Insights and Resources

ESG and compensation transparency: HR’s role in managing new trends

ARTICLE | March 07, 2023

Authored by RSM US LLP

This role is even more important in light of various state law initiatives to increase compensation transparency. After all, pay is an important measure of diversity and inclusion in the workplace. As employees become increasingly aware of what their peers are paid, they may raise questions of fairness when they compare their pay to that of their co-workers.

This highlights the importance of how proactively and objectively employers determine the market price for their jobs in the open market.

ESG and salary transparency

Although the initial focus of ESG was on environmental sustainability for external constituencies, such as shareholders and customers, emphases have expanded through initiatives to address what is arguably the most important internal constituency—a company’s employees.

The goal in this area is to cultivate a healthy and sustainable corporate culture that minimizes turnover and negativity by fostering inclusion, diversity, and mutual support between management and employees. Arguably, the single most important factor within the culture is whether employee compensation is perceived as fair, nondiscriminatory, and determined based on objective data rather than arbitrarily or inconsistently.

At the same time, the so-called salary transparency movement is pushing employers to disclose compensation, benefits, and perks when they post job openings on their websites, job bulletin boards, and similar forums. Through the first two months of 2023, California, Washington state, Rhode Island and New York City had adopted rules along these lines, and New York state is expected to adopt similar rules.

In addition, while the evidence is largely anecdotal, it seems clear that millennials and younger employees do not have the cultural bias against sharing compensation information with peers as was the case with baby boomers and older employees. So, while an employer may not be in a state that requires disclosure in job postings, information about peer compensation may be widely disseminated inside the company, at least at certain levels, and, worse, without discipline or accountability for sharing accurate information.

Where’s our possible exposure?

The risk HR should consider is that you may be called upon on short notice to justify and document how pay grades and salaries were determined and administered.

This could leave the compensation team in HR needing to justify or explain pay rates to senior management, the employees, and possibly the shareholders as constituencies for how the company administers compensation. Of course, the stakes are higher when the company is adopting initiatives to improve ESG performance or branding with those groups.

What steps can compensation professionals take to address their role in the process?

Many of the steps HR departments have taken may go a long way toward addressing this exposure. Documentation of due diligence, regular data refreshing, and reviews of how well current processes are working will also help.

First things first: Have you recently considered how robust and objective the salary data you are using is? There are many sources for pay data, and there is no right or wrong answer to which sources are the best for your purposes. One thing to consider, though, is how easy it would be to point to your data sources as being authoritative and reliable when pay decisions were made.

It is likely that obtaining a detailed report from an independent third party is more defensible on issues of objectivity, inclusion, and fairness. It may be worth pricing what it would cost your company to obtain such support, at least on targeted positions. But, of course, there may be no specific ESG requirement that you do so.

From there, reviewing your current written job pricing strategy and policies will confirm you recognize the importance of fairness, objectivity, and inclusivity in ensuring that compensation administration plays its part in the company’s overall ESG efforts. Once you have reviewed and revised this documentation, you should circulate it to appropriate senior management for their comments and support for your overall policy and approach.

Policy implementation should be documented in written processes and procedures that ensure the policy goals you have adopted are being carried out. Employees in the compensation function, especially those new to the company, should be trained thoroughly in following written procedures, particularly on how to escalate any questions to management.

Finally, bear in mind that compensation transparency and ESG itself are evolving rapidly. Ensure someone specifically owns the process of keeping up with external changes and is empowered to recommend reviews and revisions of your operating documents as often as conditions may merit.

Let's Talk!

Call us at +1 213.873.1700, email us at or fill out the form below and we'll contact you to discuss your specific situation.

  • Topic Name:
  • Should be Empty:

This article was written by Mark Ritter and originally appeared on 2023-03-07.
2022 RSM US LLP. All rights reserved.

The information contained herein is general in nature and based on authorities that are subject to change. RSM US LLP guarantees neither the accuracy nor completeness of any information and is not responsible for any errors or omissions, or for results obtained by others as a result of reliance upon such information. RSM US LLP assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect information contained herein. This publication does not, and is not intended to, provide legal, tax or accounting advice, and readers should consult their tax advisors concerning the application of tax laws to their particular situations. This analysis is not tax advice and is not intended or written to be used, and cannot be used, for purposes of avoiding tax penalties that may be imposed on any taxpayer.

RSM US Alliance provides its members with access to resources of RSM US LLP. RSM US Alliance member firms are separate and independent businesses and legal entities that are responsible for their own acts and omissions, and each is separate and independent from RSM US LLP. RSM US LLP is the U.S. member firm of RSM International, a global network of independent audit, tax, and consulting firms. Members of RSM US Alliance have access to RSM International resources through RSM US LLP but are not member firms of RSM International. Visit us for more information regarding RSM US LLP and RSM International. The RSM logo is used under license by RSM US LLP. RSM US Alliance products and services are proprietary to RSM US LLP.

​Vasquez & Company LLP is a proud member of the RSM US Alliance, a premier affiliation of independent accounting and consulting firms in the United States. RSM US Alliance provides our firm with access to resources of RSM US LLP, the leading provider of audit, tax and consulting services focused on the middle market. RSM US LLP is a licensed CPA firm and the U.S. member of RSM International, a global network of independent audit, tax and consulting firms with more than 43,000 people in over 120 countries.

Our membership in RSM US Alliance has elevated our capabilities in the marketplace, helping to differentiate our firm from the competition while allowing us to maintain our independence and entrepreneurial culture. We have access to a valuable peer network of like-sized firms as well as a broad range of tools, expertise and technical resources.

For more information on how ​Vasquez & Company LLP can assist you, please call +1 213.873.1700.