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Changes to compensation are on the horizon

California’s new pay transparency law, SB 1162, promises to shake up compensation in the tech industry by requiring employers in the state to list pay scales in job ads and reveal pay information to both the state and to current employees. We spoke with Susan Alban, operating partner and chief people officer at Renegade Partners, and compensation consultant Ashish Raina to learn how.

Startups will adopt pay bands earlier. Five or 10 years ago, it wasn’t unusual for 50-person companies to be operating without a “career ladder” or “career architecture” with compensation bands for different job functions and levels, Alban said.

• Today’s tighter labor market — and demands from candidates — mean that companies structure their compensation bands sooner.
• Because the new law applies to companies with just 15 employees, even tiny startups will be required to define their pay bands in a more structured way, Alban said.
• “Which is a little funky when you have, like, eight people, to have a band for every single job, because sometimes you just have one person in a job,” she said. “It just nudges companies to be a little bit more thoughtful in defining what is the job, what is the relative seniority, and what would we reasonably pay relative to market-based pay.”

Companies may find other ways to differentiate pay in order to compete for the best talent. The law only requires companies to disclose base pay, not stock, bonuses, or benefits.

• This means bonuses and equity could become more important forms of compensation, which may shift the issue of unequal pay to other areas.
• Bonuses “can be very arbitrary,” especially in early-stage companies where goals change all the time, Alban said.
• They may prove to be even more important levers for attracting and retaining great employees, however. “Fair pay is not equal pay,” Raina said. “If someone is more proficient or more highly performing in a role, there should be a differentiation in pay.”

The law might provide a little more incentive for companies to hire outside of California, but not much. The law on its own is unlikely to have a major effect on where companies hire, but it adds more administrative headache to California employers.

• “I don’t hear employers talking about not wanting to hire in the state of Colorado because of these laws,” Alban said.
• Some companies may choose to advertise jobs with a national labor rate that would overpay candidates in low-cost states like Mississippi but underpay Californians, Raina said.

Big companies are likely to comply more readily than startups. An online job search shows companies like Google, Salesforce, and Twitter listing pay ranges in ads. Some listings cite the Colorado law explicitly.

• “I think the general consensus among progressive technology employers is that this is the way the world is going,” Alban said. “Rather than fret about it and deviate from hiring in particular regions to avoid compliance, better to just comply anyway.”

• Some startups likely won’t comply with the law, Raina said. “They’re trying to survive,” he said. “Yes, this law exists, and yes, there’s going to be some risk if they don’t comply, but that isn’t necessarily people’s forefront of an issue.”