Pay Equity and Pay Transparency are Good for Business. Seriously.
When it comes to pay equity and pay transparency in American business we tend to focus on the moral and legal components of these issues. For instance, we are told that employee compensation policies have historically favored men—particularly white men—leaving women, people of color, and other traditionally marginalized groups at a structural disadvantage.
The thinking goes like this: Due to historical precedent, companies must take affirmative, proactive steps to correct for so much unacceptable discriminatory practices, bringing needed fairness to the workplace. To this point, in California, updates to the California Equal Pay Act (Labor Code sections 432.3 and 1197.5) have codified such an imperative, while SB 1162, otherwise known as the 2023 California Pay Transparency Law, require companies with 15 or more employees to post salary ranges for each position within their organizations to reduce racial and gender pay gaps.
But all legal and moral concerns aside, there also is a business case to be made in favor of these corrective practices. A compelling one. You can be an unfeeling, calculating, cold-hearted, profit-driven capital-C Capitalist and still embrace these socially progressive policies. Because… they make money.
But first, some definitions are in order.
Jacqueline Nguyen, Esq. and Cassie Bottoroff, writing for Forbes, define “pay equity” as “the legal concept that equal work deserves equal pay regardless of an employee’s race, gender, ethnicity, age, religion or other non-job-related factors. This means employees who perform the same or similar jobs should receive equal pay.” (The difference between pay equity and pay equality is that, while the former simply focuses on “equal pay for equal work,” the latter explores the reasons why such inequities exist and attempts to find meaningful solutions.)
“Pay transparency” is a continuation of the pay equity conversation. In decades past, it was considered “bad manners” to discuss individual employee compensation. In fact, in many organizations, discussing this topic among fellow workers was actually a fireable offense. Why? Because employers, by nature, often want to pay employees as little as possible—and knowing what their peers earn gives workers leverage to demand higher wages. It also helps to perpetuate the long-held practice of compensating preferred classes of workers more than others. Pay transparency—publicly posting the pay ranges for each position within an organization—is designed to eliminate just such abuses.
All well and good. For employees. But what about the companies themselves? Do pay equity and pay transparency provide actual benefits—measurable returns—to business organizations? As it turns out, they do.
Recently, The Josh Bersin Company, in conjunction with salary.com, conducted a survey of more than 500 companies throughout the United States. They discovered that businesses with mature pay equity programs were, compared to other companies:
1.6 times more likely to meet or exceed financial targets.
2.1 times more likely to attract the talent needed.
1.7 times more likely to innovate effectively.
1.2 times more likely to delight customers.
1.5 times more likely to engage and retain employees.
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Undoubtedly, these are positive results that directly benefit a company’s bottom line. This same research also indicated most surveyed businesses seek to know what to do about pay equity. While 70 percent of organizations consider achieving pay equity critical to their overall success, only 5 percent are getting it right.
So, why the disconnect?
First, employers must better understand that pay equity and pay transparency are not just about base pay. These initiatives impact bonuses, stock and other equity grants, performance ratings, promotional opportunities, and even succession planning. They also affect HR disciplinary approaches and broader business functions. What’s more, the way in which leadership thinks about recruiting, talent management, employee engagement, wellbeing, and overall organization effectiveness are all part of embedding a commitment to pay equity and pay transparency into ongoing practices and culture.
Second, pay equity and pay transparency are not just “review and adjust annually” issues. It’s critical to think about the implications of these initiatives as an integrated whole with other ongoing business policy and managerial decisions. Part of making these considerations more than an annual exercise means ensuring that all leaders and managers in your organization are trained in and supportive of the specific and broader issues in this conversation.
Finally, pay equity and transparency should be thought about beyond gender, race, and ethnicity. Socio-economic status and sexual orientation, as well as other factors which may be underrepresented in your workforce, must be considered essential as concerns pay and career development opportunities.
As a corporate culture and compensation expert with more than two decades of experience in this space, I can help your organization reap the benefits of pay equity and pay transparency initiatives. How? By supporting you in designing and managing programs that put everyone on a level playing field. Please contact me today at laura@conoverconsulting.com to start the conversation.