U.S. Companies Are Working to Fix Pay-Equity Issues

updated June 3, 2019

Sixty percent of U.S. organizations are working to resolve pay inequities based on gender, race or other demographic factors, and most organizations that are not yet taking action are considering doing so. But larger companies are more likely to be taking action than smaller businesses, according to a new survey, which found that among employers engaged in managing pay equity issues, most are focusing on:

• Pay equity analysis (93 percent).
  

• Remediation strategies and pay equity adjustments (77 percent).
  

• Identifying and resolving root causes of pay inequities (72 percent).
  

This data is from the 2019 Pay Equity Practices Survey of C-Suite and Reward Leaders, conducted by total rewards association WorldatWork and pay consultancy Korn Ferry. The results were released last week at WorldatWork's 2019 Total Rewards Conference & Exhibition in Orlando, Fla.

The survey received 769 responses in early 2019 from WorldatWork members (primarily total rewards professionals) and Korn Ferry contacts employed in the C-suite, human resources and total rewards functions.

Focus Beyond Gender

While gender pay equity gets a lot of attention in the media and regulatory agencies, employers are primarily focused on both gender and ethnicity when they conduct analyses, the survey found:

• 46 percent of organizations surveyed say both gender and ethnicity are being considered in pay-equity analyses.
  

• 36 percent of organizations take additional demographics (e.g., age) into account.

Few Pay Adjustments

Pay-equity analyses often result in increases for fewer than 5 percent of the workforce, the survey found. For employees who receive an adjustment, the average pay-equity increase is 5 percent, and the total impact on payroll typically ranges between 0.1 percent to 0.3 percent of total base salaries.

When conducting pay-equity audits, "assume you're going to have gaps to close, and understand and be prepared for some investments to close them," said Matthew Saxon, vice president of compensation at Humana, in a conference session on pay equity.

C-Suite and HR Initiate Efforts

Typically, the C-suite or HR departments initiate pay-equity audits, but once a pay-equity management program is in place, HR drives the process in 77 percent of companies surveyed, usually with support from the legal team.

"C-suite executives see these initiatives as primarily about building a culture of trust in the organization. Total rewards leaders see these programs largely about being compliant with a changing regulatory environment," said Tom McMullen, a senior client partner at Korn Ferry. Both, however, are critical objectives.

Failing to address pay equity "will ultimately impact employee engagement and an organization's bottom line," McMullen said. "There are proven links between diversity, inclusion, engagement and organizational performance. Pay equity—and how it is managed and communicated across the organization—can drive that positive change."

[SHRM members-only toolkit: Managing Pay Equity]

Pay-Equity Work Not So Transparent

While nearly a third (31 percent) of U.S. companies agree that the primary objectives of pay-equity programs are to build and maintain a culture of organizational trust, many companies are missing the opportunity to build trust through transparency about their pay-equity initiatives. That's because a majority of those companies engaged in pay-equity management activities are sharing their intent and findings with senior leaders (90 percent) and people managers (65 percent), but they are keeping largely mum to the workforce at large:

• 27 percent of survey respondents said they report any broad-based communications to employees.
  

• 52 percent report findings of the analysis only to employees affected by pay adjustments.

"This is a cultural miss," said WorldatWork CEO Scott Cawood. "Full transparency on compensation topics and a stronger employee understanding of an organization's compensation philosophy and processes cultivate greater trust and a sense of fairness. A workforce that trusts its leaders and feels fairly treated is more committed and motivated to deliver results."

Gender Inequality Confusion

Gender pay inequality is driven by the failure to promote women into top-level jobs, said Korn Ferry senior solution architect Ben Frost during a conference session on the gender pay gap.

Frost noted the differences between:

• Equal pay for equal work, which compares the pay of two specific employees, one male and one female, doing the same or similar work.
  

• Equal pay for comparable work, which is the difference in the pay of male employees and female employees who do different work of similar value to the company.
  

• The gender pay gap, which compares the average pay for all female employees with the average pay of all male employees in an organization.

"Media coverage of gender pay disparity is often misleading, as it confuses equal pay with gender pay," Frost said. "This feeds confusion and helps misinform employees."

Dueling Statistics

When comparing the average male worker's salary to the average female worker's salary, there is a 23.4 percent pay gap, Frost said, citing 2018 data from Korn Ferry's pay database of 1.2 million employees in 800 U.S. companies. But when comparing average salaries for men and women at the same job level, in the same company and working in the same function, there is a 0.5 percent pay gap.

The problem is that men and women aren't doing the same jobs, Frost said. "Most stories present the gender pay gap as a pay-discrimination issue rather than a female-representation issue. The higher you go, the more men dominate and the more the pay gap widens as a result."

Men also dominate in highly paid functions and sectors. Meanwhile, women cluster in lower-paid functions and sectors, Korn Ferry's analysis found, in what Frost called "stuck-in-the-middle syndrome."

What's Behind the Gap

Bias can be subtle, as "organizations get used to whoever is in power and start to favor those who look and act like them," said Malinda Riley, senior principal at Korn Ferry.

While women are more likely than men to take career breaks of months or years to care for new children and to work fewer hours, on average, to meet family care responsibilities, it's still the case that company leaders "who fit the organizational norm will see others like themselves wherever they look," Riley said.

To understand and address women's lack of representation in high-level positions, companies can:

• Conduct comprehensive audits (pay equity and pay gap) and analyze what lies beneath the numbers.
  

• Analyze job levels to ensure that positions are valued appropriately.
  

• Diagnose organizational head winds, such as bias in promotions.
  

• Identify priorities for female inclusion in leadership roles.
  

• Use talent management and development programs to foster women's careers.

A conference attendee from New Zealand shared, as an example of how companies might pursue fresh approaches to overcoming the gender pay gap, that some companies in her country have begun to give annual merit increases to women who are out on extended leave to care for children.

Related SHRM Articles:

Study: Women Negotiate Pay When Given the Chance, SHRM Online, May 2019

Look to Working Mothers for Leadership Skills, SHRM Online, May 2019

Unequal Career Advancement Fuels Gender Pay Gap, SHRM Online, April 2019

Employers Join Consortium to Close Gender Wage Gap, SHRM Online, April 2019