How Compensation Transparency is Changing Hiring and Recruiting Processes

 how-compensation-transparency-is-changing-the-hiring-and-recruiting-processes
Vice President of Marketing & Partnerships

According to a press release from Indeed, beginning July 18 of this year nearly every position on Indeed’s site now has a salary — either entered by the recruiter or estimated by Indeed’s algorithm (as long as Indeed has enough data to provide a salary estimate). Before July 18, large employers could opt out of this process, but being a large employer no longer exempts you from having to post a salary range or prevents Indeed from estimating one for you.

The reasoning behind this decision, according to Indeed, is to “encourage pay transparency, promote pay equity, and proactively address upcoming regulations mandating pay transparency.”

While proposed legislation requiring private California employers with more than 250 employees to post salary data online did not pass, the bill does require employers to disclose pay scales, including during the hiring process, and strengthens state enforcement of existing payroll data requirements. California Gov. Gavin Newsom signed a bill in 2020 requiring the state’s largest employers to collect payroll data and report that information to the California Department of Fair Employment and Housing.

When Colorado’s Equal Pay for Equal Work Act went into effect in 2021 some employers skirted the salary range by excluding people who live in Colorado. However, many jurisdictions across the U.S. are likely to implement pay transparency mandates at some point in the hiring process now or in the coming months. Nevada, Connecticut, Washington and Maryland already have laws requiring some salary-range disclosure; Rhode Island and likely New York will join them at the start of next year. Similar laws are under consideration in Massachusetts and South Carolina. At some point, excluding employees in multiple states in a job posting becomes a bit excessive.

How Pay Transparency Could Impact Recruitment and Hiring

Indeed said in its press release: “Currently, pay transparency is one of the best tools we have to close the pay gap, but fair and equitable pay is not the only benefit that comes with pay transparency. A recent survey conducted by Indeed found that for many job seekers, pay transparency translates to increased happiness, engagement and loyalty at work, and the demand for pay transparency is rising—especially among younger generations.” In the same survey, 75% of respondents said they are more likely to apply for a job if the salary range is listed in the posting and 56% said they would be more likely to apply for a company whose name they don’t recognize if the salary range is listed in a posting.

There is a growing recognition that salary transparency is a sensible and ethical practice—beneficial to employers and job-seekers alike. Research reveals that job listings with salary ranges receive more applicants, and there is no relationship between applicant quality and posting a range.

Salary transparency can also be beneficial to employers, cutting down on salary negotiations, improving employee retention and establishing trust between employees and their employers. And Indeed’s statement about closing the pay gap is correct: Despite substantial progress toward pay equity, women in 2022 still earn 17% less than men on average (BLS data, 2022).

However, one of the concerns employers and recruiters have is that the salaries estimated by Indeed or other job posting websites may be inaccurate, which can cause problems — not just for candidates and recruiters but for an employer’s brand. For example, if an employer chooses not to disclose a salary range and is assigned one by algorithm, it could mean a lot of applicants to weed through because of the assigned salary range, only for candidates to find out later that the salary for the position is actually much lower, which could negatively impact the candidate experience, and therefore the employer’s brand.

While many employers would prefer not to list salary ranges, recruiters tend to lean on the side of transparency, both because it makes their job slightly more manageable when candidates are aware of the salary range before they apply and because it can make an employer more competitive in the talent marketplace.

One final note: Implementing pay transparency in job postings will also require careful planning for current employees, as learning that they might be paid less than a new hire with less experience is likely to have a negative impact. But in the long-term, compensation management gives an organization the opportunity to evaluate pay structures and standards, which can lead to higher employee satisfaction and retention.