Here's how salary transparency is changing in the US

One of the last taboos of the American workplace — discussing salaries — is headed for extinction.

Salary transparency laws are sweeping the nation, with California, Washington, Rhode Island, and New York City enacting them this year. They join a handful of other states, including Colorado, requiring employers to post salaries on job listings and prohibiting them from penalizing applicants who do not want to provide a wage history. A longstanding practice for the public sector, salary transparency has arrived for the private sector.

Wharton management professor Matthew Bidwell champions the change, saying it gives employees the information they need to negotiate at the bargaining table. He said salary transparency may also be beneficial for closing the gender pay gap; women still earn 20% less than men.

“I’m quite happy to see this,” Bidwell said to Wharton Business Daily on SiriusXM. “In terms of enabling people to make informed choices about where they should be working and what jobs might be rewarding, it makes the labor market search a lot easier.”

He recalled looking at job listings a few years ago and noticing that only a small percentage listed salaries or even pay ranges. He found that bewildering, given the importance of salary in deciding whether to pursue employment. For most job seekers, salary is at the top of their list of considerations.

“We talk about the joy of markets and how efficient they are and all those sorts of things. There are not that many markets where nobody bothers to post prices,” Bidwell said. “You’d be a little annoyed if you went to the supermarket and they didn’t tell you how much everything was going to cost until you got to the cash register. Whereas traditionally with employment, you apply for a job and it’s only after you get the job that they start talking about how much they are going to pay you.”

In addition to helping close the gender pay gap, salary transparency forces companies to be “a bit more systematic” about pay, the professor said. Paying employees indiscriminately becomes harder to do when salaries have to be published. He said this kind of individualized pay, rather than paying what the job is worth, has become the norm in recent years.

“Individualized pay decisions work well when nobody knows what anybody else is getting paid,” Bidwell said. “But when people in the same job are being paid radically different amounts, which aren’t necessarily tied to their performance, it gets quite awkward for managers.”

While salary transparency is good for workers, there’s not much evidence that it will raise wages overall. Bidwell said employers could use salary transparency as a reason for holding down pay across the board, with the rationale that no single employee’s salary can rise too high above the range.

“It shifts negotiations as well, in slightly complicated ways,” he said.

More states are expected to enact salary transparency laws, and Bidwell thinks majority-Democrat states will embrace the trend first. But it’s hard to say whether it will become a federal regulation in the U.S.

“When you see a wave like this, you’re never quite sure where it’s going to break. So yes, I would expect to see this continue over the next few years. I think it’s a good thing,” he said.

California: Companies with 15 or more employees must list salaries on job postings. Current employees can request a pay range for their position. Companies may be fined $100 to $100,000 per violation.

Washington: The Equal Pay and Opportunities Act requires companies with 15 or more employees to list salaries and benefits on internal and external job postings. Employees transferring to a new position or promotion may request the salary range for that job.

Rhode Island: The amended Pay Equity Act doesn’t require companies to post salaries, but they must provide the pay range to a job candidate upon request. Employers cannot refuse or retaliate against a candidate who refuses to provide a salary history. Fines for violations range from $1,000 to $5,000.

New York City: Companies with four or more employees or one or more domestic workers are required to post a “good faith salary range” for every advertised job, promotion, or transfer. Gov. Kathy Hochul has signed a similar statewide transparency law that will take effect in September.

Colorado: The Equal Pay for Equal Work Act (2019) requires employers to post all job openings and salary ranges, and prohibits employers from seeking wage history as a condition of employment or basing salary on past wages. Companies also may not retaliate against applicants who do not disclose salary history. Fines for violations range from $500 to $10,000.

Laws also have been enacted in Maryland, Connecticut, and Nevada.