Do Employers Need to Disclose Pay Information on Job Posts?
In an effort to combat the gender pay gap and solve other pay disparity issues, Colorado signed the Equal Pay for Equal Work Act into law, which requires employers to disclose salary information on job posts. In response, some employers are excluding candidates from these states altogether. Should employers disclose salary information on job postings? Read on to find out.
Do Employers Need to Disclose Pay on Job Posts?
There is currently no federal law that requires employers to disclose salary information in job posts—only state laws like Colorado. SHRM reported that instead of doing so, some employers are leaving candidates from Colorado out of their recruitment efforts.
Denver attorney Emily Hobbs noted in the SHRM article that employers are doing this because, "Employers in competitive industries may feel concerned that their competitors could use salary information to entice employees to leave the company with offers of higher pay and benefits.”
Experts say that this movement toward pay equality could cause organizations and employers to reassess their pay transparency—and that employees and candidates will start to expect more transparent conversations around pay.
How Workplaces Talk About Pay
There are four approaches organizations normally take to talking about pay:
1. Not Talking about Pay
Many employers often prefer not to talk about pay at all, so their job posts will often include a note like, “Compensation based on qualifications and experience.” People are less likely to apply to a job without an idea of what the organization has in mind for pay. Also, if what the organization has in mind is a lot different than the candidate, it can be a waste of time for everyone.
Likewise, these organizations will sometimes warn current employees that talking about pay is a fireable offense. What kind of trust in the organization does that engender? Employees may suspect unfair rates or even illegal treatment without clear-cut pay guidelines.
2. Promising Too Much
Some employers talk about amounts that might technically be possible, but are rarely ever achieved. For example, if a hiring manager is interviewing for a new sales position and says an applicant can earn up to $150k in a single year, the applicant is going to think they can do that. What that hiring manager fails to mention is that only one person in this history of the company has ever earned $150k in that role.
You may not be intentionally misleading a new hire when you promise them the moon. But, when someone doesn’t meet their goals or underperforms based on these promises, they tend to feel like they’ve been duped. The result? Drops in morale and engagement, which often leads to costly turnover.
3. Undershooting Pay
On the flipside, employers often make the reverse mistake and inadvertently lead new hires and job applicants to believe they’ll actually make less.
This issue most frequently occurs when employers fail to account for a role’s potential for overtime and other incentive pay. A role may offer $15 per hour, but after certain sales and team incentives, a new hire could end up making something like $18 or $20 per hour. But the job post only says something like “$15/hour with an opportunity for overtime and other incentives.”
This is a missed opportunity because we know that better pay can attract better candidates. Companies that fail to factor in the full earning potential of a role only restrict the quality of candidates they can find.
4. Providing Pay Ranges
Talking about ranges could be a mistake because all applicants and employees assume they will be at the top end of the range anyway. For example, imagine you’re looking to hire a marketing supervisor. In your job posting, you list a salary range of $45,000 to $55,000 depending on experience, qualifications, and performance. When candidates start applying, they’re always going to expect the top of this range.
This wide range communicates that you don’t really know exactly what you want from the role. Likewise, when you do make an offer and it’s not at the top of the range, candidates may be disappointed or not accept the offer at all. If they do take the job, it can certainly start the employment relationship off on the wrong foot.
Different Workplace Approaches to Talking about Pay
An alternative to these approaches to pay communication is target compensation, which is what an organization believes, in good faith, a reasonably good performer will earn in a given role. It includes the base pay for the position as well as additional forms of compensation, including variable or incentive-based pay, such as bonuses, overtime, commissions, and more.
For example, target compensation for the same marketing supervisor role we just mentioned may be listed at $55,000 on a job posting. This could include a base salary of $53,000 with the opportunity to earn up to $2,000 in incentives.
Target compensation for any given role is determined by three different factors:
- Base Pay: This is probably best understood as the amount that the “Undershoot” employers described above would list next to the vague promise of “overtime and other incentives”.
- Variable Compensation: Variable compensation includes incentive-based pay and differs from one type of role to the next. For sales roles, this pay typically includes commissions and bonuses. Many of the highest performing organizations also have variable compensation tied to non-gameable KPIs relevant to a team’s functions. For marketing, variable comp might be tied to lead generation or web traffic. For account managers, it might be tied to retaining existing clients or expanding contracts.
- Overtime and Seasonal Workload Considerations: If you hire nonexempt employees knowing that they’ll likely work overtime during busy seasons or quarters, this should be factored into their target compensation. For example, a big portion of BerniePortal’s business takes place during Q4. The target compensation we’ve set for many of our nonexempt workers accounts for this end-of-year busy period.
Why Employers Should Disclose Pay on Job Posts
Many organizations treat pay as a secret matter. However, when talking about target compensation, here are a few reasons that disclosing pay is important:
- Target compensation makes recruiting better. When candidates begin their job search, they often have their own rough target compensation in mind. If an applicant sees a salary range that’s well outside of what they expect, they’re likely to understand that they’re either unqualified or underqualified.
By clearly indicating the target compensation for the role, you’ll save your hiring managers and applicants a lot of time and aggravation. In turn, this will lead to starting off on the right foot with new employees.
- Target compensation brings transparency, which helps with retention. Developing target compensation for each role isn’t easy, but it establishes a new level of transparency at an organization as employees get an understanding of what the pay is for different roles. With transparency comes comfort that the organization is working hard to be fair, which can help with retention.
- Target compensation can deliver a more flexible expense structure. If employers build variable compensation into the target compensation for many roles, they can achieve a more flexible expense structure for the organization. This will help in years that don’t go according to plan. Flexibility like this might even help avoid painful layoffs in a bad year.
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