Since the start of the new year, many states have introduced pay compliance laws. As a result, companies are now faced with the difficult task of defining their compensation with clarity and making critical decisions about how pay ranges will be defined within their personnel budgets.

Although it’s a tough job, there is a silver lining: with greater pay visibility employers will be even more attractive to top talent in the years ahead.

To get a pulse on compliance best practices and the impact of these new laws, we recently tapped Future of Work expert and VP of Total Rewards Advisory at Sequoia, Kyle Holm, to share his insights.

Here’s what he had to say.

Why and how should organizations build a deliberate compensation philosophy?

KH: There are three components that should be considered when developing a compensation philosophy: the company’s mission, the company’s labor market, and how they want to position each element of the total rewards program in that market to align with their mission. Pay ranges must be thoughtful and representative of work already done within the organization. Companies should not start by trying to solve for the requirements of the new laws on an ad hoc basis – a thoughtless compensation philosophy will stick out like a sore thumb. 

What are some ways organizations can navigate these nuances by state? 

KH: With more and more states rolling out similar legislation, tracking which jobs are located where and the different components of each position can easily become a nightmare for companies. Organizations should consider, based on their employee locations, if it’s easier to create a company-wide strategy or if they want to manage by location.  Considering this a national requirement can help companies avoid the game of pay compliance Twister.

How will these laws impact recruitment and retention?

KH: Top talent has been in high demand with lots of competition these last few years. Hiring under those circumstances can lead to big offers for newly hired employees, which, if unexamined, could create pay inequality. In addition, current employees who are able to view thoughtful pay ranges and understand they are being rewarded based on a thoughtful compensation philosophy will be less likely to pursue other opportunities.

What are the risks to employers?

KH: These laws carry penalties for non-compliance, and open new protections for employees and new avenues for employee lawsuits. But the bigger risk to employers may be company culture. As pay ranges become easily accessible, employees who are out of range will notice first. Peter Drucker said, “culture eats strategy for breakfast.” The cultural risks inherent in complying without thinking about the downstream implications are huge.

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