When it comes to inclusion, pay equity is the silver bullet to achieve a fair and equitable workplace. Savvy employers use pay equity as a foundation to build a deep trust within their organization, and to unleash performance, creativity, and meaningful connections.
At a glance
- We all have biases, that is why it is important to do the work and encourage curiosity.
- It is important for leadership to want to understand workplace fairness and the historical effect of privilege.
- Pay equity is easy.
What is pay equity?
Unfortunately, vulnerable populations bear the weight of pay disparities, which affect them and their families exponentially over the long term. For example, according to the US Census Bureau, Black women make around 67 cents, while Native American women earn 58 cents, and Hispanic women make just 55 cents in comparison to every dollar a man makes. Anyone with a surface level understanding of compounding can appreciate the disparate impact this reality has on American working families, our neighbors, and our friends.
Let’s clear up some misconceptions about pay equity as a concept using the following hypothetical questions to illustrate:
Does pay equity mean that pay differences are never valid?
Some pay differences are valid, but an employer concerned about pay equity should be able to explain how the decision was made and how it is fair based on aspects such as taking on additional responsibilities, job performance, etc. Negotiation alone is not a valid reason to pay two people working in a similar capacity differently and can put the employer at risk for defending a discrimination claim down the road, or worse – plummeting employee morale or talent leaving as a result.
Our company pays for performance but is it ok to allow some employees to negotiate their pay rates?
Pay equity means an organization is clarifying their compensation strategy and paying equitably amongst each individual employee, based on position and bona fide job-related reasons (and not based on bias). It means that employees don’t have to worry about being paid more or less for the same job level than their peers, because of an uncontrollable affinity (like their gender, ethnicity, age, etc.). If an employer allows for pay negotiation that pushes an employee outside of the compensation range set for the position, the company may be putting themselves at risk of disparate impact. Allowing negotiations outside of set ranges may perpetuate pay inequities within the organization and makes calibration a challenge.
My employees are asking me about another employee’s pay, and/or to post pay rates openly. Do I have to share this information to achieve pay equity?
No. An employer is not generally required to discuss another employee’s pay. An organization can choose a level of transparency that works for them. However, it is no secret that companies are trending toward more transparent strategies than they have been historically, and are beginning to leverage these conversations into a win-win for both the employer and employee. After all, if employees want more pay it is reasonable align performance expectations to a higher capacity. Discussions about pay provide a great opportunity for employers to connect the dots openly between pay and performance.
Why does this matter?
Scott Cawood, CEO of WorldatWork acknowledged that “this is a cultural miss.” Cawood suggests that “[f]ull transparency on compensation topics and a stronger employee understanding of an organization’s compensation philosophy and processes cultivate greater trust and a sense of fairness. A workforce that trusts its leaders and feels fairly treated is more committed and motivated to deliver results.”
It can be traumatizing to be treated differently because of an affinity that an individual has no control over. At the end of the day, these affinities are not what we are truly made of and do not dictate an individual’s authentic self, merit, nor ability to do get the job done. Being treated differently as a result of these affinities has the power to cause shame, embarrassment, covering, division and unhealthy competition in the workplace. Inequity can often lead employees to fight over resources, instead of encouraging the sharing of ideas and open collaboration. When there is a lack of fairness and trust in the organization, people become disengaged.
Pay equity creates a shared experience and encourages employees to put their skin in the game. That is when the magic happens. However, allyship does not have teeth unless you are willing to lose excess so that others can be paid equitably because it is the right thing to do (and without virtue signaling to boot). Jessica Chastain is a beautiful example of an ally. Through conversation, Jessica discovered that Octavia Spencer (a fellow Oscar-winning actress) was getting paid nearly 5 times less than herself for substantially similar work. In production of the film “The Help,” Jessica made the bold move to tie her compensation to Octavia’s, effectively getting paid the same for costarring in the film. As a bonus, Jessica did not boast, she did not announce her good deed, but she took action because it was simply the right thing to do.
Pay equity encourages community, synergy and sharing ideas which only energizes the organization and culture. A rising tide floats all boats. Building a culture of trust and transparency (when done well) inspires employees to grow, step up and perform.
