Wage Transparency: Is Your Organization Prepared for This New Reality?

wage transparency
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Just a decade ago, standard practice among recruiters and in-house HR departments was to ask job seekers their current compensation to determine whether they were a fit for a new role. For the most part, those candidates expected a pay boost when moving between jobs, based on their current compensation. This was generally more advantageous for male candidates who were already paid higher wages at their current role and could leverage their higher level of compensation when moving from job to job.

For some groups, however, the ingrained practice of asking for salary history has had less favorable consequences. Salary secrecy has a disproportionate impact on women and people of color who often get pigeonholed into legacy compensation levels based on their gender, race, and other factors. These populations are also less inclined to negotiate their compensation packages—and have less success when they do—compared to white men with comparable qualifications.

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All of this is poised to change, however, with the introduction of salary history bans – and later, salary transparency laws. Most recently passed by California and New York City in November 2022, the latter put the onus on employers, rather than employees, to establish equitable pay structures. In the legal industry, compensation models vary based on whether lawyers work for law firms or in-house legal department. Generally speaking, law firm compensation for associates is very transparent: a lock-step base compensation model based on years of experience post-graduation from law school, with additional bonuses being granted based on hours billed. However, in-house legal departments have tended to be more opaque in their approach to compensation bands. Compensation for the same role can vary depending on years of experience, substantive background and training, and geographic location. Additionally, many companies have multiple metrics to their compensation models in addition to base compensation, including annual bonus metrics, and long-term incentives (which can include equity or shadow equity).    The lack of clear standards has an impact on pay disparity in in-house legal departments. In our 2022 Global In-House Compensation Survey Report, data showed that men in General Counsel/Chief Legal Officer roles in the U.S. continue to out-earn women in the same roles by nearly 16%.

However, in other legal department positions, the pay disparity between genders appears to be getting smaller, with men and women reporting nearly equal total compensation in the roles of Chief Compliance Officer, Deputy General Counsel, and Counsel. For General Counsel/Chief Legal Officers, all ethnicities reported an increased in compensation since 2020, with the exception of Hispanic respondents (-5%). Asian-Americans had the largest increase in compensation (+33%), followed by Black and White respondents (+17% and +15% respectively).  While we cannot point directly to these salary laws as having an impact, it is clear we are seeing signs of progress toward pay equity.

The Impact of Wage Transparency

The repercussions of these new laws remain to be seen. The biggest hope, of course, is they create transparency among companies and HR departments about compensation ranges, therefore, shrinking wage gaps and reducing pay discrimination. Employees want to know they are being paid fairly for the work they do and that their compensation is in line with the rest of their team and company. Wage transparency provides this information, giving employees leverage to ask for higher pay or seek it elsewhere. Additionally, during the interview process, having a frank salary discussion can help identify pay disparities early on and avoid wasted time.

However, some studies have shown there can be unintended consequences of pay transparency laws. One of these is wage compression. This happens when employers aim to reduce pay discrepancies among employees within the same job level—despite differences in skills, experience, and training. Wage transparency may also prompt employees to seek other forms of compensation from their companies (e.g., extra benefits). Another side effect is the granting of personalized, non-compensation requests by employers who want to mitigate the risk of losing valuable talent.

These unintended consequences can be lessened in part by implementing more structured and objective reward systems. When non-cash incentives become available, employers should make sure those opportunities and options are being shared amongst all employees. Additionally, communication is important. Managers who deal directly with employees should be rigorously trained on their company’s compensation models.

The Time to Re-evaluate Your Company’s Compensation Model Is Now

Bringing salary discussions into the light needs to be a greater strategic focus for employers: It helps companies attract more candidates, especially among Millennials and Gen Z; it supports DEI efforts; and can provide a major boost for workforce morale..

Plus, wage transparency is a trend that shows no sign of slowing. Per a recent WTW survey, 17% of companies are already disclosing compensation ranges, even when not required by law. At least 62% of employers have plans to disclose or consider disclosing compensation information sometime in the future.

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Given new wage transparency laws and the impact they may have on hiring and retention, now is a great opportunity to conduct a benchmarking analysis to determine if your departments are competitive in the current landscape. 2022 report from workforce analytics companies XpertHR and Gapsquare showed that over 80% of U.S. employers who did pay equity audits found glaring gaps in their organizations.

Reviewing and assessing your compensation models is especially vital if there is a wide disparity among members of your legal team. To hang on to your top performers, you may need to adjust compensation to reflect what they could get at a competitor if they were to switch companies. Implementing formal salary bands—ranges of pay for certain job roles and levels—can help bring visibility to your pay strategy while allowing for nuances based on education and performance.

In time, wage transparency could become the new normal in the legal profession and beyond. Your organization can get ahead of the curve by taking steps to eliminate unjust disparities and level the compensation playing field for both current and future employees.

Joanna Herman

Joanna Herman, a Partner with In-House Counsel Recruiting, helps build and strengthen in-house legal departments for organizations within Southern California and across the country.

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