What the Californian pay transparency laws mean for engineering managers

California’s Senate Bill 1162 will force hundreds of thousands of businesses to share staff pay data publicly – but what does that mean for staff, and the wider working world?

They are the two most infuriating words in any job search: “Salary: Competitive”.

But a new bill that was passed into law in late September in California puts an end to vagaries around compensation. Senate Bill 1162 requires any California-based company with 15 or more employees to include a pay range in their job posts. Larger firms with 100 or more employees or contractors also have to report median and mean hourly pay by job category, race, ethnicity, and gender.

Around 19 million people immediately fall under the jurisdiction of California’s new pay transparency laws, which mimic those already in place in the likes of New York, Maryland, Colorado, and Connecticut. In all, 200,000 companies with 15 or more workers are now subject to the legislation.

What’s changed with pay transparency rules?

“With this law, this paradigm flips,” says Hareem Mannan, Vice President of Product and Design at Pave, a workers’ compensation startup company. “A lot of the salary transparency movements we’ve seen have come bottom-up – from employees collecting that data themselves, and then sharing it with peers in organizations organically.”

Now that has changed, with employers required to proactively share salary information. “While some companies with good compensation infrastructure are prepared, this will force others to get their compensation hygiene in order in the first place,” says Mannan.

That’s important, because data that Pave collects shows that the ongoing war for engineering talent, brought about by a shortage of qualified staff at a suitable level of experience, means that salaries have risen without many in the industry realizing. Compensation has risen between 7% and 17% for engineers, depending on the role, between 2020 and 2022.

“Though compensation isn’t everything, visibility into the compensation bands for roles on job descriptions empowers engineers to be able to make informed decisions about where they might want to take their careers next,” says Mannan. It’s also vitally important for women and underrepresented minorities, who research suggests are less willing to negotiate on salary because they feel their position in a company is weaker than White men.

A new deal for contractors

The law change is also great news for contractors, who make up an outsized proportion of engineers working for tech companies, according to Hannah Holloway, Director of Policy and Research at lobby group TechEquity Collaborative. “Belying our typical understanding of a tech engineer as a well-paid, stable, cushy job, many of the workers in engineering within tech are doing so through employment contracts with third-party agencies,” she says.

Being employed as a contractor doesn’t just mean that there’s the possibility to pay people less, says Holloway: it also robs hardworking individuals of the rights that fully paid-up staffers have, including benefits and stability.

“This bill will mean that the state is able to see those pay disparities, monitor them over time, and hopefully take steps to address any wage inequities,” she adds.

The case for pay transparency

“The fewer secrets companies and professions have about who’s getting what and why, the better, because it will bring to the surface anomalies, gaps and tensions,” says Stefan Stern, Visiting Professor at Bayes Business School (formerly Cass), City, University of London. It’s called price discovery in markets: understanding what the fair price is for a good or service, and then seeing how you rank in that field.

But with knowledge comes power – and potentially tricky questions for engineering managers to answer if companies have been running a two-track system. “Managers are the first group of people who will be asked questions by employees about compensation, total compensation, and compensation philosophy,” says Mannan. “It’s absolutely essential that they are literate in the language that enables them to navigate these conversations fairly, thoughtfully, and successfully.”

Mannan suggests that managers talk to their people and human resources teams to get a fuller grasp on what their company’s compensation philosophy is, so they can fully articulate why a worker is paid a certain amount – and why that may differ from someone else. Those conversations should be welcomed, rather than feared, because they’re important for a smoothly-run, equitable company. But if they’re not, try to affect that change.

How to handle pay data sharing

If you see disparities in payment that can’t be explained, try to introduce more rigor to the process. “If you find that your company is not making data-driven compensation decisions that you’re comfortable communicating with your employees, start looking at the best-in-class data sources for compensation,” says Mannan.

It’s not just in California that this change should have a ripple effect: it ought to benefit businesses operating around the globe, helping cut down the huge gaps that can be found in pay depending on where a person is based, doing the same job, in the same company.

At Twitter, for example, leaked salary data showed that pay for the same role could vary by up to 225%, just because of where an employee was based. (Twitter did not respond to the claims, the data underlying which were verified by the publication.)

For businesses, the new law may seem to have a chilling effect – but it shouldn’t do so as designed, says Holloway. “Don’t be afraid of data from an employee or business perspective,” she says. “The point of this bill isn’t to shame employers, but to call their attention to issues that need to be fixed.”

Communicating pay clearly

Employers may worry that they have inadvertently helped build an unequal business, and the pay data lays that bare in black and white. But the aggregated numbers can help smooth that out. “It should give folks a baseline understanding of what’s happening at companies and across industries, but hopefully not enough to wreck morale on teams or between employees,” says Holloway.

Even if there are thorny figures in there, it’s important to be upfront with staff. “Transparency is always the right way to go,” says Stern. But it’s important to ensure that you’re also presenting the data to employees in its full context. “If you have full disclosure without understanding what you’re really disclosing and not comparing like with like, that’s where you will have problems.”

That means that bosses need to use candor when presenting the data. Informing employees that the data may not tell the full picture, or that the data they’ve compiled may miscategorize certain roles at the start, is important. It’s even more vital because of the visceral reaction that pay disparities can trigger. “Pay is very personal,” says Stern. Anything that’s wrong, or walked back after more analysis of the data, is likely to sting twice as much for those affected.

“In theory it’s good,” says Stern. “In practice it’s harder. But that doesn’t mean you should give up.”