- New York is set to implement pay-transparency legislation requiring companies to list salaries.
- This can help attract new hires but could hurt retention of longtime employees.
Many New Yorkers may soon discover how underpaid they are.
On September 17, New York is set to be the eighth state to implement pay-transparency legislation and the fourth this year, after California, Rhode Island, and Washington. The new law could help companies statewide attract talented new hires by making clear from the start of the interview process the salary and workplace expectations. Though, it could hurt the retention of longtime employees, who are set to see how much they're making compared with new hires in similar positions.
New York's law requires employers to publicly disclose the exact compensation or a range of compensation — as well as a job description if one exists — for any job, promotion, or transfer opportunity.
In November, a New York City law went into effect requiring employers with four or more workers, at least one of whom works in the city, to disclose "good faith" salary ranges in job postings. The law covers base pay and mandates that the ranges can't be open-ended, meaning an employer can't write "$18 an hour or more," for instance.
Though pay-transparency laws could push companies to raise salaries, they might exacerbate pay compression — or when new hires' salaries push closer to or exceed the pay of current staff.
Keeping new hires on for longer
In an analysis of internal hiring data from companies in states with transparency laws shared with Insider, the recruiting firm Orion Talent found that, as of last Friday, 10.3% more new hires made it through the first 90 days of the job compared with states without such laws. Companies in the first 90 days in the energy, medical, manufacturing, industrial, and construction sectors — the top five industries Orion Talent tracks — saw 23% fewer departures in the first 90 days as of last Friday.
"There's been a positive impact around the candidate journey, which, I think, has led to a much more positive candidate experience," Rachel Ward, vice president of talent acquisition at Orion Talent, told Insider. "We're also seeing that because these expectations of pay are set prior to an individual talking with a recruiter or coming in for an interview with these clients, there's no wiggle room in there."
Candidates also appear more likely to apply for positions that list compensation in the description. In an August survey from the management-consulting company Gartner, nearly half of the respondents said they didn't apply for a job between May 2022 and May 2023 because the job description omitted salary information.
"When you're that honest and transparent, and there's a process and rhyme and reason behind it, it just builds a connection with a candidate," Ward said, adding: "If you're paying somebody well and are transparent about it, and you're really setting them up for success within a healthy culture, these employees are going to work really hard."
Helping or hurting retention?
Pay-transparency laws on the whole have helped companies develop healthier work environments, Ward said. In theory, pay-transparency laws lead companies to bump up salaries for some positions to make them more equitable, as well as reduce inequities on the basis of race, gender, sexual identity, or other traits.
However, since some laws — such as New York City's pay-transparency law — do not cover full compensation, companies may still be able to get away with paying some workers more in bonuses or providing them with more health benefits.
Additionally, if companies don't resolve pay discrepancies between what current employees get and what new hires in similar positions receive, this could lead to an exodus of current employees in search of better and more fair pay, Ward said.
"It can create a negative dynamic between new and old employees, and it can lead to really counterproductive comparisons of your peers, which ultimately demotivates those employees," Ward added.
"I've seen some clients that historically have had a pretty lovable culture now become a little more chaotic, really unhealthy," Ward said.
Over the past decade, dozens of laws were passed nationwide prohibiting employers from firing or reprimanding workers for publicly discussing salaries. Younger workers are more likely to discuss pay with their colleagues and friends — as well as on social media.
Still, a recent study in the Indiana Law Journal found that just under half of workers in states banning or limiting pay secrecy were formally or informally prevented from talking about their salaries.
Ward said companies that addressed pay discrepancies before pay-transparency laws went into effect had the most positive outcomes, both in terms of retention and opportunities for promotions.
"From an employer perspective, I really think you have to take a look at your workforce, get a feel for each of your job categories, and understand what those salaries average across a single job category," Ward said. "Then looking at the minimum and your maximum of individuals within that job family, if there's a huge pay transparency, you have to address it."
Do you live in a state with pay-transparency laws? How have they affected you and your workplace? Reach out to this reporter at nsheidlower@insider.com