Compensation is personal. Compensation is the exchange of one’s time for money. How could that not be personal? It is about how we value our fundamental identities and our time. And since time is not something we can regenerate, it should come as no surprise that how employees regard the fairness of their compensation trumps pretty much everything else they perceive about their jobs. Try telling a female employee who likes her 401(k) and enjoys the great cold brew on tap in the breakroom, that she is getting paid 20 percent less than her male counterparts. Would it come as a surprise if she loses interest in her job, becomes disengaged, and starts updating her resume for another job?
The Bureau of Labor Statistics releases employment status reports every first Friday of the month. The most recent one was released on July 2. It should come as no surprise to anyone that all reports show an evolving economy and a rapidly changing labor market due to COVID-19. Employers are trying to respond to so many things all at once.
Women tend to earn less than men in 18 of the 20 most common occupations for women, and women earn less than men in all of the occupations most commonly held by men. The numbers are worse when factoring in race and ethnicity. While there is evidence to suggest that some of the racial and gender bias in the workplace is improving over time, that is not the case in all professions, and in some, things are getting worse.
Consistent, Ongoing, and Transparent
Given where we are seeing the most jobs added in the economy, it is even more imperative than ever for organizations to pay close attention to pay equity issues. If starting salaries were normalized right out of college in each industry, perhaps the gap would not be as significant. If, however, more women move into occupations in which their earnings gap is large (like in executive or leadership roles, for instance), and employers are not paying close enough attention to pay equity concerns, lower unemployment could have the unintended effect of exacerbating the gender pay gap.
Modern organizations are faced with a significant challenge when it comes to ensuring that employees are compensated fairly and equitably, and, more importantly, that the commitment to doing so is consistent, ongoing, and transparent. In today’s economy in light of the ongoing pandemic and the heightened attention and pressures on organizations to take meaningful actions when it comes to diversity, equity, and inclusion, fair pay matters more now than ever.
Getting pay equity wrong can be devastating—aside from the significant and costly legal risk, employees are more likely to quit an organization when they are not paid fairly or equitably. It then becomes a challenge to attract top talent if an organization has earned a poor reputation in this area. In some industries, this will be more relevant as they return to (somewhat) normal following reductions in force, layoffs, or organizational restructuring. Evidence suggests that pay equity issues have a more significant impact on recruitment and retention than paying market rates, which makes perfect sense when you put yourself in the shoes of someone like in the example above, who just learned that her male counterparts are making 20 percent more than she is. Furthermore, 17 U.S. states imposed a salary history ban. Given that many pay equity issues stem from gaps at the time of hire, this makes this issue even thornier for employers.
So what are the solutions for modern organizations facing these significant challenges?
1. Effect change at the educational level. Parents and schools need to amend gendered tropes, expectations, and narratives earlier in children’s education, so children are less prone to believe girls are more suited for lower-paying occupations that tend to be historically held by females.
2. Ensure a modern approach to this issue. Modern workplaces require more continuous review—antiquated “one-and-done” methods take weeks or months to analyze data, and are no longer viable to help close the gap. Technology is available to improve virtually all other aspects of modern business dealings. Why would employees accept that technologically advanced organizations are able to make use of and sometimes sell apps and software that process terabytes of data instantly, but they use Excel and take weeks or months to figure out whether employees are paid fairly? It doesn’t signal trustworthiness. Additionally, organizational change means that without a technologically advanced approach, results are outdated before they’re even available for review.
3. Ensure that processes are in place to reduce the likelihood of creating problems at the time of hire. Some suggest circumnavigating salary history bans by asking for salary expectations. This is ill-advised because it merely kicks the problem down the road. If employees tend to base their expectations on what they made in their previous jobs, and women already tend to be paid less than men in those jobs, then asking for expectations and keying new hire pay on that may just create a gender pay gap that requires adjustment at a higher cost in the future. Instead, rely on up-to-date analysis of internal company data to make hiring offers within a predicted range based on legitimate job-related criteria. Technology empowers organizations to get this right.
The bottom line is that as our economy evolves rapidly and workforce demographics shift and the markets for labor evolve, modern organizations need fast, effective, technological solutions to attract and retain top talent.
Zev Eigen is an expert in data science and predictive analytics and Chief Science Officer of Syndio. Syndio uses big data, artificial intelligence (AI), and machine learning to help global companies such as Adobe, Snap, Slack, Nordstrom, Vimeo, NerdWallet, and Match.com eliminate gender and racial pay disparities in the workforce. This involves using tested methodologies to promote a more equitable, fair, objective, and consistent way of hiring, paying, and promoting employees, while increasing diversity and transparency.