September 29, 2021
When it comes to fair and effective employee compensation practices, pay transparency and pay equity should be top priorities. In fact, according to WorldatWork, these are likely to be two of the most important responsibilities in human capital in the next 2 to 3 years. Unfortunately, even though pay transparency and pay equity are vitally important to worker satisfaction and company loyalty, they continue to be the exception, rather than the rule. Let’s bring these problems and possible solutions into focus:
Pay Transparency
When companies keep employees in the dark regarding their compensation compared to the market, it can create dissatisfaction that could lead to a toxic work culture. Trust is the biggest issue in pay transparency. When compensation ranges and information about how pay rates are established are kept secret, employees might feel like compensation practices are in a “black box.” This often leads workers to seek publicly available market-based salary information and draw their own conclusions.
How pervasive is the practice of employees checking market rates on their own? According to a Money Matters survey from Robert Half International, Inc., 73% of employees checked their salary against market rates within the last year. Of that 73%, 80% were men and 65% were women. The survey also found that 54% of workers compare notes with colleagues on their compensation. Of that 54%, 61% are men and 49% are women. Drilling down further, 67% of those discussing salary with their colleagues are 18 to 34 years old; 54% are 35 to 54 years old, and 38% are age 55+. And workers aren’t shy about using available information either. Of those who have discussed wages with colleagues, 28% used the information as leverage to ask for a raise, while 17% used it to negotiate a new job offer.
It is important to note that there is an increasing amount of salary information publicly available to employees and job candidates. It’s also important to note that public salary information can be incomplete, inaccurate, and misleading. Employee pay transparency within the company, however, could eliminate misinformation and confusion while potentially improving employee satisfaction and company loyalty. Sadly, pay transparency is rare in the private sector. The Institute for Women’s Policy Research reports that 17% of private companies practice pay transparency, while 41% discourage it and 25% explicitly prohibit discussion of salary information. Meanwhile, several states, including California, Delaware, and Colorado, recently passed laws banning employers from penalizing workers for discussing their salary or inquiring about colleague compensation.
Pay Equity
Currently, there isn’t enough research to definitively link pay transparency to pay equity. Nonetheless, studies do show that employee pay equity remains elusive and is often not given high priority.
According to a WorldatWork and Korn Ferry study, for example, only 60% of organizations address pay equity even though 70% of organizations report taking action to promote diversity, equity, and inclusion (DE&I). Despite this – and even though 73% of organizations report conducting compensation analyses once a year or more frequently – pay equity continues to be elusive.
Other study responses add to the story:
- 82% of professionals feel they know their worth; of those, 87% are men and 76% are women
- 46% of employees feel they are underpaid; 47% believe they are paid fairly and 7% admitted feeling overpaid
- Of the 46% who feel underpaid, 50% are women, and 41% are men
Currently, an average woman is paid only about 80 cents for every baseline comparison dollar paid to the average man; African American men earn 87 cents on the dollar; African American women earn just 63 cents for each dollar paid to their male counterparts; and Hispanic women earn a mere 54 cents for every dollar paid to their male counterparts. The COVID pandemic may also have negatively impacted women even further, as women have disproportionately fallen out of the workforce due to childcare issues and online schooling.
But employers should never forget that pay equity matters! According to a Randstad US Survey, 78% of employees desire a workplace where people are treated equally. Four in five women would switch employers for greater gender pay equity. Meanwhile, 53% of employees believe unequal pay is the top factor impacting gender inequality.
The good news is that more CEOs and Boards are becoming proactive regarding pay equity. Many realize it can improve corporate culture, help the company be more diverse, secure brand recognition, help them keep pace with competitors, and avoid or mitigate employee complaints.
A Pay Equity Action Plan
How should your organization manage the pay equity issue?
- First, seek legal counsel before making any public statements about pay equity. You’ll want to conduct a pay equity analysis with attorney-client privileged confidentiality. Use outside counsel to collaborate with inside counsel and Human Resources or compensation professionals.
- Be careful what you communicate to employees and what you commit to do. If you do commit to closing gaps or repeating analyses on a set timeline, follow through!
- Prepare FAQs and train managers on how to conduct salary conversations (60% of organizations say managers are not trained to effectively discuss compensation).
- Remember that your role in business as a steward of human resources is to implement and manage a fair pay system in which everyone follows the rules. Because your pay structures grow over time and leave space for inequities, review for pay gaps regularly.
- After performing a pay equity analysis, dig deeper to see if pay differences are justified. Courts have held that legitimate reasons for initial pay differences can become less valid over time.
- Work to close compensation gaps. This may require implementation in phases over a defined period. Some organizations, such as Starbucks, have worked on fixing pay equity issues for several years.
Benefits of Pay Equity
Pay equity is compensation fairness. In addition to the essential justice of pay equity, organizations with a formal process to address pay equity have 13% higher employee engagement. What’s more, 19% of these companies exceed industry average levels of productivity.
The Bottom Line:
Pay transparency and pay equity will impact company reputations and their market competitiveness in the new few years. Nonetheless, while many companies address diversity and inclusion, they downplay or ignore pay transparency and pay equity. But the clock is ticking. Relevant legislation is being introduced daily, shareholders want assurances, and employees are calling for ethical action. Forward-thinking companies know that transparency and equity can mitigate regulatory risk while boosting employee satisfaction and company loyalty.
To learn more about pay transparency and pay equity, or to engage Total Reward Solutions to perform a Discrimination Analysis or an Equity Analysis, contact us today at 317.589.8529.
Cassandra Faurote
About Total Reward Solutions:
Total Reward Solutions is your trusted partner for compensation services. Led by Cassandra Faurote, professionally certified Compensation and Human Resources expert and author of the book Compensation Sense 101, Total Reward Solutions offers a broad range of compensation and total rewards consulting services to help your organization attract top talent, motivate employees, and retain top performers. We can partner with you on a project basis, on retainer, or as your total outsourced solutions provider for compensation services.