Equal Pay Day comes around every year to shed light on the fact that pay disparities are still very much present – women working full-time in the US are still only paid 83% of what men earn for the same job.
But for employers to successfully address pay disparity, they first must understand the differences between pay equality and pay equity, and how to utilize them successfully.
Pay equality is the practice that all employees are paid the same amount for doing the same job, regardless of their gender, race, or other protected characteristics. This essentially means that if two employees have the same job role, same responsibilities, and same qualifications, then they should both receive the same pay.
Pay equity, more broadly, is the practice of ensuring that employees are paid fairly for the actual work they do, taking into account factors such as job responsibilities, required skills and experience, and market demand. This means that two people who have the same job title may not be paid the same wage, if one of them has more responsibilities and/or experience than the other and market demand is different based on the location of their work.
When organizations are looking to solve pay disparities, they need to bear in mind that pay alone should not be the sole focus for assessing fairness. Typically, pay disparity issues will be a symptom of wider systemic problems – there may be practices or cultural issues which inadvertently cause (or worsen) these inconsistencies.
That is why the best way of approaching this issue is by using both pay equity and pay equality mindsets. Ensuring that your pay is equitable is vital when attracting and retaining talent, as it means that people are considered based on their value and talent rather than their gender, race or anything else.
But for equitable pay to even truly be achievable, you must first look at the wider context of pay equality on an organizational level. If your processes are not established in a way which allows for employees to be considered on an equal basis from the outset, then you cannot attempt to pay people equitably.
Therefore, to achieve pay equity and pay equality, a company must establish a pay philosophy, which acts as a clear strategy for how the business approaches compensation.
In addition to this, implementing transparent and objective pay practices, regularly reviewing and adjusting pay structures, and eliminating any biases in hiring processes and the company culture, will allow for an employer to successfully be able to pay employees equally and equitably. And this is undoubtedly a smart business move – McKinsey discovered that the least diverse organizations were found to be 27% more likely to underperform on profitability, whereas those companies that were most diverse outperformed their peers by 36%.
However, a company will fail to attract a diverse talent pool if it cannot demonstrate equality and equity in their wages. So, if you need guidance in creating or solidifying your pay philosophy, get in contact with me at alisa.cardenas@orgshakers.com
Copyright OrgShakers: The global HR consultancy for workplace transformation founded by David Fairhurst in 2020
As we enter the new year, many employers are conducting end of year pay reviews for their employees. This year’s pay trends are likely to differ from previous ones due to a variety of factors which may influence how leaders and workers approach their compensation strategy in the coming twelve months. Considering that a recent study by Willis Towers has revealed that 75% of organizations are struggling to win over new talent, it is critical for companies to actively improve their compensation IQ in order to be a viable talent competitor.
As there is a clear need for employers to improve their compensation IQ in 2023, consider the following trends that are rising in the compensation space as your organization looks into how best to reward talent.
- Salary Budgets are Rising - A recent report from Salary.com has found that the long-predominant 3% raise has been replaced by a median raise of 4% across all employee categories, breaking the more than 10-year trend of stagnant projected salary increase budgets. A quarter of employers even plan to offer increases between 5-7% this year, marking 2023 as a ‘banner year’ for compensation. It’s good to keep in mind the careful balance organizations will have to strike so as to meet the talent market demands to competitively compensate the workforce in 2023, all while striving for positive financial performance in a difficult economy.
- Data Based Compensation Decisions – Those employers who have limped along without clear salary guidance or practices in past years may find it increasingly difficult to continue down the same path. Now is the time to put in the hard work to build a compensation structure if your organization has been navigating compensation without defined salary ranges. In a data-driven world, employers who leverage competitive salary ranges will find that making data-based compensation decisions for new hire offers, promotions, annual increases and other pay adjustments have an advantage when it comes to attracting and retaining talent while avoiding other pay-related issues such as salary compression and pay equity issues.
- Pay Transparency – Across the board, pay transparency is becoming a hot topic, and if there was a single reason to establish salary ranges, as mentioned above, pay transparency is it. Employees want to work for organizations who are transparent about pay. With the UK’s launching of a pay transparency pilot program and pay transparency legislation beginning to be enforced in multiple US states, it is looking as if being open and honest about compensation is going to become more than an expectation but rather the norm. Doing the work now to establish transparent pay practices and guidelines will help you to, if not get ahead, at least not fall behind the curve of the burgeoning pay transparency movement. You will also be demonstrating to the talent market that your organization values pay equity and equality.
- Pay Communication – How members of the organization discuss pay can be as important as the pay itself. Communication is everything. Now more than ever, organizations should be devoting time to train leaders about how to have effective compensation discussions. Being able to articulate why someone is receiving an increase and how the amount was determined is something that employees want and deserve to know. This means detailing the rationale behind data-based compensation decisions and knowing the difference themselves between pay adjustments, merit increases, lump sum payments, and so on, and why we allocate one over another depending on the circumstance. Educating your HR team, especially Talent Acquisition, is also critical to ensure the organization is painted favourably with fair offers and a well-articulated total rewards package. To be effective in bringing candidates in the door, recruiters must know how to effectively leverage salary ranges and formulate an offer based on the candidate’s experience and alignment to the open role, as well as understanding the current compensation elements someone may be leaving behind. Investing time in proper training helps to foster trust in new and current employees, and will demonstrate why your organization is an attractive place to work, while reminding those who already work for you why they want to continue doing so.
- Geographic Pay Policies – With the rise of remote and hybrid working arrangements, geographic pay differentials are becoming a more prominent topic of discussion, and a highly complex component of compensation. It can be difficult to determine how to approach compensation for people who are performing the same work from different places or if it makes sense to differentiate compensation between remote and on-site workers in areas with different costs of living. Borderwork’s Geographic Pay Policies study found that of the 62% of organizations with existing geo-pay policies, 44% of them are considering modifying or have modified their policies due to the increase in full-time remote work. There is a growing need to develop strategies to navigate this in the coming year as inflation continues to impact the cost of living and the concept of how we work continues to evolve.
- Getting Creative - Compensation is both a science and an art. Creative solutions to compensating the workforce are always worth exploring. Effective compensation programs require that you compensate the right people, at the right time, at the right level, in the right way. Creative solutions will be circumstantial but could include some of the following to effectively attract or retain the right talent: establishing new and innovative incentive programs, re-thinking employee recognition, improving leverage of sign-on and retention bonuses, offering sabbaticals, 4-day workweeks or instituting programs to emphasize your company’s commitment to making a positive social and/or environmental impact, just to name a few.
Making the effort to invest in improving your compensation IQ as an employer can be the differentiating factors when it comes to your talent strategy in 2023. Amongst the rising inflation rates, the cost-of-living crisis and changing attitudes towards work, understanding how to leverage compensation as a way of making you stand out will help ensure you are bringing in the right people. To discuss growing your compensation IQ or reviewing your compensation strategy in more detail, get in touch with me at alisa.cardenas@orgshakers.com
Copyright OrgShakers: The global HR consultancy for workplace transformation founded by David Fairhurst in 2020