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Employers Will Need to Prepare for New Workplace Regulations

S.J. Steinhardt
Published Date:
Apr 19, 2023

Three new proposed regulations, intended to make for a fairer workplace for employees, present challenges for employers, which need to prepare for them, a Boston University business professor wrote in the Harvard Business Review.

The three policy changes—the Federal Trade Commission (FTC)’s proposed ban on noncompete clauses in employment contracts, pay transparency legislation in many local jurisdictions, and new human capital disclosures to be mandated by the Securities and Exchange Commission (SEC)—“have far-reaching implications that company leaders may not have fully grasped,” according to Charles G. Tharp, professor of the practice, management and organizations, and associate director of the Human Resources Policy Institute at Boston University Questrom School of Business.

The FTC’s proposed rule would ban the use of noncompete clauses as “an unfair method of competition,” estimating that it will increase workers’ earnings by $250 billion to $296 billion per year. From the perspective of employers, such a ban might make it more difficult to protect the investment they have made in employee training and development. Accordingly, “employers will have to devote increased attention to providing career opportunities, ensuring an inclusive and welcoming culture, and exploring additional ways to enhance the employee value proposition to strengthen employee retention,” he wrote.

Tharp noted that, because of the increased risk that employees will be recruited away by competitors, some companies may be more selective about the types of nonpublic information that they shared broadly. To avoid losing high-level employees, he recommended that companies reinforce how these  employees connect to the company’s overall mission and strategy.

To address pay transparency, which enables competitors to compare their salary ranges and adjust them to compete for talent, Tharp suggested reassessing the nonmonetary aspects that could make a company a more attractive place to work, such as work-life balance, opportunities for development, and an equitable and vibrant culture.

Should longstanding employees use pay transparency regulations to find that newer employees are being paid more, pay them the market rate, he wrote. That would be less expensive than the arduous process and potential cost of finding a replacement for a key position.

The human capital management disclosure rules for publicly traded companies, expected soon, will require reporting of expenditures on skills training and development, workforce composition, turnover, diversity, compensation and benefits on the 10-K form. As many companies may not currently be tracking some of the information the SEC is expected to request, he urged them to prepare to collect and track the data that may be needed in an audit. Companies must also determine if steps to enhance retention are needed once employee information is disclosed, he wrote.

“Company culture and providing purposeful work in support of a compelling mission is what really creates competitive advantage when it comes to talent acquisition and retention,” Tharp concluded. “Forward-thinking leaders will devote increased attention to these aspects of the employee experience that are hard for competitors to replicate.”