When we look back, 2020 will long be remembered as a year of massive change for business and industry on a scale not seen before.
The COVID-19 pandemic has plunged our economy into a global recession and put health and wellness at the center of workplace conversations. Worldwide protests supporting the #BlackLivesMatter movement have joined #MeToo voices urging meaningful community action on discrimination, pay equity, and inclusion.
In response, organizations are making significant changes to their business models and accelerating the adoption of Environmental, Social and Governess (ESG) criteria to guide business investment and decision-making. They recognize that their organizations’ stakeholders are motivated by more than a goal for increased revenues and profits; other success metrics include environmental, social responsibility, gender, and racial diversity measures to track progress on social and economic purpose. Some are calling this new integrated approach to corporate governance stakeholder capitalism.
In tandem with these changes, proactive CEOs and HR professionals are taking a step back to reassess their compensation programs, so they align with a more purpose-driven business model. This is an opportunity to transform massive challenges into meaningful change, but it will require a thoughtful and strategic compensation approach that looks at the following:
1) Assess critical job skills. Quite likely, as the result of an updated business model, critical skill jobs have changed. They should be identified and monitored for pay competitiveness. These employees are most susceptible to being recruited away.
For instance, purchasing professionals are dealing with disruptions in their supply chains, especially in manufacturing. Sourcing from India and China has become problematic during the pandemic. Employees that can fill supply chain gaps are highly valued and in great demand. Employers may need to prioritize their investments in these job skills even when resources are scarce.
2) Revisit your compensation strategy. This flows from the company’s purpose and business strategy and is part of the organization’s overall HR strategy. To the extent that your business model has changed, compensation strategy must also follow the organization’s purpose or why it exists. A recent Compensation Alert here takes you through the elements of establishing your strategy. A critical part of your updated strategy will be to reestablish your benchmark of competitive and comparable organizations, update your current competitiveness levels and determine your targeted level of competitiveness.
3) Take a fresh look at pay equity. Many employers have implemented pay equity analyses to identify whether they have gender or race-based compensation gaps. They have done this to promote fairness, retain talent, and mitigate risk. If you have not done a pay equity analysis already, you should begin the effort soon. If you have, dig deep into the data to determine what is driving pay disparity: the actions of certain managers or decision-makers; out-of-date policies or business practices; or unconscious biases within a division or department. You can learn more about Pay Equity and The Rules of Engagement here.
4) Review base salary and incentive plans. Many companies have taken salary actions in the wake of the COVID-19 health crisis. These include pay cuts, cancelled salary increases or freezes, delayed or deferred annual salary increases, and adjusted planned average salary increases. In addition, organizations have suspended promotional increases or added additional pay for essential work (often called hazard or hero pay), while others have reduced or suspended benefit programs. As the economy improves, business leaders must determine when and under what conditions salary actions taken during the health crisis will be lifted or withdrawn.
It is too early to forecast levels of average merit increases for 2021. It is more likely, however, that more companies will not be giving salary increases next year. Even more, this will vary by industry and region, so it is prudent to develop a good idea of what your competitors will be targeting.
Incentive plans have also taken a hit from the pandemic, as organizations have modified their short-term and annual incentive programs by reducing opportunity, deferring or delaying payments, and adjusting performance targets. Changes to long-term plans have been less prevalent. Consider the following actions:
- Short-term plans: As you plan for the second half of the year and revenue and profit expectations crystalize, consider: increasing the use of management discretion in determining 2020 incentive/bonuses; changing performance measures consistent with repurposing of the company; and lowering performance targets, maximums and thresholds. Additionally, revisit base payouts on second half performance against second half goals.
- Long-term plans: Take no actions for the next several months. Consider adjusting performance targets if goals become unattainable.
5) Do not overlook your sales force. The COVID-19 pandemic had a great effect on sales organizations. Orders for commercial and industrial goods were curtailed. Falling orders meant less revenue for sellers for sales compensation credit. Our work with clients indicates that most companies have implemented pay protection methods to replace some or all lost sales incentives for sellers. The most popular methods include pay guarantees, quota reductions and formula changes.
