In the past, employees were discouraged from discussing their compensation, as it was considered unseemly. Today, that discretion is harder to maintain as a new generation of workers and technology solutions (e.g., crowdsourced compensation databases) are providing increased transparency.
It isn’t just new employees or potential candidates who are using the technological tools available to determine their worth in the workplace. Long-time employees are also looking at where they stand in the marketplace and what kind of pay equity exists within their firms.
And employers are also recognizing the importance of establishing fair pay for everyone ‒ regardless of race, gender and other factors that shouldn't influence pay decisions. Pay equity projects were once driven by compliance, but today these conversations are a lot broader and are as much concerned about the “story” (do we pay for performance, education and experience?) as they are about the result (do we pay men and women equally?). Every organization is different, but there are two key best practices that are consistent across those organizations that are “getting it right”.
- Organizations with robust job architectures in place have smaller unexplained pay gaps. Putting the work in to develop a clear, transparent job architecture is the first and perhaps most important step to ensuring pay equity.
- Improving guidelines to include multiple compensation drivers for pay decision-making and being more transparent about what previously was considered “managerial discretion” is often key.
Packaging job architecture and compensation driver information into easy tools – through technology –can support managers when making key pay decisions (e.g., hiring pay, merit increases, promotional increases).
Compensation in the age of pay transparency also requires employers to align what is said by management with the day-to-day business of determining compensation. Employee retention and productivity will suffer once employees see a disconnect between their pay and what they think or heard should be their fair share.
What you can do today to prepare
With all of this as a backdrop, how can organizations use data and technology to be fair and open and create an environment where pay equity is the norm?
- Research and data is one place to start. We have seen many small- to large-size businesses implement systems that help monitor pay fairness and conduct pay equity analysis using statistical methods such as multiple regression. Rather than just probing for pay gaps by gender and/or ethnicity, these analyses will drive a better understanding of the very factors that drive pay (e.g. one year of experience drives up pay by 0.5% when other factors are equal) and ultimately can identify the root causes of a concerning pay gap (e.g. men make more than women because they receive higher starting pay when other factors are equal).
- Identify opportunities to better align fact (what you are paying for) with fiction (what you think you should be paying for). Seek out strategically aligned behaviors and tasks that should be rewarded and then ask how you can change policies and compensation programs to migrate from the status quo to where you want to be in the future. For example, if you think that supervisors should be rewarded, you can use a pay equity analysis to test if that is in fact true and even monitor over time if your change interventions to raise supervisory pay levels actually worked.
- Perform ongoing maintenance and take advantage of new technological tools, including:
- Technology solutions that help you run a multiple-regression based pay equity analysis (e.g., Python, SPSS, R)
- Cloud-based solutions that can be accessed by your recruiters and hiring manager to quickly probe what starting pay level is fair
- Cloud-based solutions that provide a deeper view into market pay data – powered by artificial intelligence – to include geographic differentials down to the county level and pay rates specifically for new hire
While technology and information sharing are changing the compensation landscape, the basic steps we list above can help you be prepared. At the same time, it is crucial to recognize that pay equity is a complicated issue that touches on emotions, values and worth, and is specific to every organization, employee or potential candidate. Aligning your commitment to pay equity with your communications to your employees and candidates is one key element. And, by getting ahead of the curve through using pay equity analysis tools, employers can help build a new breed of workers who are both fairly compensated and truly committed.
About the Author
Stefan Gaertner is partner in the Rewards Solutions practice at Aon. He co-leads Aon’s people analytics practice where he consults with HR and business leaders on topics including pay equity, fair benchmarks, strategic workforce planning, developing advanced analytics and metrics and selecting business intelligence platforms.
Stefan holds a Ph.D. in Human Resources Management from Georgia State University and an MBA equivalent degree from the University of Paderborn in Germany. His research has been published in several journals and magazines, including WorldatWork, HR Executive and the Journal of Management. Stefan is also a frequent speaker on workforce analytics topics who presented at numerous academic and practitioner conferences in the U.S. and Europe.