Pay Transparency Impacts on Manufacturers and Distributors

Pay Transparency: What Manufacturers and Distributors Need to Know

The pay transparency movement continues to gain momentum. Several states and municipalities have enacted pay transparency requirements over the past several months. Many more are considering similar legislation as a way to improve pay equity and attract top talent. As a result, forward-thinking manufacturing and distribution companies have a timely opportunity to redefine their compensation philosophy and establish pay transparency as a competitive advantage.

Pay transparency is grabbing headlines and getting legislative votes for two main reasons. First, it’s a step toward making tangible progress in narrowing gender, race and ethnicity-based pay gaps. Second, employees are on board. Seventy-three percent of American workers believe that making salaries more transparent would improve fairness in the workplace. One in three say they would turn down a job interview if the salary range is not provided.

In today’s highly competitive job market, compounded by a skilled labor shortage that’s projected to reach 2.1 million unfilled manufacturing jobs by 2030, pay transparency can be a compelling tool for manufacturing and distribution organizations.

What is Pay Transparency?

Pay transparency has different levels. For some employers, the term means communicating the company’s pay practices and salary ranges for each role to existing and prospective employees. For others, pay transparency means full transparency around individual salaries within an organization.

To date, pay transparency legislation primarily focuses on the disclosure of the salary range or hourly wage as job openings are posted. Some states require the information to be included within the job posting while others require it to be available upon an applicant’s request. As more states and cities enact disclosure requirements, the “spillover” effect creates a decision point for employers. Many companies that recruit nationwide or across multiple states elect to implement pay transparency practices across all job postings.

The Advantages of Pay Transparency

Sharing pay practices and disclosing pay ranges help attract qualified candidates and screen out applicants who don’t fit the range. Candidates appreciate the information. When companies provide salary ranges upfront, job seekers are more likely to believe the company is fair and trustworthy. When a salary range is unavailable, nearly one-third of candidates say it makes them think the company’s pay is not competitive or their pay practices are biased.

The benefits are more than goodwill. Analysis by the job search firm Adzuna shows that job postings that include salary ranges generate six times the number of applicants than those that don’t.

Pay transparency isn’t only about recruiting new employees. Manufacturers and distributors that implement transparency practices must consider how the information will be received and interpreted by existing employees. Done well, a pay transparency strategy helps current employees better understand the company’s pay practices, including how salaries are determined, how they align with the market and how they compare with other roles within the company. Ultimately, pay transparency can effectively build employee confidence in the business’ pay practices and increase workforce retention.

Pay Transparency Best Practices

Maximizing the business value of pay transparency requires a strategic approach. When implementing or enhancing pay transparency for your company, consider three essential best practices:

1. Take the opportunity to review and refresh the company’s compensation philosophy.

A compensation philosophy documents the company’s approach to employee compensation. It creates a framework for pay consistency by outlining the “why” behind how pay is determined. In most cases, the compensation philosophy encompasses the business’ total reward package, which includes base pay, incentive compensation, employee benefits and perks.

The compensation philosophy is integrated throughout the company’s culture and used to attract, motivate and retain employees. It should be seen as an organic statement that is regularly reviewed and updated to ensure it remains aligned with business objectives, market conditions and competitive pressures.

2. Conduct a comprehensive compensation study.

Pay transparency relies on fact-based pay structures that can be consistently applied and explained. A comprehensive compensation study uses objective data to evaluate the market value of each role, benchmark current pay ranges and identify discrepancies. For manufacturers and distributors, experts recommend that businesses conduct compensation studies at least every three years to ensure pay rates remain competitive and compliant.

Market-based compensation is key to attracting and retaining talent without overpaying. Defining salary structures and ranges based on external market data is crucial for pay transparency. Compensation experts can assist in the development and execution of regular compensation studies and help your team evaluate the financial impact when adjustments in pay scales are needed. Regular compensation studies can serve as a guide for defining or adjusting the organization’s job architecture and pay formulas.

3. Emphasize employee communications.

Education and communication are essential to the successful implementation of a pay transparency strategy. As pay ranges are included in job postings, existing employees will also see the information. Lay the foundation by having salary discussions with employees to explain how the salary ranges are determined, how their current pay aligns and what they need to do to move their salary up in the range. Create an ongoing communication and training plan that provides information and tools to help employees understand the company’s compensation philosophy and how it translates into their paychecks and total rewards.

Pay transparency takes the mystery out of pay decisions. When every difference in pay has a reason, it helps reduce pay inequities. And when job candidates and employees have access to information and understand how decisions are made, they’re more confident that the organization’s pay is fair and competitive.

The manufacturing and distribution industry experts at CBIZ can help you design, implement and communicate compensation and reward programs that meet pay transparency requirements and drive organizational success. Connect with a member of our team and gain access to more resources here.

This article includes input from Joe Rice, Director in the Compensation Consulting Division of CBIZ Talent & Compensation Solutions. Joe’s experience in compensation consulting helps companies implement innovative and strategic pay practices to attract and maintain top talent.

Pay Transparency: What Manufacturers and Distributors Need to Know https://www.cbiz.com/Portals/0/Images/working-new-project.jpg?ver=DBN0VM_7O5Uox0nzy0GGTQ%3d%3dhttps://www.cbiz.com/Portals/0/Images/working-new-project.jpg?ver=DBN0VM_7O5Uox0nzy0GGTQ%3d%3d2023-03-16T17:00:00-05:00

The pay transparency movement continues to gain momentum. Several states and municipalities have enacted pay transparency requirements over the past several months. Many more are considering similar legislation as a way to improve pay equity and attract top talent.

Employee ManagementManufacturing & DistributionYes