- California became the latest state to establish a pay transparency law on Sept. 27, according to a filing with the Secretary of State. The bill will require all employers to include pay ranges in job advertisements effective Jan. 1, 2023. It also requires employers to submit annual pay data reports that include compensation information on employees hired through labor contractors of the California Civil Rights Department (CRD) beginning May 10, 2023.
- The signing of California’s bill is the latest in a line of similar state pay disclosures moves: New York City’s pay transparency law takes effect on Nov. 1 and Colorado’s is already in effect.
- “Pay disclosure laws are going to quickly become the norm,” said Nate Smith, CEO of Lever — a talent acquisition company — in an interview. When it comes to how CFOs should react to this news, Smith said the first step is to partner with HR and recruitment teams to learn about how these policies are changing and making sure the company is compliant.
As California and New York’s state economies make up a large portion of the national economy, the recent passing of their pay transparency laws may be pivotal in what soon could become the new normal.
“There’s a really important conversation for companies to have about how they choose to disclose their pay, so they’ve definitely got some options,” said Smith.
Of these options, he said, companies could choose to disclose pay information where it’s required, but they could also do it in more locations than that.
“Given that there is a general trend in disclosing pay, I think it’s a good time for CFOs to look at this in a more holistic way and lean into the trend,” said Smith. CFOs need to decide if they want to adopt this trend across the U.S., even in states where they are not forced to do so, as well as to consider whether they would like to extend the practice internationally, he said.
The patchwork of regulation may pose a compliance challenge for companies and their CFOs — 31% of surveyed CFOs said they were not ready for this kind of transparency in their pay programs, according to a recent WTW study.
“Companies should be thoughtful about whether what they’re publishing for new candidates matches their practices that exist across the company,” said Smith. “Companies should also be getting proactive about pay programs with their current employees who are even more valuable to the company to keep,” he said.
The push for pay transparency comes as CFOs and other financial leaders have been struggling when it comes to finding and retaining the right kind of talent.
Smith said the new laws could make it easier for companies to find the best matched workers for jobs because candidates are making more informed decisions when accepting offers.
“In some ways these pay transparency laws give CFOs an opportunity to directly address whether or not compensation is a fit for someone,” said Smith.
A recent study from Workhuman and Gallup found that employees who lack a strong sense of belonging are 12 times as likely to be disengaged and five times as likely to look for another job.