Closing the gender pay gap – strategies for critical career moments that matter 

Despite the progress that many companies are making towards gender equality, only one in six employers (15.3%) in Australia has an average gender pay gap within the target range of -5% to +5%, according to the 2023-24 WGEA Employer Gender Pay Gaps Report, indicating that a gender pay gap persists across every industry in the country.

To effectively address this issue, it is crucial to focus on the key career moments that significantly impact an employee’s total remuneration and contribute to pay disparities within organisations. Mercer refers to these as the moments that matter. By identifying and intervening at these critical points, employers can create a clear path for meaningful change and foster a more equitable environment for all employees.

Starting salaries for new employees represent the initial point at which pay inequity can be introduced. New employees may join at lower pay than existing incumbents and expect to ‘catch up’ over time as they gain experience.  However, the ability to catch up may be limited if compounded by decisions during other moments that matter. This means that there is a risk of entrenching pay disparity from the start.

Conversely, when employers pay a premium to attract new talent to their organisation, it can create tensions around internal equity. Existing employees may find themselves earning less than recent hires. This disparity can lead to dissatisfaction and decreased morale among current staff, highlighting the need for transparent and equitable salary structures that ensure fairness for all employees, regardless of their hire date.

Addressing these issues from the outset is essential for fostering a culture of equity and trust and ensuring that all employees feel valued and fairly compensated from the start.

Action points:

• Establish ranges and benchmarks for all the roles in your organisation.
• Ensure that the approval processes determining new starters’ salaries are robust and applied consistently.
• Make your pay decisions defensible—set up a process to capture reasons for decisions.
• Assess the impact of new hires on pay equity for current team members in similar roles.

The annual pay review is the key lever that employers use to address pay disparities. Higher adjustments to lower paid employees will help them to ‘catch up’ to their peers, thereby reducing the overall pay gap. However, it is essential to approach this process with careful consideration. If adjustments for higher-paid employees are not managed thoughtfully, the pace of catching up for lower-paid employees may be hindered, leading to a slow reduction in pay disparities.

Additionally, indiscriminate increases can inflate overall payroll costs without making a meaningful impact on closing the pay gap.

To effectively leverage annual pay reviews, organisations should ensure that their performance management systems are robust and equitable, linking pay adjustments to clear performance metrics while also prioritising fairness in how adjustments are distributed across all employee levels. This balanced approach not only promotes equity but also fosters a culture of trust and transparency within the organisation.

Out-of-cycle adjustments are another important tool for addressing pay gaps, as they allow for salary changes outside the regular annual review cycle. However, these adjustments are often initiated by employees themselves, which can create disparities in who benefits from them. While the process for evaluating out-of-cycle pay requests may be designed to be fair and equitable, an imbalance in the number of requests submitted by different employee groups can exacerbate existing pay inequities. For instance, if only a certain demographic feels empowered to request these adjustments, it may lead to a situation where their pay is adjusted more frequently than that of underrepresented groups. To mitigate this risk, organisations should proactively monitor and encourage equitable access to out-of-cycle adjustments, ensuring that all employees are aware of their options and feel supported in advocating for fair compensation.

Action points:

• Ensure your performance management system is robust, transparent and consistent.
• Consider if pay adjustments for highly paid employees should be paid as part of base or variable pay.
• Document your request and approval process for pay reviews and out of cycle adjustments.
• Assess the impact out-of-cycle adjustments on pay equity for team members in similar roles.

Career progression is more than just a promotion. It’s about providing employees with access to opportunities to develop skills and capabilities. By building these skills, employees can enhance their effectiveness in their current roles and position themselves for lateral moves or promotions in the future.

However, it’s important to recognise that not all forms of career progression result in higher pay. Some employee groups may be more inclined to pursue development opportunities that do not lead to promotions or salary increases, which can further entrench the gender pay gap. To address this issue, organisations should ensure that all employees have equitable access to career development resources and provide transparency about how these opportunities connect to potential remuneration outcomes. 

Action points:

• Consult with your employees to understand what types of career development opportunities matter to them.
• Determine how remuneration decisions are linked to progression opportunities and ensure consistency and transparency.
• Ensure that access to skills development is transparent and equitably available to all employees.
• Implement programs such as mentorships and skills-based hiring to support underrepresented groups in accessing career progression opportunities. 

Variable pay can take the form of bonuses and other performance incentives, whilst additional pay can include overtime and allowances. In many cases, these payments may only be accessible to certain segments of the workforce. For instance, senior leadership roles and sales positions frequently come with substantial incentives, which can lead to increased total remuneration pay gaps due to the under-representation of certain demographics in these high-paying roles.

It is critical for your organisation to understand who has access to these payments under the lens of gender representation. And since these payments are usually discretionary and linked to performance, it is crucial to ensure that pay decisions are transparent, well-documented, and consistently applied.

Action points:

• Break down total remuneration amounts into component amounts (bonus, overtime, etc.) to monitor and analyse them separately. This allows you to provide context to explain differences between base pay and total remuneration gaps.
• Evaluate the impact of your bonus structure. Are you using a combination of percentage-based bonuses and fixed amounts? While a set percentage may appear equitable, it can increase the impact on total remuneration as it is based on employees' differing base salaries.

Addressing the gender pay gap is not a one-time initiative but a commitment that demands strategic focus and continuous monitoring and a robust data collection system, along with establishing clear policies and procedures around the moments that matter. This approach enables organisations to effectively align their efforts with broader organisational and workforce changes, ultimately driving meaningful change.

Mercer can assist you in addressing the gender pay gap within your organisation. Our services include pay gap analysis, WGEA reporting, job evaluation, reward consulting and workforce planning, all designed to help you understand and close the gaps. Learn more about closing your organisation's gender pay gap.