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California Pay Disclosure Bill Could Spark a Movement

July 6, 2022, 8:00 AM

A law hurtling its way through the California legislature may change how employers think about pay and workplace equity, for good. The bill, SB 1162, would force employers to shift focus from pay equity to also consider equal access to opportunities.

The effects would be felt nationally because, as we know from previous waves of pay equity laws, once California starts, a movement often follows.

Public Pay Reporting Requirements

The bill passed the California Senate on May 24, before moving to the Assembly for consideration. Just in the past two weeks, the bill passed the Assembly Judiciary and Labor & Employment Committees. It is awaiting Appropriations Committee approval before the full Assembly vote and consideration by the governor.

The proposed bill has two key requirements: greater pay scale transparency and more and different pay reporting, some of it public.

The pay scale transparency requirements would have California join six other jurisdictions, including New York City and the state of Washington, in requiring that covered employers post the pay range on all job postings. Employees could also request the range for their roles.

But it is the first-in-the nation pay reporting requirements that will shift the landscape.

The law would require public pay reporting disclosure for the first time in US history. Businesses with more than 100 employees—with at least one employee in California—are currently required to file an annual pay data report with the state of California.

This report requires reporting within groups of jobs, for example, managers or sales workers. The new bill would, among other requirements, make this report public for employers with 250 or more employees. The roll-out will start with employers with 1,000+ employees.

Also, for the first time in the US, the bill would require employers to report median and mean hourly rate gaps. So, taking a gender example, a California employer would need to file a report that shows how much it pays women in manager roles, on average, and the same for managers who are men.

Right now, this would not be public, but the California Assembly Judiciary Committee report suggested public reporting may be on the table. Watch for any amendments.

From Equal Work to Equal Opportunities

Employers in the US normally think about pay equity in the traditional sense of compensating people performing equal (or substantially similar, or comparable) work not based on an employee’s protected category characteristics, but instead explained by neutral, job-related factors that differentiate workers’ skills, effort, accountability, and working conditions. Or, for folks who are not reading from a legal treatise, they think pay equity means equal pay for equal work.

The California law, if adopted, will challenge the way we think about pay and workplace equity. The discussion will become focused on equal access to opportunities. This means the US would join other countries, like the UK, that already assess opportunity gaps—a reflection of the global cross-pollination of workplace equity laws.

So why the shift? The pay reports—both the public pay report and the disclosure to the state of California of median and mean gaps—are only marginally about paying people equally for doing similar work because these statistics assess the gaps across jobs, functions, and levels.

First-line managers earn less than senior directors, so if an organization has fewer women or Black, Indigenous, and people of color (BIPOC) in more senior-level roles, these gaps will be apparent in the pay reports and reflected in the pay gaps. Functional segregation—a key feature the bill was slated to address—will also be reflected in the pay gap.

Let’s take the example of professionals, one of the broad categories across which this data will be reported, in your average tech company. Within the category of “professionals,” you may have HR generalists, business analysts, software engineers at all levels, and seasoned product leads all sitting within the same professional category. According to the Census Bureau, while women have a growing presence in higher paying industries such as Information or Professional, Scientific, and Technical Services, they are still over-represented in lower paying industries.

As these reports will be public, and subject to the watchful eyes of your employees, customers, shareholders, and the plaintiff’s bar, you will need to be positioned to explain these gaps.

Employers: Move Beyond Pay, Assess Opportunity

At the Assembly hearings, opponents argued the reports would be confusing, if not downright misleading. As the reality of the law takes hold, the very understandable grumbling will increase.

But opponents should at least pause on the fact that public disclosure appears to move the needle on workplace equity. There is something to the adage that what gets measured gets done. A 2019 study featured in the Harvard Business Review found that wage transparency and reporting in countries that mandate it both narrowed the wage gap and increased the number of women hired and promoted into leadership positions.

All employers will have gaps. What some may not have is a narrative to explain the gaps and a plan to close them. Unlike equal pay for equal work gaps, which can be solved virtually overnight with enough cash, opportunity equity takes the ability to see your diversity gaps in real time, a detailed understanding of your gaps, an action plan, and time.

The California bill explicitly would allow employers the opportunity to provide any additional context of the employer’s choosing to regarding its pay data. Think about that one employee who asks the tough questions at the company all-hands; how will they respond to your message?

This article does not necessarily reflect the opinion of The Bureau of National Affairs, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.

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Author Information

Christine Hendrickson is the vice president of strategic initiatives at Syndio, which provides technology and expert guidance that helps companies measure, achieve, and sustain all facets of workplace equity. Before joining Syndio, she was a partner and co-chair of the pay equity group at Seyfarth Shaw LLP.