‘Organizations are scrambling’: How HR is balancing pay transparency, a volatile job market and executive demands

A lot has changed since Cassandra Rose first started working in HR 20 years ago.

Until recently, it was common practice to ask applicants how much they currently earn in order to set their pay at a new company. Rose remembers being asked those questions as a job applicant herself.

But the situation began shifting in recent years. In 2018, California's Equal Pay Act became the first in the country to ban employers from asking applicants about their salary history, and more states followed.

Now, as the head of people at the benefits marketplace Fringe, Rose is leading her team through another big shakeup in HR pay practices: As of Nov. 1, most employers in New York City are required to list the salary range of a position on all of their job ads.

HR leaders like Rose say the law has been a long time coming: "This is the future of work. This is where we're all heading," she tells CNBC Make It.

But talk to any business or HR leader trying to formalize that future through real policies, and they'll agree it's not an easy or enviable task.

Balancing pay transparency, Great Resignation and inflation

All across the city, scores of HR teams overseeing the city's roughly 4 million private-sector workers have spent the year preparing for the law, in which businesses with four or more employees total, and at least one located in New York City, must list the minimum and maximum salary range for an open role, promotion, or transfer opportunity. It was passed by the City Council in January with an original start date in April that was delayed due to significant pushback from business groups.

Salary transparency policies are overwhelmingly popular among workers, and economists say they're key to closing racial and gender wage gaps, made worse in part by basing workers' pay on previous earnings. The U.S. Census Bureau estimates women earn 82 cents for every dollar earned by a man, and the gap widens for many women of color.

Preparing to list pay ranges for every open job is a daunting challenge for HR departments. Many of them are already struggling to hire in a tight market, while preparing for a possible downturn and figuring out the mess of hybrid work. They have to account for how record inflation (and resulting cost-of-living adjustments) and Great Resignation wage bumps (whether for a new hire or to make a counteroffer) have caused ranges for many roles to skew "out of bounds," Rose says.

"I wouldn't say [HR professionals are] unhappy" about the change, but "it's a lot of work for people who are already very busy," says Mike Trabold, director of compliance at Paychex, the payroll processing company.

It's fair to say HR is "not enthusiastic about new regulatory requirements" in general, he adds. Still, "people understand the rationale and support" the law's aim.

'Organizations are scrambling to decide what they want to share'

The law not only guarantees pay transparency for job seekers coming into a company. It means current employees can see what other roles are paid. That could lead to a lot of awkwardness in the workplace: 1 in 5 workers worry salary disclosure could lead to tension between colleagues, according to data from Monster.com.

The biggest thing companies have to contend with is that "there's not a defined playbook of how to be transparent with employees to make them feel confident in their pay," says Tony Guadagni, senior principal of research at Gartner, the consulting firm.

With ranges on the table, people who otherwise feel happy with their pay could feel less rosy once they see the max cap on their role, and may question why they're not already at the top. It's tough to say whether they'll feel motivated or demoralized to hear what's required to move up in their salary range.

Even those near the high end could end up unsatisfied, Rose says. They could wonder: "If there's nowhere up to go, does that mean I won't get that raise in the next three months?"

Businesses are "considerably less prepared" to manage the after effects of salary data going public, Guadagni says, at least when it comes to current employees comparing themselves and vocalizing their concerns. If businesses fumble in explaining not just what people are paid but why, it could lead to a fresh wave of quitting in an already tumultuous time in the hiring market.

"Organizations are scrambling to decide what they want to share with employees and how they can best contextualize the information they get from those job postings," Guadagni says.

Pay transparency in the future of work

Still, some HR professionals hope the law is the thing that finally convinces business executives, often the last holdouts in their companies, to come clean about pay ranges.

"I think most HR leaders would like to be more transparent about pay but have a hard time making that case to executives — the benefits you see with positive engagement and employee outcomes outweigh some risks," Guadagni says.

"HR leaders see this as a silver lining. For the first time, their hand is being forced with regard to pay transparency, and they're able to get more executive buy-in on things they know to be positive on the organization as a whole."

Want to earn more and work less? Register for the free CNBC Make It: Your Money virtual event on Dec. 13 at 12 p.m. ET to learn from money masters like Kevin O'Leary how you can increase your earning power.

Check out:

$2 million ranges, deleted job posts: NYC's salary transparency law is off to a rocky start

'The more transparency, the better': How NYC job seekers say visible pay ranges will help them

Salary ranges are coming to NYC job ads on Nov. 1—here's what to know

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