When it comes to compliance, asking the “why” is as important as understanding the “what” – Employee benefits and compensation
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As the transition from one calendar year to the next approaches, many employers understand that this is the annual time to take stock of the changes to the law that will come into effect on January 1st.stand prepare for compliance. Given the sometimes dizzying maze of change and compliance requirements – especially those of multi-jurisdictional employers – it’s hard to fault anyone for approaching this season with a “what should we do?” state of mind.
But approach compliance from the point of view of “what is the requirement?” can lead to missed opportunities to not only proactively move up the compliance curve, but also to continue to align your company’s actions with its values and culture in pursuit of the proverbial but still elusive “right thing.” In service of this overarching goal, sometimes the best question to ask about compliance doesn’t start with “What?” – it starts with “Why?”
The recent trend towards ‘pay transparency’ legislation provides an excellent illustration of the value of a ‘why’ approach. California, New York State, New York and Colorado have all recently passed laws requiring employers in one way or another to affirmatively include salary or other compensation information in job offers/solicitations. And so far, anyway, much of the digital ink spilled on the subject has focused on pay transparency compliance mechanisms – in other words, on the “here’s what” question. ‘We have to do”.
Such a mechanistic focus is important. But this leaves the unexplored question of Why these laws have gained traction and the reasoning behind their adoption. At their core, these pay transparency laws hope to reduce the persistent pay inequalities experienced by women and minorities and the pay gaps for similar work.
Consider this hypothetical situation: the employer is posting a leadership position that, to all appearances, looks like an amazing opportunity with no compensation information included (because the job is in a location where such posting is not required by the law). The employer narrowed the pool to candidate A, a white male, and candidate B, a minority woman. Both seem like great candidates and the employer will gladly hire either one at a salary as high as $225,000. Unbeknownst to the Employer, Candidate A values his work in the job as a salary of at least $200,000. Candidate B, hoping for the opportunity and career advancement that will come with it, will be delighted to get the job with a salary of $150,000. Suppose Candidate B is offered the job and when asked about her salary expectations, Candidate B thinks she is aiming for the moon asking for $175,000. She is then delighted when the employer gives her the job at this salary without flinching.
The obvious problem with this hypothetical scenario is that the three different parties involved all value the work differently, with the result being that a minority candidate fills the position at a pay grade well below the apparent value of the position. And while I don’t claim to be qualified to comment on the various cultural, historical and institutional reasons why Candidate B might hold the position at a pay level below his value, one must imagine that institutional and historical reasons play a certain role. (The drafters of the pay transparency laws certainly came to this conclusion.) Either way, the objective result is some form of pay inequality relative to both what Candidate A would get for the job if he had received the offer and what the employer was. willing to pay to attract the best talent for the job.
Now change a fact: Along with the job posting, the Employer adds something like this: “Expected annual salary for the position: $200,000 to $225,000.” Candidate A and Candidate B are still likely to apply. But in this updated scenario, Candidate B now has tangible information to understand that if she thinks she is a competitive candidate for the position, the value of her work in this position is worth more than what Candidate B self-assessed. And if the Employer offers the position to Candidate B, it is likely that she will accept the position and receives the remuneration that the position is worth – not how Candidate B assessed the opportunity given various historical and institutional obstacles. As a result of the compensation information provided in the job posting, while we cannot say that the employer has eliminated the historical scourge of wage inequality, it has at a minimum created circumstances that have prevented a reinforcement of wage inequality markers.
Now back to the question of “why” instead of “what”. If the emphasis is on “what do we need to do to comply with the laws of California, New York and Colorado”, there is a necessary reduction in emphasis on “why does this matter?” However, focusing on this direction can lead to a next realization like “yes, we obviously want to comply with the laws where they exist, but don’t we really want to tackle potential wage inequality? everywhere in our organization because it corresponds to our values and our culture? From there, the business decision can then become the implementation of enterprise-level transparent payment communications, as it brings the business closer to the proverbial “right thing” (and makes it more compliance-ready). in jurisdictions that may adopt pay equity disclosure laws in the future).
Not all compliance requirements – new or old – provide as clear an answer to the “why” question as the question of pay transparency. I will be the first person to confirm that some employer compliance requirements seem impractical and unhelpful. At the same time, not asking the “why” question with compliance requirements potentially leaves both practical business solutions and cultural value opportunities on the table. And in a time when corporate values and culture have become more important in the competition for talent, taking this critical thinking approach to compliance can give a company a valuable competitive advantage.
The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your particular situation.
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