Mercer | President Obama's pay equity move: now what

Thriving Workforce

President Obama’s Pay Equity Move: Now What?

Opportunities for Employers

By Brian Levine

Companies may not be able to legally bury their heads in the sand much longer when it comes to equal pay.

Indeed, President Obama’s recent announcement about requiring companies to report to Uncle Sam what they pay employees by gender and race/ethnicity means leaders will need to be ready. 

The fact is that many companies choose not to adopt pay equity practices because they worry that even exploring such practices will create risk, since they don’t know what they will find and whether they will be able to respond quickly.  “We didn’t know we had a problem,” is the common mantra if a discrimination suit arises. By that logic, no known problem is considered no problem.  

But ignorance just isn’t an effective strategy to mitigate legal risk.  Moreover, lacking a robust pay equity program can be the fatal flaw in an organization’s effort to realize its diversity and inclusion – as well as broader talent – objectives. 

In fact, according to the new When Women Thrive report, only 35% of global organizations report conducting regular pay equity analysis. Additionally concerning is the fact that, less than 30% of organizations routinely review performance ratings by gender to check for disparities – the very disparities that may lead to differences in both rewards and career opportunities.

The President’s move is forward-looking and urges leaders to act now to be ready for future policy changes. By doing so, they can also begin to create truly thriving workforces – the kind needed to drive real growth.

Businesses are the cornerstone of our economic and societal fabric, and women comprise 40% of the global workforce at the professional-and-above level. Our studies show that women are paid between 2-6% less than “similarly situated” men. Looking more broadly at the differences in roles occupied by women and men, the pay gap is considerably larger.

In our work with thousands of companies, we know this is a hot topic. Good companies care about getting pay equity right and are on the precipice of making announcements related to new pay policies and related data-driven insights. 

For example, at the recent World Economic Forum in Davos, eBay CEO Devin Wenig shared that, three years ago, his company committed to publishing its pay-equity data. “When we created transparency, people really started being held accountable,” he told us. Indeed, greater transparency can be a force for change. A related opportunity lies in standard rates at entry; evidence suggests that women come into organizations at a deficit, potentially because they were underpaid in their prior jobs.  Reddit, for example, has stopped negotiating its entry rates

The strongest case for action is that poor pay practices lead to turnover and the loss of highly talented individuals, especially women who bring skills that are incredibly valuable in our complex world. For example, our research finds that women outperform men on flexibility and adaptability, inclusive team management and emotional intelligence – all critical to solving big, global problems.

Surprisingly, the When Women Thrive research finds that despite the global attention focused on fair pay, virtually no progress has been made since 2014 in terms of organizations adopting formal pay-equity remediation processes, which are critical to identifying biases that may creep into pay practices. In North America, however, we see that 40% of organizations have such a process, compared to 34% globally, 25% in Asia and 28% in Europe.

MERCER’S ROBUST PAY EQUITY PROCESS

So what can organizations do today to embrace this opportunity and make pay equity a key component of a thriving workforce?

  • Calculate it – Investigate actual gender pay differentials by level, and look broadly – at  bonuses, commissions, and overtime. A robust process also looks for outliers and examines whether there are factors in a given case that may justify a lower level of pay before making an adjustment.
  • Create powerful policies – Once firms have the data, they can look at a broader set of policies and processes, including reviewing performance ratings and career progression by gender and race/ethnicity.
  • Make a statement – It’s no secret that employees spend valuable work time discussing or worrying about compensation.  But smart companies that understand the value of women in the workplace and have a rigorous process in place can remove the hidden secret of pay and be transparent. They can share their process and progress. That kind of bold move will go a long way in attracting the best talent, and will help leaders create truly thriving workforces.
  • Examine contractors – Finally, large companies have the power to demand that their contractors also behave fairly in their  pay policies.

For decades, we’ve heard plenty of talk about pay equity.  But there are no more excuses.  It’s time for leaders to step up to the pay-equity plate and take action now. In doing so, they will be able to leverage women today and create the companies tomorrow.

Join the conversation: #WhenWomenThrive or visit WhenWomenThrive.net

 
Brian Levine is Innovation leader for Workforce Strategy & Analytics at Mercer