Pay transparency and what it means for modern startups

New pay transparency laws in several parts of the country require (or will soon require) employers to publish a salary or hourly wage range in their job postings. Policymakers believe the up-front disclosure adds a new fairness measure for employees. If companies approach it correctly, it also presents an opportunity for them: It makes the hiring process far more efficient.

What are pay transparency laws?

Pay transparency laws are regulations that require employers to disclose salary or wage ranges for job roles. This set of legislation aims to promote pay transparency by giving candidates and employees access to compensation information. The central goal is to help close persistent wage gaps, which can be difficult to address because, as the U.S. Equal Employment Opportunity Commission (EEOC) notes, pay discrimination is often hidden from view. These pay disparities can be stark: According to Carta's 2024 Annual Equity Report, women received 22.5% of all new equity issued on Carta, despite making up 35% of new equity-receiving hires.

For a startup founder, these laws represent a fundamental shift in how you hire and create a compensation plan for your team. While it can feel like another compliance task, embracing wage transparency is an effective way to build trust. In fact, contrary to old advice, research on pay transparency covering over 1,300 firms shows it can be the right choice for improving employee satisfaction with their compensation. It signals that you are a professional, fair, and modern employer, which is a significant advantage when competing for top talent and employee retention.

Adopting transparency early also helps you build a strong company culture rooted in fair pay. When compensation is clear and based on a compensation philosophy, it reduces the potential for internal friction and shows your team that you value every member's contribution. Closing this gap by educating employees about their compensation builds a foundation of trust that is invaluable as you scale your company.

This means clearly communicating not just the salary for a role, but the "how" and "why" behind every component of your total rewards, including salary bands, variable compensation, and especially equity. This approach creates a clear, consistent framework that shows your team the system is fair.

Salary history bans vs. pay transparency

While navigating pay transparency, you will likely encounter another set of rules known as salary history bans. Though related, these two types of laws address different aspects of the hiring process. It's important for you to understand the distinction between them.

Salary history bans look to the past by prohibiting employers from asking candidates about their prior compensation. The purpose is to break the cycle of underpayment, where a candidate's future salary is anchored to a potentially unfair previous salary, making it hard to value a job offer.

Pay transparency laws, on the other hand, look to the future by requiring employers to disclose what a role is expected to pay. Both work toward the same goal of establishing fairer compensation based on the role's value to the company, not a candidate's past earnings.

Why pay transparency is a competitive advantage

For a growing startup, pay transparency is a strategic tool for growth. In a competitive hiring market where you may not always be able to offer the highest cash salary, clarity becomes a powerful advantage. It allows you to build a foundation of trust with your team, investors, and future hires from day one.

Aligning expectations for compensation helps job candidates as well as employers. In the short term, neither side will be wasting their time conducting interviews and negotiations if their pay expectations are misaligned. Over the long term, it can protect against low morale and attrition by helping make sure that employees are paid similarly to their peers.

Other benefits of pay transparency include:

• Builds investor trust: A clear compensation plan demonstrates to investors that you are organized, professional, and thinking strategically about your two biggest expenses: payroll and equity.

• Attracts top talent: When you can't always compete on cash alone, a transparent offer of equity can be the deciding factor. Showing a candidate their potential ownership stake and its future value makes the opportunity feel more tangible and compelling, helping you win hires you might otherwise lose.

• Fosters a culture of fairness: Pay transparency prevents the internal tension and pay inequities that arise when compensation is negotiated on a case-by-case basis. A consistent framework ensures that as your team grows, morale remains high because everyone understands the system is equitable.

A company’s approach to pay transparency can also guard against claims of pay discrimination. Even at companies that do their best to comply with laws against discrimination, unintentional biases in the hiring process can generate unequal outcomes. A growing body of research shows that one reason for these disparate outcomes is that women are less likely to benefit from the traditional negotiation process. Racial biases may have similar effects for people of color. Limiting negotiations to a published range reduces the opportunity for unequal outcomes.

 These disparities are often measurable on a national scale—in 2024, women who were full-time wage and salary workers had median weekly earnings of $1,083—83.2% of the $1,302 median for men. Pay transparency helps address these existing equity gaps by making compensation structures and philosophies clear.

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Pay transparency laws by state and city

The legal landscape around pay transparency is evolving quickly. By making wage and salary ranges more transparent, lawmakers believe they can make recruiting and hiring more efficient—and make compensation fairer. A fixed salary range helps candidates make informed decisions about what open positions they’ll pursue and how they’ll negotiate an offer. It also helps make sure that employers fit the salary range to the role—not to the more subjective (and often biased) process that unfolds during the interview process.

U.S. pay transparency laws (as of April 2026)

Sixteen states and Washington, D.C. have enacted laws. No federal law is currently in effect.

Notes: No federal pay transparency law exists as of March 2026. Remote work rules vary; if a role can be performed from a state with a transparency law, that state's pay transparency requirements may apply regardless of company headquarters location. Always consult employment counsel for jurisdiction-specific advice.

