Article: Fairness over fortune: Why prioritising pay equity is more important than pay level

Compensation & Benefits

Fairness over fortune: Why prioritising pay equity is more important than pay level

Pay equity has now become more important to workers than their level of pay, and is a massively overlooked driver of employee experience and, in turn, retention, reveals new research by The Josh Bersin Company.
Fairness over fortune: Why prioritising pay equity is more important than pay level

Well-communicated pay equity is almost 13 times as important for employee retention and engagement than “high levels of pay and benefits”, reveals new research by human capital advisory firm The Josh Bersin Company.  

On a list of 84 employee experience strategies, ranked by their impact on outcomes, fair and equitable rewards were number 5, while above-average compensation and benefits ranked much lower, at number 75.

Despite a strong commitment among employers to address pay inequality, there is also a significant gap in execution.

While 71 per cent of CHROs and the C-suite see pay equity as a critical component of their people and business strategies, only 14 per cent of organisations have allocated budget and staff to effectively tackle pay equity issues, according to The Josh Bersin Company’s pay equity study titled 'The Definitive Guide to Pay Equity: Increasing Productivity, Innovation, and Sustainability', which examined 448 companies internationally.

Furthermore, as many as 95 per cent of companies are failing to achieve the highest level of pay equity maturity. They either overlook the issue of pay equity until a legal, compliance, or reputational risk arises, or they engage in sporadic projects that address pay equity in a piecemeal fashion. This results in issues recurring repeatedly.

Meanwhile, the 5 per cent of companies that excel in pay equity are reaping significant benefits, including higher profitability, improved customer satisfaction, and success in attracting and retaining top talent.

Fueling this challenge, only 21 per cent of companies listen to employee feedback on pay equity and only 15 per cent are willing to communicate the requirements to address the pay equity issue.

The study notes that new technologies to help spot pay inequities are still not well adopted - with only 14 per cent of companies actively using data and equity platforms to pinpoint problems.

“While most companies know they must increase pay during times of inflation, they do not understand the problems they create when people feel the system is unfair. Most employees know that they are paid for performance, but when they perceive unfair practices (due to bias, racism, sexism, or simple politics) they lose confidence in the company and their sense of trust is damaged. The result is more politics, turnover, and low levels of engagement,” said Josh Bersin, global industry analyst and CEO of The Josh Bersin Company.

“The problem goes beyond bias, however. Companies have to discuss what 'equity' really means, and what criteria will be used for bonuses, rewards, and raises. Our new Definitive Guide builds on the experiences of world-class companies and helps teach HR teams and CFOs how to address this issue.”

The US has been striving towards pay equity for over fifty years. In 1963, President John F. Kennedy passed the first Equal Pay Act, banning overt policies and practices that paid women and men differently for equal work. Additional Federal legislation expanded the focus beyond gender to encompass race, national origin, and other protected classes, and all 50 states have passed or enhanced their own.

In recent years, massive lawsuits like Google’s $118 million settlement and ever-increasing legal pressures have brought the issue of pay equity to the forefront of CEOs' agendas.

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Topics: Compensation & Benefits, Diversity, Employee Engagement, Employee Relations, Talent Management

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