It is time to reset for the balance of the year. Sellers need to be reengaged to reactivate suspended opportunities and find new revenue. A good time to start fresh is July 1st, the start of the last half of the fiscal year for many organizations. But at the same time, discontinue pay protection programs. The sooner you are beyond pay protection programs the better. Consider the following actions to fast-track sales revenue:
- Redo quotas: Continued uncertainty will make it difficult to project expected revenue for the second half of the year. However, take into account new avenues for revenue based on your adapted business model as well as revenue purchasing customer patterns. Develop stretch goals.
- Review payout formulas: Thresholds, incentive rates, accelerators and caps should be reviewed.
- Jump start incentives: As an add on, use a combination of contests and spiffs to add excitement, and motivation. Provide both cash and non-cash awards. Keep the jump start short – a maximum of three months.
Uncertainty and change will be the hallmarks for organizations during the remainder of 2020 and into 2021. Short of a crystal ball, prudent planning to address the workplace issues of our time is your best bet to make your culture stronger and better equipped for future growth.
Despite current economic hardships, visionary business leaders who understand where and how to prioritize investments in talent will seize the opportunity to recruit the best and the brightest for the road ahead.
To discuss how to adjust your organization’s compensation strategy and develop more meaningful benchmarks and metrics to make your workplace stronger, please contact Neil Lappley at (847) 921-2812 or firstname.lastname@example.org.
From Wall Street to Main Street, the issue of pay equity and demands for a fair living wage are making headlines across the country. Despite the growing furor, the idea that employees performing substantially equal work should be paid equally is not new. The Pay Equity Act was passed in 1963, followed by the Civil Rights Act of 1964 and the Lily Ledbetter Fair Pay Act of 2009.
However, laws alone have not closed the gap in pay disparity in many industries, a trend that also impacts small and mid-sized businesses. One reason may be that most companies are reluctant to share in-depth salary information about their employees based on race and gender data.
Recently, chip maker Intel made the unprecedented move to publicly release this data for 51,000 U.S. workers. The report was sent to the U.S. Equal Employment Opportunity Commission (EEOC). This is the first year that the EEOC is requiring the same kind of pay data from all companies with more than 100 employees, though companies aren’t required to publicly disclose that data. Previously, the EEOC asked for race and gender data, but not pay information. Intel released its data after settling a pay discrimination lawsuit for $5 million in October.
As this example illustrates, organizations can face significant financial and legal ramifications if they are viewed as paying employees unfairly. And while most employers are motivated to do the right thing, what may be well intended with good workplace policies sometimes falls apart in actual practice.
Pay Equity Trends
Increased scrutiny of employer pay equity has made this a hot topic for companies of all sizes. For this reason, total rewards association WorldatWork conducted a Pay Equity Practices and Priorities Survey to assess the current state of pay equity related work. Key findings include:
Gender pay gap and broad pay equity analysis is becoming standard practice for organizations (79% and 71% respectively).
- Additionally, 55% reported remediation strategy execution and remedial option evaluation (52%) are not far behind.
- Interestingly, 32% of respondents are not looking at performance management practices. This is surprising since performance management programs tend to be subjective.
- While employers are looking for potential biases that may influence pay disparities, benefits programs are not receiving the same attention.
- Only 9% of organizations said gender pay gap analysis is not on their radar.
In another survey conducted by WorldatWork earlier this year in partnership with pay consultancy Korn Ferry, larger companies reportedly were more likely to take action on pay equity than smaller businesses. In fact, regulatory compliance and culture initiatives are key drivers behind pay equity management programs. So is the desire to improve employee engagement and build trust in organizations.
Still, the ultimate test of faith depends largely upon how pay equity is managed within the organization and how well pay equity initiatives are communicated to employees.
Changing Laws and Uncertain Politics
Employers navigating complex pay equity issues are just as likely to encounter a changing morass of state and municipal laws, some which assign rewards for liability and damages. According to some legislation, potential new hires are entitled to know what the pay range is during recruitment.
In addition, with national elections looming in 2020, public policies to address pay inequities could further expand. As a result, how organizations justify differences in employee pay based upon merit, seniority, or other factors may also need adjustment.
