Too few businesses are ahead of the game when it comes to pay equity issues. Kathi Enderes shares research from the Josh Bersin Company on where organisations stand on this, and argues that addressing pay equity can make them stand out from their competitors.
Here at the Josh Bersin Company, we recently finalised a year-long study that asked 448 organisations around the world where they really are with pay equity. This refers to any person in a particular role being paid and rewarded in an equivalent way to a peer who operates at the same level of influence, output, and overall value.
The results were somewhat surprising and concerning. Whilst a very high 71% of CHROs see pay equity as a critical component of their people and business strategies, just 14% are putting in enough budget to tackle it.
Even worse, 95% of companies are failing to achieve the highest level of pay equity maturity – either ducking the subject at all until a legal, compliance, or reputational risk arises, or dabbling with it with occasional attempts that end up solving it in some areas, not others and never resolving the root causes of inequity.
The importance of this is put into context – pay equity came out as 13 times more important for employee retention and engagement than high levels of pay and benefits on their own.
Who’s doing it right?
How seriously you should take pay equity is reflected in the successes felt by those who do it well. The 5% of companies that are doing pay equity right experience higher profitability, improved customer satisfaction, and success in attracting and retaining top talent.
And our research suggests that when firms start seeing things this way, they are 1.6 times more likely to meet their business outcomes, and even 1.7 times more likely to innovate effectively.
So where do you start? With these benefits in mind, major companies are starting to take action, and the scale of their work tells the story of both how seriously they take it, and how much effort is needed to get it right.
A case in point is what’s happening at American Airlines, which employs over 130,000 people and has now brought in external help and specialist tools to make sure that staff working in what it calls “substantially similar groups” are finally getting equal compensation.
Another example is what’s going on at tech giant Salesforce, which has committed to spend between $2.5 million and $4.5 million every year to fix pay equity issues. As its EVP of Global Rewards, Stan, Dunlap, says: “Pay fairness is not something you should think about just once a year; you have to think about the whole compensation universe end to end.”
Be clear on pay
This likely may feel a bit overwhelming if you sense your company has a long way to go, but rest assured, our data highlights an indicator of where you can start – communicating transparently.
We found that even in organisations that haven’t fixed all their pay equity problems, by simply communicating about it, they start to see really positive buy-in from their employees. That shouldn’t surprise us, as the best HR solutions are always the ones that bring employees along.
So, our data shows that if you start by listening to employees and find the current perception of pay equity in your company, then you are already going the right way.
In practical terms, if you communicate that effort is being put in to address concerns; are consistent in talking about the work that’s being done; and frame it as an overall ongoing business priority, not a one-time discussion, then some of the very desirable HR benefits that the 5% are seeing, like a 1.3 times sense of employee belonging, are well within your reach.
Looking at long-term action, you’ll need to identify pay equity issues through rigorous analytics, compare different job groups to each other, and identify where you stand on pay for performance, too.
It’s all about thinking about how you define “equity” overall, and then aligning all your practices around that. SAP, for example, is putting pay equity first in every decision, making it clear that there is no fairness without equity.
What’s next?
UK employers with more than 250 employees have had to publish their gender pay gaps every year since 2018, making gender pay equity a business imperative.
And although the UK’s no longer part of the EU, HR developments in Europe still need to be considered, especially when the pay equity problem is the focus of significant new legislation in the world’s largest trading bloc.
If you start by listening to employees and find the current perception of pay equity in your company, then you are already going the right way.”
In March, Brussels signed a Pay Transparency Directive that mandates pay equity compliance with any company that wants to trade there.
The regulation aims to strengthen the application of equal pay for equal work between men and women through pay transparency and enforcement mechanisms.
Employers must provide transparency regarding pay levels, criteria used for career progression, and workers now have a legal right to pay information.
Companies with more than 100 workers must also report pay gap information – and if a gap of greater than 5% is identified, a pay gap analysis is required to fix the problem. Employers are also prohibited from asking employees about their salary history.
To me, the message for British HR leaders and C-suites is that the direction of travel here is unmistakable. Policymakers aren’t prepared to give you the benefit of the doubt around pay equity any more, and you’d be best off getting ahead of this well ahead of any possible regulatory pressures.
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But that shouldn’t be your only impetus to finally get to grips with pay equity in imaginative and employee-focused ways. The bottom line benefits are clear, and make it a no-brainer to start getting ahead of your competitors.
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