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Unprepared for Pay Transparency: Aon's Alarming Findings

In a recent study published by Aon plc, it was revealed that a significant 75% of U.S. employers find themselves ill-prepared for emerging pay transparency laws. As these regulations are set to take effect in 14 U.S. states and four Canadian provinces by the end of 2025, with the entire EU following suit by the end of 2026, this revelation offers a critical look into the state of employer readiness.

The primary objective of pay transparency laws is to mitigate the gender wage gap, a goal that presents substantial challenges, as underscored by the study’s findings. This analysis included responses from 626 U.S. employers, both national and international, revealing that only 51% have conducted an independent pay equity analysis. Alarmingly, among those, 84% unearthed gaps and disparities in pay equity. However, only 34% of these employers have taken proactive measures to allocate additional funding to rectify these inequities.

Brooke Green, Head of Talent Solutions for North America at Aon, commented on the findings: "The rise of pay transparency reflects a broader cultural transformation, particularly among younger employees. What was once seen as impolite — sharing salary information — is now viewed as crucial to addressing and closing pay disparities. Companies that more rapidly adapt to these regulations will be better positioned to promote fairness and assist employees in making well-informed career choices."

Key Insights from the Study

Several notable insights emerged from the study:

• - Only 18% of employers feel prepared for pay transparency laws.
• - High readiness levels were observed in industries such as retail e-commerce (33%), financial institutions (21%), manufacturing (20%), and professional business services (20%).
• - 63% of employers do not share salary ranges with their employees.
• - Among those that do disclose salary ranges, 61% do so only when mandated by law, while only 16% provide this data globally.
• - Despite 81% of employers listing salary ranges in job postings, inconsistencies exist in internal communication, indicating a gap in transparency between employers and their current/potential employees.
• - A staggering 69% lack any pay transparency communication strategy in place.

Kelly Voss, head of rewards and career advisory at Aon, pointed out, "More than half the U.S. population lives in areas with some level of salary regulation, and over 60% of Europe will be covered by the EU Pay Directive. These growing compliance requirements and the societal push for pay transparency are compelling more businesses to act. Organizations that lead these initiatives will not only enhance employee engagement but also attract top talent."

Aon’s Strategic Response

To assist employers in navigating the complexities of pay transparency, Aon has recently updated its Radford McLagan Compensation Database. These enhancements bolster the platform's data and analytics capabilities, allowing HR leaders to effectively benchmark compensation, assess plan design practices, and gain actionable insights into talent management.

"Companies need reliable data and intelligence to benchmark effectively and define jobs consistently across global markets," Voss stated. "This knowledge will prepare organizations for pay transparency while maintaining competitiveness in both local and global markets."

Looking Ahead: Plans for 2025 Raises

As the importance of pay transparency continues to rise, employers are forecasting salary increases for 2025. Aon predicts an average budget increase of 4.6%, akin to the 4.7% figure reported in the previous year. This figure encompasses merit increases, promotions, and adjustments based on market conditions. The report also highlighted a notable trend, with 20.7% of U.S. employees leaving their positions, out of which 11.8% were voluntary departures within the first half of 2024.

Conclusion

The data presented in Aon’s study not only illuminates the preparedness of U.S. employers for upcoming pay transparency laws but also underscores the crucial need for organizations to adopt clear and effective communication regarding pay practices. As the landscape continues to evolve, proactive measures could significantly reduce wage disparities while promoting a culture of fairness and transparency. As Aon emphasizes, companies that embrace these shifts will not merely comply with regulations; they will foster a more engaged and satisfied workforce, positioning themselves favorably in the competitive employment market.