To land safely on pay equity issues in an uncertain political climate, companies are advised to:
Conduct comprehensive pay equity and pay gap analyses;
- Identify diversity and inclusion priorities, then follow through;
- Look into biases that may be discouraging promotions within the company; and
- Define clear metrics for good performance, then ensure that unconscious biases don’t have an unwanted influence on performance evaluations.
Pay Transparency Pays Back
In today’s digital world, savvy employees have easy access to compensation information from online sources like Indeed, LinkedIn and GlassDoor. Therefore, they know what to expect to earn at a job. And The result is that companies can no longer avoid transparency when it comes to pay.
Being transparent about pay, at the same time, allows employees to understand their pay, how it relates to company values and how it compares to public information. The result is to strengthen the employee/employer relationship.
There are three reasons why compensation transparency matters:
- It’s important to employees. According to a recent survey by Mercer, reportedly only 19% of employees gave their employer an “A” for equity and promotion. In addition, data shows that in the past five years employee perception of pay has declined.
- Lack of transparency hinders organizations from achieving diversity in the workforce. It has been shown diversity in the workforce leads to higher performing organizations. Transparency supports holding companies accountable for compensation decisions made.
- Democratization of pay has made it easy for employees to have access to competitiveness information, taking compensation information out of employers’ control.
Pay equity and equal pay for equal work seem like no brainers. But it’s not easy to change perceptions that are heavily entrenched in our society. Pay equity, however, is having an outsized impact on employer’s ability to hire and retain top talent in today’s highly competitive labor markets.
To discuss how pay equity and transparency can be addressed to attract and keep top talent at your organization, please contact Neil Lappley at (847) 921-2812 or email@example.com.
Pay equity is a topic that isn’t going away. Rather, the spotlight is only getting brighter.
This makes understanding possible pay gaps between the men and women in your workplace and adopting proactive approaches to remedy pay inequities more important than ever. For instance, according to the American Association of University Women, 42 states as well as Puerto Rico and Washington D.C. proposed new pay equity legislation last year. Not all the measures passed, but enough did making it challenging for organizations operating in multiple markets to address the issue of pay equity in a comprehensive way.
A growing number of states and local governments have made it illegal for employers to ask candidates for their salary history. The rationale for the law is this: since females have historically been paid less than males, platforming a new salary over a low salary only perpetuates the difference. In response to this trend, a recent WorldatWork survey finds that 37% of companies have a nationwide ban on asking potential candidates about their past pay.
Additional legislative approaches to tackling pay equity include new laws promoting more pay transparency; others give employers protections for making “reasonable progress” toward pay equity. Clearly, the shifting landscape and impact of gender wage gap laws raise compliance and performance concerns for companies and their compensation policies.
What is Gender Pay Equity?
When we talk about gender pay equity, this often is confused with equal pay or these terms are treated interchangeably. However, there is a difference.
The gender pay gap is a broad measure between the aggregate pay for women and men across the organization. It is expressed as a percentage of men’s earnings.
Equal pay requires women and men doing the same or a substantially similar job to receive the same compensation and benefits. In other words, equal pay for equal work.
It is important for businesses to understand the distinction. Why? Both areas should be examined to better understand pay differentials within your organization and the factors at play impacting your talent management programs.
Understanding Gender Pay Equity
Several studies in recent years have looked at pay gaps to better understand the causes and impacts.
In a new article, “More Than a Pay Gap,” management consulting firm Korn Ferry examined its compensation data base for organization-wide pay differences within 110 countries. What they found is that the gap in the United States narrows considerably the more specific the comparison becomes. While women on average earn almost 18% less than men, the gap between a man and woman working in the same job level for the same organization in the same function is typically only .9%.
Korn Ferry researchers have concluded the reason women are paid less than men is not necessarily the result of unfair pay practices. Indeed, this may be the case in some organizations (after all, averages mask actual comparisons). Rather, the gap in pay is deduced to be the result of fewer women working in higher paying industries or leadership functions.
As the Korn Ferry study reveals, the solution to the organization-wide gender pay gap represents a complex and systematic challenge. We will focus on how to meet the challenge in a future issue of Compensation Alert. Meanwhile, companies have immediate opportunities to evaluate whether your organization is complying with equal pay statutes.
