Pay equity matters more than ever and must be managed continuously. Gone are the days where pay equity was an annual project to measure pay gaps between employees. To compete for talent in today’s modern workforce, it’s better to approach pay equity sustainably as an ongoing strategic program for attracting, retaining, and engage talent.
We want to share best practices for ensuring your compensation policies are aligned and fair, for building a sustainable pay equity management framework, and for auditing your pay policies that can lead to a more inclusive and transparent company culture.
Starting a pay equity journey
To begin, organizations must first address the issue of equal pay—that is people being paid the same for the same work, regardless of any characteristics. Although there has been legislation around the world for many years, there is still some way to go to eliminate this issue as more states and municipalities increase pay transparency regulations for employers.
Next, think of pay equity where people are being paid the same for similarly situated work, or work that is of a similar value to the organization. Legislation is catching up with this and, as we have seen in the UK with the Asda ruling regarding retail and warehouse employees, organizations and employees are finding it hard to agree on what ‘equal value’ means. Much of this relates to occupational segregation of the workforce and market data exacerbating any differences in pay.
Pay equity audits can help fix any issues that organizations find, with remediation suggestions feeding into compensation review cycles. However, we need to ensure that those pay differences don’t arise again. Organizations need to check that the policies, processes and practices that underlie any employee related transactions are free from systemic bias or structural issues that can cause inequity.
Organizations need to go further and aim for pay equality as there are many systemic and structural issues in society and in the workplace, which means not everyone has the same opportunity to earn the same. This is evidenced by looking at overall pay gaps and by looking at representation throughout the workforce. This leads to the issue of wage inequality, where there is a widening gap between those at the top of the organization and those at the bottom. The pandemic made the situation, that was already a serious issue, undeniable.
So now is the time to review all those pay policies and practices and do all that you can to remove anything that may be causing inequality. The following are various points in the employee journey where things can go with tips to overcome them.
From advertising salaries during recruitment and promotion processes, to sharing pay ranges, pay philosophies and information on how and why employees receive increases and bonuses, transparency is the key to ensuring fairness. Transparency breeds trust. Trust in the fairness of policies. Trust that the personal data an organization is asking an employee to share will be used for good. Hopefully this will become a wider practice, both externally and internally. Openness and transparency take courage and time, but it will lead to a happier and more productive workforce.
2. Data and finding insights
If you don’t have the data, you can’t gain the insights you need to fix the issues. Organizations are used to collecting their pay data by gender, but this needs to go wider. Ethnicity, disability, sexual orientation, veteran status, career status, age—the list goes on. Some of this data is hard to ask for, but the more you are trusted, the more employees will provide it. In some countries it is illegal to ask for some of this, so it is important to know your jurisdiction.
Salary data needs to be wider than the usual pay and bonus information. You need to collect allowance and benefit information such as eligibility, take up and amounts. Much of wage inequality is due to many bonuses, allowances and benefits being a percentage of salary and often hierarchical. It isn’t just pay data that needs to be collected to get to full pay equality. Data needs to be collected about all the points in the talent lifecycle—who is applying, joining, applying for promotion, being promoted, asking for a move to reduced hours, getting a flexible working arrangement, taking a career break, leaving, etc. With the move to hybrid working, data needs to be collected on who asks for which option and what that means for pay and development opportunities. We need to start collecting the data now to see how it plays out, and whether we need to change the focus if one group appears to be more disadvantaged. Data analysis needs to be continuous.
3. Reassessing everything through the DEIB lens
To determine whether your pay policies are not disadvantaging any group, they need to be looked at through a DEIB (diversity, equity, inclusion and belonging) lens. Is one group more advantaged by your bonus scheme? Does one group receive overtime or allowances more than another? Is the uptake of pensions and benefits more for one group? Do some groups receive higher performance ratings than others?
Many of the issues that drive unfair pay are unintended consequences of policies or practices. The D (diversity) and E (equality) are often easier to determine than the I (inclusion) and B (belonging). In terms of the talent lifecycle, the D and E are often reflected in the recruitment and promotion practices, whereas the I and B are more related to those leaving, who didn’t feel that they were included or belonged. To discover the issues here, talk to employees and look at policies that relate more to an employee’s wellbeing and home life, such as considering if employees receive the support to enable them to be successful at work and home. This is where progressive parental and career policies come in.
4. Employee voice
The unintended consequences of policies often occur because no one thought about the issue that later arose. The way to overcome this is to ensure that there are as many different voices as possible in the discussions. Speak to your union representatives or create a panel to review policies and practices. It might be that you are designing schemes that you believe employees want, but have you checked? Companies with unions or employee representatives have a more equal distribution of earnings and can help build transparency and trust. Organizations with mechanisms to enable them to have ongoing conversations with their employees to ensure that every voice is heard, have found that it impacts positively on levels of absenteeism, on retention, on levels of innovation and on customer service.
5. Leadership champions
Lastly, but most importantly, any efforts to reach pay equality need to be championed by leadership. In recent years, the World Economic Forum released its whitepaper on Measuring Stakeholder Capitalism, joining the many calls to redefine the purpose of businesses from serving only shareholders to serving their customers, suppliers, employees and communities. To ensure that this is not performative, leaders need to embrace the policies. Ideas include making all roles flexible by default, including allowing senior employees to work reduced hours, moving from individual performance bonuses to collective plans, flattening the benefit structure so all employees are offered the same, and increasing the board size to ensure it is representative fast.
We continue to be in a time of flux with labor market challenges, a cost-of-living crisis, and increased demand for pay transparency. Now is the time to be bold and make the transformative changes needed to ensure a sustainable pay equity approach that enables all employees to share in the success.