Pay Transparency

In the last few years, different states have adapted to adopt varying levels of regulations to increase pay transparency. In a prior article, we worked with Accel to publish what’s happening in the United States. Read more about it here. 

Today, we’ll focus on the broader implications of pay transparency – most importantly, how that affects candidates during their job search.

What does this mean for me as a job applicant?

Having access to more information around what you can expect to be paid gives candidates more power in knowing if this opportunity is the right fit for you. Here are three things you should dig into:

• Know how your compensation is broken down: all of the pieces that make up your total compensation package. It’s important to note that although companies may only be required to include base pay (salary or hourly) range information, they may also share information on bonus/commission, equity, and other benefits and perks. Be sure to read carefully to know what components of compensation are included and not included in the job posting so you can make an “apples to apples” comparison of different job postings. 
• Understand how the company makes compensation decisions: the company’s compensation philosophy
• Understand how you are mapped to your given compensation: how the pay range was developed and where you can expect to fall in that range, given your unique prior experiences and skills

How am I being compensated?

It’s important to understand what your total compensation package would look like at a company. Your offer can be made up of multiple components, that when added up, equal your total compensation. 

Compensation packages may not include all of these components, but here’s a common formula:

Questions to ask your potential employer on the components of compensation:

• What performance bonus/commission is available in addition to base salary? If yes, how is the bonus calculated and awarded? Is the bonus tied to realistic goals? 
• Is equity compensation offered? If yes, how should I think about the value of my equity?
• What benefits and/or perks are available? 

What is a pay range and how should companies think about it?

With the new pay transparency laws in many states, companies are now required to develop a reasonable salary range a candidate can expect to be paid for the position. 

When setting pay ranges, companies can pull from multiple sources:

• Market data - benchmarking jobs to available data sources 
• Internal data - develop ranges based on what the company is currently paying employees in that role
• Recruiting data - what recruiters are hearing from candidates on their salary expectations

A pay range includes a low end, midpoint, and a high end of pay. Typically, companies identify the midpoint, then develop a range around that midpoint based on their internal practices. For example, some companies develop ranges from 80% of the midpoint to 120% of the midpoint from their chosen dataset, but there are no set rules for how companies develop a reasonable range. 

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Here’s a sample pay range:

When you see such a pay range listed, you can calculate that the midpoint for this range is $100,000. You will need to ask questions to better understand a company’s compensation philosophy and how ranges were developed. 

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Questions to ask your potential employer on how the pay range was developed:

• What data is used to set compensation ranges? 
• What percentile of the market data do you target for the range midpoint? For example, did the company target the 50th percentile, the 75th percentile, etc.?
• Does this pay range factor in geo-location?
• How long has this pay range been around? 
• How often are pay ranges reassessed? What causes changes in pay ranges?
• If I were to move, would my pay move up/down?

How am I, a candidate, mapped to my pay range?

While companies have different philosophies, candidates should generally NOT expect to be hired towards the high end of a range when you are first joining a company. Candidates are typically placed between the low end and the midpoint of the range to allow room for potential learning and growth. As you progress at the company, and learn new skills in your role, you can receive pay increases to bring you closer towards the high end of the range. 

Reaching the high-end of a band is a great time to discuss a promotion or lateral move to another area of the business that may make sense for your career growth. Asking for a different career ladder is a great way to do so. 

The visual below shows one way in which these ranges are calculated. 

Questions to ask your potential employer to know where you can expect to fall within the range:

• Where should I expect to fall on the pay range given the skills and experience I bring to the role? 
• How is placement in the range decided?
• Is there a clear path for my salary to increase as I progress at the company? 
• How often is individual pay reviewed?
• Does performance factor into compensation decisions? If so, how?
• What pay range should I expect if I were to be promoted?
• Do you have published career ladders?

Transparency is here to stay.

Compensation remains a way for companies to demonstrate their values, most notably their commitment to their team. How transparent a company is on their compensation program and their willingness to answer your questions can tell you a lot about the general trust and openness they may have with employees on a number of topics that impact your overall experience. 

While transparency regulations have doubled in the last five years, some companies have more proactively taken a leap to help both candidates and employees feel more trusted within their organization. So…will you let transparency determine who you work for next?