Conducting a Pay Equity Analysis
Inequitable pay practices can pose immediate risks to your business – including reputational risk. To help uncover possible issues driving any pay differentials within your organization, conducting a pay equity analysis is recommended. Following is a step-by-step process overview:
It may be prudent to consult with a lawyer, as audits of this type are often protected by lawyer-client privilege.
- Identify the equal pay practices you want to investigate.
- Gather data on employees grouped by comparable worth. Jobs should be examined regardless of job title, with the focus on work performed, the manner in which the work is performed, and the skills required for the job.
- Determine what drives pay most, whether desirable factors such as performance and/or level or undesirable factors such as race, gender or age are involved.
- Beyond the job-based analysis, the study should look function-by-function, manager-by-manager, and location-by-location to see if any equity trends emerge. Any pay gaps can then be closed.
- Following the job-based analysis, it is important to dig into the causes of those gaps. For instance, salary structure and other compensation tools need examining.
- Finally, leaders must be committed to change if undesirable factors influencing pay have been discovered. Change can only happen if commitment exists at all levels to ensure fairness, consistent communications, and organization-wide management practices.
The type of pay analysis described above will need to use comprehensive compensation market data, review and likely overhaul compensation administration guidelines, and update job grading systems. But smart organizations can turn it into an advantage. How? By looking beyond current law to build proactive policies and practices promoting gender equality (and diversity of employees) and embedding these values into the company culture.
Further, experts say that organizations that manage pay equity well and have diverse, inclusive cultures post higher returns and have more trust in leadership, greater employee engagement, and less turnover. Organizations that fail to manage pay equity well are subject to the inverse consequences, plus increased risk of litigation.
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Contact me at (847) 921-2812 or firstname.lastname@example.org.
Pay equity is an important consideration for employers today. Unfortunately, it’s not something that happens easily. In fact in a recent study we came across, just over a third of respondents had in place a process to address pay equity issues. Addressing this important concern requires a well-considered process to ensure that individuals doing the same job, with the same skills, and level of proficiency within those skills, are paid equally. And pay equity is not only good for the individuals impacted, but has been shown to have a positive link to overall engagement, turnover, and customer service metrics.
Pay equity isn’t just about fairness. It’s about creating an environment that fosters employees to focus on customers, rather than comparing salaries with coworkers. It’s also indicative of a culture that values its employees and is committed to giving them visibility into the process that impacts compensation. This visibility leads to an excellent employee experience, which in turn leads to an excellent customer experience.
The marketplace for talent is increasingly transparent. Between the wealth of information online and the ease with which people can connect and share information on social media, bad employers have nowhere to hide. Taking a strong position on pay equity can help a company’s brand in the marketplace.
The equity focus is also indicative of a culture that embraces diversity of all skills, competency and performance, taking an active role ensuring multiple perspectives are given equal credence.
Turnover is costly, disruptive and potentially damaging to the employer’s brand. Although turnover will vary by industry, all organizations want to keep their good employees longer. Compensation, and in particular, equitable compensation, according to all surveys, is a significant factor in retention.
Organizations unable to retain talent face a number of challenges, from impact on productivity and morale, to eroding levels of customer service. Obviously, a formal focus on pay equity is not the only factor to impact turnover. But when organizations focus on things that matter to employees, they reap the benefits of employees that stay with the organization.
Engagement has become a critical business metric, linked to everything from revenue to customer experience to organizational alignment. And there is no question that compensation matters to engagement. For instance, a recent study showed that the number one component of engagement and retention was compensation.
Of course, the goal of HR strategy, including compensation, pay equity, and engagement is to drive business performance. It has been shown that organizations that achieve above average engagement levels for their industry were twice as likely to also achieve above average levels of productivity. In addition, they are two and one-half times as likely to have achieved or exceeded revenue goals.
Pay equity is an important mindset for organizations and the workforce as a whole. When employees are treated fairly and equitably, it builds trust, which leads to engagement, retention and performance. It removes difficult conversations between managers and employees, and it allows focus on the work at hand.
Please contact me at email@example.com or (847) 864-8979 to discuss any questions you may have from this eNewsletter. Feel free to forward this email to anyone else who may be interested.