanding of the supporting data
While employees will have greater visibility to pay ranges, specific employers are still prohibited from sharing employees’ pay information without their direct consent.. Even so, employees do talk, and may have an idea of what their peers make. The fear that managers will have to justify salary decisions can be mitigated with an objective, structured compensation program that includes decision matrices. Furthermore, transparency around the policy can take the heat off individual managers if implemented appropriately.
While candidates will likely still shoot for the top of the salary range, structure can save the day by aligning competency thresholds with percentiles within the hiring range. In addition, desirable top talent would organically gravitate toward the high end of the range. This also helps recruiters make more appropriate offers and manage expectations.
Some of this worry may come down to a classic case of leader stage fright—they aren’t sure what the pay should look like. Without the right data to back them up, many leaders may end up overpaying just to play it safe during negotiations. While it doesn’t have to be overly complex, having a standardized compensation program, backed by validated data and practices aligned with budgetary and business needs, leaders can feel more comfortable in the new world of pay transparency.
If you need assistance with navigating the waters of pay transparency laws, implementing best practices, or setting up a defensible compensation program, we at SDHR Consulting can help!
