Pay transparency and equity compensation: What it means for your company

The global trend toward introducing pay transparency legislation is having an impact on how
companies manage their equity compensation strategies. In this article we’ll unpick what’s
become an emotional topic for workers and leaders alike.

The immediate concern for companies operating in multiple US states or various regions of the
world, is that they may face different pay transparency compliance requirements in these locations,
some more demanding than others, either now or in the future. These businesses will have to
consider whether to customize their approach to the rules on a case-by-case basis or implement a
company-wide policy whereby they embrace a level of transparency that goes beyond merely
adhering to the letter of the varying standards demanded in different US states and elsewhere.

What is pay transparency?

At a basic level, pay transparency refers to the practice whereby companies are legally obliged to
disclose information about ranges in salary and compensation for specific roles and positions. In
practice, this might include making pay rates public when advertising roles and presenting
information on the decision process whereby compensation packages associated with various roles
are determined.

The overall objective of the drive towards pay transparency is to eliminate possible biases and
discrimination in compensation, and to encourage a payment culture based on fairness and equality,
while also taking into account the value of work associated with specific roles.

Pay transparency in the US

At the time of writing, more than a dozen US states have either introduced pay transparency laws or passed legislation and set a date for implementation, with more states expected to follow in the coming years. However, where things begin to get more complicated is that depending upon the state, the rules businesses must follow can vary.

For example, some states specify that a company must provide an intended pay range for any position being advertised, e.g., California, Colorado, and New York. Elsewhere, the rules state that job applicants are entitled to receive pay range details at specific points in the recruitment process, such as during a first interview or when they receive a formal offer, e.g., Connecticut, Maryland, and Nevada.

Another point of difference between states can be how the rules are applied to companies of varying size. For example, in Hawaii, pay transparency laws currently only apply to businesses with 50 or more employees; in New York, the cut-off point is four employees, while regulations set to be formally introduced in Illinois next January will apply to those who employ 15 or more.

By contrast, many other states require full compliance if a company employs just one individual within their borders, e.g., California, Connecticut, and Maryland.

On a broader level, the ongoing movement towards pay transparency was made clear in late 2023, when it was reported that at least some form of salary information was now being provided in more than half of US job listings

Pay transparency in the EU

The EU Pay Transparency Directive was approved by the European Parliament in 2023 and all
member states are obliged to implement it by June 2026. Among its key terms are:

• Employers must inform job applicants of the starting pay or pay range, either in the initial job posting or prior to interview.
• Employers are not permitted to ask applicants about their pay history.
• If requested, employers must provide information on pay ranges for categories of workers performing the same work or work regarded as being of equal value. This requirement includes information on bonuses, benefits, and incentive plans.
• Decisions made by employers on individual career progression and pay levels must be based on specific, gender-neutral criteria that can be openly accessed by employees.
• Employers must publish details on whatever gender pay gap might exist within their company. If that gap is greater than 5%, they can either a) commit to eliminate that gap within six months or b) conduct an assessment and then create a detailed action plan detailing how they will deal with the situation and on what timeline.

These and the other rules detailed in the directive will need to be adhered to by all companies
operating within the EU who have 100 or more full- or part-time employees. Member states have
the latitude to decide to what extent companies with fewer employees will be bound by these rules.

Compliance or full transparency?

The question of whether to do merely what is required by law or go further can be a matter of
practicality as much as anything else. According to Chris Dohrmann, J.P. Morgan Workplace
Solutions Executive Director, Strategic Partnerships, this is particularly the case for businesses
operating in multiple US states and/or more than one country.

“The reality is that attempting to customize their response across different states and countries to
ensure they meet all requirements in the various places, providing more or less information as
demanded of them, may prove challenging, time-consuming, and ultimately counterproductive,”
says Chris “Another approach might be to recognize that the demands on pay transparency are likely
here to stay and may even be expanded in the future. Against that backdrop, there is a case to be
made for companies to embrace pay transparency and offer as much information as is practical or to
take the most demanding set of rules they face and establish that as their baseline level of
transparency for all states and countries in which they operate.”.

Pay transparency and equity compensation

As of now, most pay transparency legislation is concerned first and foremost with salaries and
doesn’t require companies to provide detailed information on equity compensation programs.
However, it is by no means certain that this will continue to be the case into the medium- and long-
term.

At this point in time the legislation scheduled to be introduced by the EU in 2026 will prove more
demanding of companies than what is being asked of them in the US, and against that backdrop it’s
possible that the EU might broaden its focus in the future if, for example, it was felt that equity
compensation packages were contributing to a gender pay gap.

It’s unclear as of now what legislation demanding transparency on equity compensation would look
like, as it is possible that detailed disclosures might conflict with data privacy laws, i.e., if it was felt
that disclosures might lead to the overall compensation of specific individuals becoming known
publicly, by virtue of the position they hold within a company.

While issues such as that will need to be teased out, companies need to be cognizant of what might
be coming down the line.

Can pay transparency benefit companies?

A key question for any company wondering about whether to go beyond the letter of the law in their
pay transparency disclosures is this – might doing so benefit you? As with so many questions, this
one doesn’t lend itself to a straightforward Yes or No, but we can point to evidence suggesting that it
can be linked to positive outcomes at the business level.

On a basic level, when an organization embraces pay transparency:

• It can hope to achieve greater levels of trust among employees towards the business, arising from the perception of openness.
• When employees understand why their salary is set at the level it is and how it compares to those they work with, this can contribute to a more positive work environment and impact positively on morale and productivity.
• When employees are happy in their work environment, they will be less likely to want to leave, therefore pay transparency can correlate with greater levels of retention.

Talk to us

At J.P. Morgan Workplace Solutions our team of professionals is experienced in providing
personalized support to help companies of all sizes around the world with their equity compensation
needs. Regardless of the industry you’re in or the company stage you’re at if you would like to find
out more then get in touch.