How companies can prepare for pay transparency changes

Although Congress is unlikely to adopt a similar federal law, this trend is likely to continue. Private companies can stay ahead of coming legal requirements by developing systems and documentation to help prevent salary misalignment and pay discrimination.

Salary bands and levels

Developing fixed salary bands (a compensation range) that correspond to defined levels for roles across the company can help you make fair and competitive compensation offers. A banding and leveling system prepares your company to comply with evolving compensation disclosure laws: Your bands will confine pay negotiations to a fixed range that you can publish in your job listings. This transparency can prevent discrimination claims by codifying your company’s pay practices in written documentation.

Compensation philosophy and plan

A compensation philosophy documents your compensation strategy; it should go hand-in-hand with your overall business strategy by identifying your target labor market, how competitive you plan to be with salary, your approach to incentives, and your views on pay.

Establishing a strong compensation philosophy is the first step to creating a compensation plan, which also outlines your company’s job architecture (roles and levels), your approach to performance management, and the structure of compensation-based incentives. Comp plans can help cultivate pay equity through transparency, and can help you win top talent by establishing a clear framework for promotions.

If you don’t develop coherent systems for compensation decisions, you may find yourself faced with unexpected legal scrutiny. You might also lay yourself open to claims of discrimination—especially as the Equal Employment Opportunity Commission (EEOC), the federal agency that enforces fair employment laws, becomes more active in employer oversight. In addition, your company could see a leap in compliance costs if your local or state government joins the movement toward greater transparency.

To avoid these costly problems—and to help keep your hiring and recruiting efficient and competitive—you’ll want to remain up to date on legal requirements and industry best compensation practices in pay transparency.

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Common pay transparency pitfalls

While the goal of pay transparency is to build trust, common mistakes can have the opposite effect. As a founder, being aware of these pitfalls can help you navigate the process more effectively and avoid unintentionally creating confusion or frustration.

• Inconsistent ranges: One of the most common mistakes is posting job descriptions with overly wide or meaningless salary ranges. This can erode trust before a candidate even applies, as it suggests a lack of a clear compensation structure and can feel like a bait-and-switch.

• One-off exceptions: The temptation to make a special deal for a star candidate is strong, but it undermines the entire framework of transparency. When you make one-off exceptions, you create the very inequity you are trying to avoid and risk damaging morale, especially since a majority of women already believe that employers treat women differently—a perception that special deals will only confirm.

• Poorly explained equity: Offering equity without clearly explaining its value or its potential can lead to confusion and disappointment. In Q4 2024, startup employees exercised just 32.2% of vested, in-the-money grants.

Tools for a transparent compensation

As a founder, you have a choice: manage compensation the old way with spreadsheets or adopt a modern, professional approach with an integrated platform. While spreadsheets might seem sufficient at first, they quickly become a liability, introducing risks that can cost you time, money, and trust.

An integrated compensation management platform is designed to solve these problems. Carta provides the tools you need by connecting your cap table, 409A valuation report, and compensation data in one place. This creates a single, trusted system for managing compliance with Accounting Standards Codification 718 (ASC 718) and communicating total rewards, giving you the confidence to build your team and scale your business.

To see how an integrated platform can help you attract and retain top talent, request a demo.

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Frequently asked questions about pay transparency

How does pay transparency apply to contractors and advisors?

While most laws focus on employees, understanding why contractors deserve equity and applying the same principles of clarity to contractor rates and Rule 701 disclosures for advisory shares builds professionalism and trust with everyone who contributes to your company.

How do you manage pay transparency for a remote team?

The best practice is to adopt a single, national approach to pay transparency, establishing a clear geographic pay policy and using a data tool like Carta Total Compensation to apply it consistently for all employees.

Does pay transparency mean sharing everyone’s exact salary?

No, for most companies, it means sharing the compensation framework and the pay bands for each role, not individual paychecks, to show employees that the system is logical and fair.

Do pay transparency laws apply to bonuses and equity?

Most laws focus on base salary or hourly wages, but some require a general description of other compensation like bonuses and phantom equity. You should always check the specific law regarding profits interest in your hiring jurisdiction to be sure.

Do these laws apply to internal promotions or transfers?

Yes, many pay transparency laws require you to provide pay range information to current employees who are moving into new roles or receiving an equity refresh grant. This reinforces the need for consistent and well-defined internal pay bands.

What is a "good faith" salary range?

A "good faith" range is the salary you genuinely believe you would pay for a role at the time of posting. It should be based on your budget and market data, not an arbitrarily wide range designed to circumvent the law or complicate a cashless exercise.

What are the penalties under pay transparency laws?

Penalties vary by state but can include significant fines for each violation. Non-compliance can create substantial financial and reputational risk, similar to failing valuations audits, making it crucial to prioritize.