In a recent report released by The Josh Bersin Co., a human capital advisory firm, it was found that communicating with clarity about pay equity is nearly thirteen times more consequential for employee retention and engagement compared to discussing the benefits of high pay. Despite equal pay for equal work seeming like a straightforward concept, a significant number of companies still struggle to achieve this goal. In fact, the report states that approximately 71% of executives consider pay equity to be a crucial aspect of their business and people strategy. However, a staggering 95% of companies are unable to attain pay equity maturity. Furthermore, only 14% of businesses have allotted both budget and staff to tackle this challenge.
Most companies are aware of the need to increase pay during times of inflation. However, they fail to comprehend the complications that arise when people perceive the system as unjust. Biases, racism, sexism, or politics may cause employees to lose trust in the company, resulting in low levels of engagement, increased politics, and turnover. Bersin and his colleagues examined 448 companies globally to understand pay equity and its effects. They discovered that pay equity affects all aspects of the employee life cycle, from hiring and development to leadership development and promotion, necessitating change management and active communication.
The study revealed that the 5% of companies with effective pay equity policies were 1.6 times more likely to achieve or exceed financial targets, 2.1 times more likely to attract talent, and 1.7 times more likely to innovate effectively. Conversely, the remaining 95% of companies had recurring issues with pay equity and employee experience, with only sporadic projects to address the issue or until legal, compliance, or reputational risks arose.
The report highlights that only 21% of companies appear to listen to employee feedback around pay equity, while only 15% are willing to communicate the necessary information to address the pay equity issue. Additionally, about 15% of companies reported actively utilizing data and equity platforms to identify pay inequities.
Bersin emphasizes that the problem goes beyond bias, and companies must discuss what equity genuinely means and the criteria used for bonuses, rewards, and raises. Therefore, it is crucial for companies to integrate learning into their employees’ workflow, educating them on equity and its importance in their work. This training should be ongoing and integrated into performance management, promotion, succession management, and leadership development. Such an approach fosters an equitable workplace, improving employee engagement, retention, and innovation while helping to meet financial targets and attract the right talent.
Pay equity has been a longstanding issue in the U.S., with the Equal Pay Act of 1963 banning overt policies and practices that discriminated against women and men for equal work. Since then, federal legislation has expanded the focus to include other protected groups, and all 50 states have enhanced their policies accordingly.
In recent years, there has been a growing focus on pay equity among executives due to increased legal pressure and major lawsuits. As such, companies such as Patagonia, Microsoft, and Adidas have shifted their focus to equity across organizational decision-making.
Recent research has shown that organizations are addressing pay equity issues, including the racial pay gap between White and non-White workers. However, the report highlights that only 14% of companies have allocated budget and staff to address the challenge of pay equity.
Effective pay equity policies require active communication and change management, touching all areas of the employee life cycle. The report notes that companies must listen to employee feedback around pay equity and communicate the required information to address the issue. New technologies that can help identify pay inequities are not being utilized well, with only 15% of companies actively using data and equity platforms to find problems.
Pay transparency is a crucial element in achieving pay equity, with compensation being a core responsibility. Companies that have effective pay equity policies are more likely to meet or exceed financial targets, attract the talent they need, and innovate effectively. Failure to address pay equity issues can result in low levels of engagement, more politics, and turnover.