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New York City Pay Transparency Law May Result in Pay Compression

Ian Carleton Schaefer, chair of Loeb & Loeb’s New York Employment & Labor practice, is quoted in an SHRM article discussing how pay compression has become an unintended consequence of New York City’s Wage Transparency Law. The new regulation, which will require employers to post a job listing with the minimum and maximum salary or hourly wage for an advertised position, will take effect on November 1, 2022. 

According to the publication, pay transparency may exacerbate the problem of pay compression, or a minimal difference in pay between tenured employees and new hires. To address the effects of low employee morale and pay equity problems, Ian recommends employers to judiciously analyze their pay practices.
Aside from the unintentional pay compression issue, the new law will likely accomplish its intended goals. "Pay transparency allows applicants to assess from an initial job posting whether the position is a viable financial option for them,” Ian said. “In theory, pay transparency will require employers to take a more deliberate approach to pay decisions and should eliminate, or at least lessen, variances in pay offered to similarly situated applicants." 

Ian also noted that for employers, pay transparency can serve as an opportunity to analyze organizations' compensation and ensure that pay decisions are tied to objective, job-related qualities of applicants. 

“This can prevent underpaying and potentially losing qualified applicants and employees; and overpaying less qualified applicants who demanded higher pay and whom a hiring manager liked for reasons that may not be directly related to the job—such as, for example, attending the same college as the hiring manager,” Ian said. 
To read the full article, please visit SHRM’s website.