Editor’s Note: Rosabeth Moss Kanter (@RosabethKanter) is the Arbuckle professor at Harvard Business School, founding chair and former director of Harvard University’s Advanced Leadership Initiative and author of the book, “Think Outside the Building: How Advanced Leaders Can Change the World One Smart Innovation at a Time.” The views expressed in this commentary are her own. Read more opinion at CNN.
In New York City, pay is now on the record. A new law requires employers of four or more people to provide “good faith” pay range minimums and maximums for all advertised jobs there. And a similar California law will take effect in January for companies with 15 or more employees. This is about more than job postings; it is another step toward ending salary and wage inequities.
Of course, it is not yet clear what immediate impact these laws will have on pay gaps. Some commentators tout the benefits to job seekers who will waste less time chasing jobs that turn out to pay too little, but observers also note that this doesn’t directly address existing pay inequities within companies.
Others worry about the ways that companies will game the system and set ranges so wide that they have room for unequal treatment. But as the transparency trend grows, there’s no doubt the laws will bring much-needed attention to wage inequities, an issue that has gone on for far too long. And the loudest reverberations could be right inside the workplace.
Efforts to close gender and race pay gaps have been underway since the civil rights era but momentum has picked up more recently. In 2009, Congress passed the Lilly Ledbetter Fair Pay Act , named after the once-quiet worker who learned that she was paid less than men doing the same job and sued her employer at the time, Goodyear Tire & Rubber Co., over it.
Negotiation researchers have blamed the gender pay gap on the idea, demonstrated in some studies, that “women don’t ask.” But others, including advocacy organizations, point out that it’s hard for those who might face discrimination to negotiate pay if they don’t have information, so they push for more disclosure about who gets what. Publishing data on salaries by gender and race is increasingly common, especially for top earners, for whom information is often publicly available. That’s thanks to a worldwide push to close the gender pay gap, rising concerns over disparities and the unfinished business of movements for equal opportunity.
The new pay transparency laws are one more step in that push. Having more information makes workers feel a greater sense that they are respected and included. Chatter about pay is sure to increase across the country, and managers will face questions about differences in compensation within the same job. People on the same team who must pull together for results will compare their pay to make sure it seems fair. Clever data-miners will seek detailed information across jobs and talk about how pay rates are set. Those wondering why John gets more than Mary might organize friends of Mary to protest.
Pay transparency laws could have other consequences. Performance appraisals will have to be conducted with greater honesty and clarity. Managers will have to communicate criteria for rungs on the pay ladder for the jobs their employees do and what aspects of performance are used to determine pay. Already reluctant to give low ratings or differentiate among the people who report to them, managers may feel pressure to treat everyone in their area the same, or explain why they’re not. That might end up depressing everyone’s pay, as it will be easier for managers to avoid potentially awkward discussions altogether.
A 2021 report by Harvard Business School professor Zoe Cullen found that at companies with employees in states or cities that have pay transparency laws, workers received 2% to 3% less pay. She speculated that the laws encouraged employers to set lower salaries and refuse to negotiate on initial offers.
Favoritism won’t disappear at jobs in cities with these laws, but it will have to be based on contribution, not bias. It’s likely that more companies will use bonuses to motivate and reward performance. In talent-dependent companies, such as rapidly growing technology ventures, managers who can’t get around posted pay range limits will look for other ways to put cash into high performers’ pockets, through bonuses or special perks. While annual bonuses can get taken for granted and counted on as part of compensation package, spot bonuses will be sought out as a way for managers to differentially reward performance on particular projects as they occur, outside of annual reviews. This helps managers get around the limits forced on them by pay disclosure.
Lawyers and HR professionals will focus on the details of the New York City law and find some possible kinks. What if pay scales are conveyed verbally instead of in writing? What if postings can’t be revised as quickly as changing market conditions? How should remote work be calibrated for location? Can companies adjust inequities at the speed of lawsuits?
That’s not the point. The significance of pay transparency laws is their role in moving American workplaces away from bias and closer to equal opportunity.
