Pay equity has been a hot topic over the years, fuelled by social movements such as #MeToo and Equal Pay. In 2018, in the first of its kind, Iceland introduced a policy that required organisations with more than 25 employees prove that they pay men and women equal pay for a job of equal value. The United Kingdom has a gender pay gap (The Equality Act 2010 (Gender Pay Gap Information) Regulations 2017) in place, which requires companies employing over 250 people to regularly publish their gender pay gap information.
Employees’ compensation is the largest expense on an organisation’s income statement. And for a good reason too. Compensation is one of the key drivers of employees’ productivity and efficiency. Competitive pay also attracts and retains key talents, which in turn, drives business performance.
Yet, pay gaps still exist in organisations today – between gender, people of colour, or even age groups. With the ever changing employees’ attitudes towards total rewards today, it is imperative for organisations to be more attuned about pay transparency and pay gaps. In fact, according to Begom’s 2021 Compensation and Culture Report, more than half (63%) of workers said they would be more willing to work at a company that discloses its gender pay gap figures annually. Additionally, the report found that there is a 16% decrease in employees’ intention to stay when there is a pay gap perception within the organisation.
How can organisations address pay equity and adopt appropriate measures to close pay gaps?
UNDERSTAND THE MEANING OF PAY EQUITY
What does pay equity mean? According to the Society for Human Resource Management, pay equity means compensating employees the same amount when they perform the same or similar job duties, while accounting for other factors, such as their experience level, job performance and tenure with the employer. For organisations to enforce pay equity, business leaders need to recognise the importance of pay equity and the impact it has on their organisation. They need to be able to value the importance of pay equity and take measures or implement policies to close the gaps.
Concurrently, organisations need to be attuned to country-specific pay-related policies and mandates. Most countries today, such as the United Kingdom, Iceland, France, Canada, Switzerland and Sweden, have in place some form of gender and equal pay legislations. In Sweden, for example, all companies with the exception of those with less than 10 employees, must conduct an annual pay audit to analyse wage policy and whether equal pay practices are being followed. By adhering to local equal pay legislations, along with recognising the value of equal pay, organisations can then take actionable measures to close pay gaps.
LEVERAGE DATA TO CONDUCT PAY AUDIT
Being aware is the first step to solving a problem. To determine whether pay equity is a problem in the organisation, the first step is to perform a pay equity audit (PEA). A PEA involves benchmarking the pay of an employee against someone that is doing “like for like” or similar work within the organisation, while accounting for reasonable differentials, such as work experience, individual credentials and on-the-job performance, followed by investigating the causes of any pay differences that cannot be justified. For organisations with smaller headcounts, HR professionals can execute this audit. Larger organisations, however, may find it more cost-effective and efficient to engage a consulting firm that specialises in pay and rewards to conduct the audit.
In order to ensure the accuracy of the PEA, organisations should ensure that the auditors – be it internal HR professionals or external consultants – are working with an accurate set of employee data. This means having a set of updated employee information such as length of service, gender, age, and other key demographic information, along with their compensation information, such as base salary, allowances, short-term and long-term incentives. At the same time, each employee needs to be accurately pegged to the correct job description and job grade to ensure a robust pay equity analysis. A robust human resource management system (HRMS) can facilitate accurate employee record-keeping, as well as allow for easy retrieval of employee data for pay benchmarking purposes. As it is critical to run regular “spot checks” on pay gaps between employee groups, having a centralised employee database that is updated and accurate will reveal meaningful insights on internal pay equity.
ADDRESS OPERATIONAL GAPS
With the results from the PEA, the next step is remediation. To close the gap, there are multiple options that business leaders can adopt. Depending on budget constraints, adjustments to salaries can be provided either as a one-off increment or gradual adjustments over the next few years until pay levels reach the target amount.
Once business leaders have in place the steps to close pay gaps, organisations need to identify operational gaps that resulted in pay discrepancies in the first place. Could it be due to incorrect job classification? Is the huge discrepancy attributed to incumbent-related factors such as tenure with the organisation or last drawn salary? Is the employee due for promotion? Pay gaps can start to re-emerge when organisations go through a massive turnover phase, workplace transformation, or change/shift in job scopes. Hence, it is critical that HR and business leaders relook at and monitor their hiring, promotion, performance management and compensation processes on a periodic basis.
Paying employees fairly is not just the right thing to do. It is a smart thing to do as well. There is numerous research and statistics that show that employees who are paid fairly tend to be more committed and productive. In fact, research from Payscale revealed that employees who think they are paid below market are close to 50% (49.7%) more likely than those who think they are paid at or above market to seek a new job in the next six months.
Today, organisations are increasingly focusing on diversity, equity and inclusion as a desired workplace cultural norm. To achieve this, business leaders need to be confident in assuring employees that they are paid equitably for the work that they are doing. Pay transparency is one of the key factors that fosters trust with and among employees and when handled well, business leaders can rely on a productive, committed and motivated workforce.
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