If You Want to Retain Employees, You Need to Tackle Pay Equity
The phrase "Equal Pay for Equal Work" sounds straightforward, but it’s more complicated than it looks. Our new research discovered that 95% of companies are not practicing pay equity well — and many either ignore the topic or consider it a one-time project. With inflation raging and increasing competition for skilled employees, every company needs to rethink their focus on this issue.
A significant majority — 71% — of companies acknowledge pay equity as a vital aspect of their overall people and business strategy, but only 14% can demonstrate sufficient investment to resolve and manage pay equity on an ongoing basis.
The downside of making a mistake can be huge: Google was famously fined $118 million for a gender pay lawsuit in 2017, for example, And regulators are paying attention: the European Union passed legislation in March mandating gender pay analysis for all EU businesses starting in 2024.
It’s been 60 years since the Kennedy administration prohibited policies that resulted in unequal pay for men and women, and in light of recent pay equity lawsuits, it is reasonable to ask whether pay equity remains one of the most significant, undisclosed problem in the American workplace.
Ignoring Pay Equity
According to our research, “fair and equitable rewards” ranks as the fifth most important employee experience strategy out of 84 possible options. That even beat out pay: above-average compensation and benefits ranked much lower, at 75th place. In other words, pay equity is far more important than overall level of pay.
Our team conducted a survey of nearly 500 companies to gather information on their management and HR practices regarding pay equity. We discovered that 95% of the organizations we surveyed were not adequately addressing the issue of pay equity. Additionally, only 21% of companies admitted to soliciting employee feedback on pay equity, and a mere 15% were willing to communicate to the leadership team the necessary steps to address the issue.
The high desire for fair and equitable reward structures can have a profound impact on employee morale. Workers know they are paid for performance, but the perception of unfair practices stemming from bias, racism, sexism or politics, erodes their trust and confidence in the company. To cite another depressing pay equity statistic from our research: only 14% of companies are actively using their own people analytics data or products like equity platforms to identify and address pay equity issues.
Avoiding rectifying pay equity issues can lead to turnover and low levels of employee engagement. That’s far from acceptable even in a strong economy, let alone in the fragile one we’re tiptoeing through today.
Beyond the ethical considerations, companies that excel in pay equity see significant tangible value from the process and report numerous benefits. Among the companies surveyed, the 5% that excel in pay equity reported higher profitability, improved customer satisfaction and greater success in attracting and retaining top talent — a key HR issue for businesses right now. Leaders at these companies were also 1.6 times more likely to meet or exceed financial targets, 2.1 times more likely to attract the talent they need and 1.7 times more likely to innovate effectively.
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Paving the Way for an Equitable Future
So how do you become one of the top 5% of pay equity leaders? Pay equity requires a concerted effort across all levels of leadership. Your company must agree on a pay philosophy, put tools and systems in place to monitor pay variances regularly and ensure managers understand the dissonance.
Pay equity trailblazers such as Patagonia, Microsoft and Adidas show that pay equity is not just about fair and equitable pay and bonuses, but also about creating a culture of equity and inclusion throughout the organization. They recognize every organizational decision must be explored through an equity lens, from hiring and promotion to compensation and benefits.
After reflection, analysis and dialogue with teams that are properly handling pay equity, here are some potential actions organizations can take can start to improving pay equity practices:
Do the Math
Pay equity demands a statistical analysis of pay variations. It involves taking a critical look at the factors that determine pay — skills, capabilities and job responsibilities — and questioning whether these factors are being evaluated objectively and without bias. This includes looking at broader talent processes like hiring, growth opportunities and performance management, and consequently questioning whether these processes are equitable. Conducting these studies helps illuminate the pay inequities that can crop up at any level of the organization.
Related Article: Pay Transparency: Full Speed Ahead
Pay Gap and Pay Equity Analysis
Correctly distinguishing between pay gap analysis and pay equity audit is crucial. Pay gap analysis involves examining demographic and pay data to identify the unadjusted pay gap between groups of employees, while pay equity audit goes deeper to examine individual employee compensation and identify any disparities or biases that may exist. It's important to do both;pay gap analysis can help identify broad patterns of pay disparities while pay equity audit can identify specific issues that need to be addressed to achieve pay equity.
Pay equity is not just a legal requirement, but a critical element of an effective and successful business strategy. By prioritizing pay equity and committing to ongoing monitoring and analysis, companies can improve employee morale, attract top talent, enhance diversity and inclusion and ultimately drive better business outcomes. It's time for all organizations to take pay equity seriously and work towards creating a fair and equitable workplace, as well as join the pay equity exemplars to finally make "Equal Pay for Equal Work" a reality.
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