How Leaders Advance Pay Equity Strategy
Authors:
Sabina Mehmood, Pay Equity Leader at Brightmine Pay Equity Analytics from HR & Compliance Center
December 11, 2023
Based on ADP's 2022 People at Work study of more than 32,000 employees across 17 countries, 76 percent of employees would consider seeking new employment if they discovered an unfair pay gap within their company. With this, organizations understand not only the personal (and societal) importance of pay equity, but also the measurable business impact that pay equity brings.
Fair pay practices enable organizations to build high-performance workforces working in an inclusive culture while avoiding legal risk and inordinate costs associated with the turnover of top talent. The data are compelling. Laggard organizations that shove pay parity aside, see very negative consequences. On average, 39 percent of leaders reported that pay inequities resulted in reduced productivity. Similarly, 34 percent reported inequities contributed to a poor company culture, and 35 percent said they are the subject of potential litigation. (See Figure 1.)
Figure 1. The Downside of Inaction on Pay Inequities
Source: HR & Compliance Center 2023 Pay Equity and Transparency Study
Consensus among senior leaders is that they own the design and execution of a fair pay strategy that advances a people-first culture to improve business outcomes.
Three Key Leadership Actions
1. Treat Pay Equity as a Business Imperative
Pay Equity Audits
Promoting pay equity as an organizational strategy starts with conducting a pay equity audit. To get started, leadership will need to conduct a thorough job evaluation of all roles. This involves reviewing job descriptions, performance metrics, and salary information to identify disparities based on gender, race, ethnicity, age, or other characteristics. After collecting and studying these data, leaders should employ the services of an auditor (internal or external), or utilize pay equity technology such as Gapsquare to conduct a regression analysis. This analysis will identify pay differentials based on legitimate factors such as role complexity and value as well as job holder experience, education, and training.
Remediation
After the audit comes remediation which should begin with resolving pay equity gaps. Though less consequential and smaller gaps make the list for resolution, leaders should prioritize pay gaps that are mission-critical to the business. For these latter pay gaps, if they are large, leaders may need to build a business case for additional funding requisite to resolving gross inequities. This is especially true when there is pressure to share results near-term. If the budget is constrained, leaders may plan to raise affected employees' salaries incrementally over a couple of years until it achieves the target amount and parity is achieved. Also, unless driven by litigation, back pay is typically not part of the equation.
As a next step in the remediation process, leadership must fix operational gaps that led to the salary discrepancies in the first place. Operational resolutions could include correcting job classifications, modifying job descriptions, and rectifying incorrect salary records. Finally, leadership should regularly monitor and tweak hiring and internal mobility processes for alignment with pay equity targets. It is common for pay gaps to re-emerge as organizations experience employee turnover, reorganizations, changes in job duties, and personal bias. Spot-checking the compensation and rewards data annually and conducting a deep dive review every couple of years should be part of an organization's pay equity execution plan.
2. Ensure Managers Understand Pay Equity and Rally for It
Manager Education
Our research shows that just 12 percent of employees say managers at their organizations are very effective at facilitating conversations about pay. Worse than that, almost a full quarter (22 percent) of employees say their managers have no conversations at all with them about pay. Lack of managerial understanding about the business importance of pay equity and getting past managers' discomfort to talk about pay equity with their employees are two of the greatest inhibitors of executing on a pay equity plan.
If managers are not aligned with pay equity being an organizational priority or do not trust how pay adjustments for their team members are being planned, then they will not generally follow through on supporting the process nor communicating changes and the reasons for the changes to their employees. Lack of communication between managers and employees erodes trust and exacerbates pay equity issues.
Conditions for pay equity remediation and success are set when leaders prepare managers with the context and insights for pay equity as a business strategy and answer their questions and concerns. In turn, managers feel informed, ready to have similar conversations with their direct reports, view pay equity as a business priority, and take responsibility for effective execution.
Manager Accountability
After managers are grounded in the "what" and "why" of the organization's plan to achieve pay equity, they should be held accountable for advancing progress. Leaders hold managers accountable by requiring them to:
- Define success metrics (e.g., team sentiment, employee engagement, turnover, etc.);
- Set clear pay equity goals and expectations;
- Hold regular check-ins with leadership and the C-suite to review progress;
- Engage employees for their input on team and organizational progress;
- Summarize employees' feedback for sharing with leadership; and
- Define specific calls to action to advance metric results closer to target performance.
Leaders should reward those managers whose performance is advancing the organization toward parity. By taking this data-driven (quantitative and qualitative) approach to manager accountability, leaders are ensuring that managers buy in to and are building an equitable workplace for all.
3. Measure Pay Equity Progress and Continuously Improve
Data-Driven Insights
The role of data and analytics is central to addressing inequity and moving toward parity. Boards are expecting leaders to tackle equity issues at the source, to find the root causes (whether in policies, operations, or behaviors) and fix them. The best outcomes can be achieved by leaders leveraging technology that analyzes data.
Pay equity technology drives efficiency, accuracy, validity, consistency, and defensibility at the intersections of gender, race, age, disability and other factors. With such evidence-based information, leadership has assurance that gaps are true representations of reality, that pay adjustments are processed accurately, that pay decisions are fair for all, and that new pay inequity is not introduced.
It comes down to this: as with any business strategy, leadership decisions should not be based on a gut feeling but rather backed by data. Using data breeds leadership confidence in pay decisions, drives evidence-based leadership conversations around pay equity that reassures employees their managers are held accountable, and serves as a check against bias.
Pay Transparency
In creating and sustaining fair compensation strategies, organizations remove bias (conscious and unconscious) from the process. One proven way to eliminate bias is to be more transparent about pay and pay ranges. Our research found that, on average, 75 percent of HR Leaders say that addressing pay transparency at their organization is a priority, but only 42 percent of employees agree. Leaders can show commitment to advancing fair pay practices by being open with employees about pay and broadcasting salary ranges.
As reported in other research earlier this year, in organizations where employees believed their employer was transparent about pay, the gender wage gap was nonexistent. As salary information becomes increasingly easier to obtain and employees' expectations about knowing what they are paid compared to others in similar positions, leaders should accept that pay transparency is a standard part of progressive work cultures and a required component for advancing pay equity.
Pay transparency does not mean publishing all salary data for employee-wide consumption, though some organizations do. It does mean broadcasting reasonable and meaningful salary ranges ($10,000.00 to $20,000.00 USD) in line with an organizational compensation plan that aligns with corporate values and is backed up by relevant internal equity data and external, up-to-date market data.
Closing Thoughts
Ignoring today's pay equity issues will only lead to bigger problems tomorrow, which can come in many forms, some less or more problematic for leaders. These may include employee complaints, discrimination lawsuits, missed shareholder expectations, ethical issues, damaged brand reputation, difficulties hiring and retaining top talent, lack of productivity, and overall increased scrutiny from key stakeholders.
Organizations operating merely from a compliance perspective will engage leaders to manage and mitigate risk that may be associated with pay inequity. On the flip side, high-performance organizations will engage leaders to understand pay equity as a strategic business lever and a cultural imperative. Leaders at high-performance organizations will fully engage employees in a values discussion and the larger aspirational journey of a truly diverse, equitable and inclusive workforce where the pay field is democratized.
Which approach are leaders at your organization taking?