Doesn’t this make complete sense? In a world where employees understand their career and development path, they have a clear way to achieve their goals within an organization through skill development and creative output. Diversity, Equity, and Inclusion (DEI) programs cannot be complete without fair compensation.
How do we achieve pay equity?
The CEO and leadership team of an organization need to understand the importance of paying employees equitably. The responsibility falls on their shoulders to make it a priority, communicate and to do it well.
Beginning the process is straightforward and simple. Work with legal counsel or a compensation firm to audit current pay practices within the organization. Request a diversity analysis and let them know that you would like to ensure that your compensation methodology is equitable, both in method and practice. Like any meaningful change, this bears repeating every so often and is not something that is done on a one-time basis.
Remember, bias can be subtle, as “organizations get used to whoever is in power and start to favor those who look and act like them,” said Malinda Riley, senior principal at Korn Ferry. Without completing an audit, it is unknown whether or not pay disparity exists and if managers in your organization have made less than stellar choices. When you conduct an audit, assume you will have some gaps to close and budget accordingly.
Train your managers on how to communicate pay practices; this step is a game-changer and is often missed because traditionally, speaking about money can be uncomfortable. When done correctly, your compensation communication strategy will motivate employees, connect the dots between pay and performance, and provide another great reason to stay with the company because they can envision growing with you.
Finally, although employers may have good intentions, posting a general statement on fair and equitable pay before doing the work required is premature and misleading. This often causes more harm than good. An employer of choice acts with integrity, strives to understand historical racial discrimination and its effect on the workplace today, and stands against historically perpetuated discrimination. Pay Equity is just one of the many ways to fight the good fight and do it well.
- Lean on your data and technology
- Be transparent about how promotions and raises are decided
Check out these encouraging anecdotes from Best in Class companies, leading the way:
- “Expedia has been conducting internal analysis of gender representation throughout the organization as well as pay data over the past several years to determine if parity or disparity existed. On average, pay at Expedia, Inc. is equal between men and women, meaning that women earn $1 for every $1 paid to men in equivalent roles. While this data is encouraging, the company believes that there is more work to be done to achieve gender representation parity, especially at senior levels.”
- What Employees Say: “Compensation and promotions are largely merit-based, flexible working schedule, senior management is open and trustworthy.” —Current Director
- In 2016, Intel achieved “100 percent pay parity for both women and underrepresented minorities and achieved promotion parity for females and underrepresented minorities as well.” Danielle Brown, Intel’s chief diversity and inclusion officer, revealed that “promotion parity for both groups had also been attained as well. Intel defines underrepresented minorities as African Americans, Hispanics, and Native Americans.”
- What Employees Say: “Intel has good pay and benefits and provides good flexibility to allow employees to attend to personal matters during the workday. Challenging assignments and very smart people.” —Former Manager
- “There is no disparity at PayPal in salaries between women and men. One of our most important priorities was to ensure that people working in comparable roles are paid equally throughout the company regardless of gender. We focused and worked hard, and successfully reached this goal in less than a year. We are also working hard to increase the number of women in management roles at PayPal. Women make up one-third of the company’s leadership today, and during the past year our rate of female promotions and new hires in leadership roles is outpacing our historical average. We are also retaining a proportionately higher number of females in leadership roles.”
- What Employees Say: “International environment, great people and a lot of learning opportunities; mobility is great, work-life balance as well (depending on the department).” —Current Employee
Current Laws and Trends
For an overview of the pay equity related laws that exist, labor and employment law firm Littler Mendelson has made a useful Pay Equity Laws Map publicly available here.
Disclaimer: This content is intended for informational purposes only and should not be construed as legal, medical or tax advice. It provides general information and is not intended to encompass all compliance and legal obligations that may be applicable. This information and any questions as to your specific circumstances should be reviewed with your respective legal counsel and/or tax advisor as we do not provide legal or tax advice. Please note that this information may be subject to change based on legislative changes. © 2021 Sequoia Benefits & Insurance Services, LLC. All Rights Reserved