Deciding how to compensate their increasingly diverse workforces will be one of the key issues facing businesses in the coming decade, human resources experts say.
“The big issue everybody is talking about now is pay equity,” said Ifedapo Adeleye, Ph.D., Faculty Director of Georgetown University’s graduate program in Human Resources Management. “And also, just the issue of growing inequality.”
In its January report, “Money Talks: 5 Compensation Trends to Watch in 2020,” the Society of Human Resources Managers (SHRM) lists pay equity at No. 2, following states continuing to set compensation mandates for things like minimum wage and overtime.
“Pay equity will remain a high-level challenge,” the report concluded.
Part of that challenge will be simply defining what pay equity means, interpreting data on pay disparities, and creating compensation systems and policies that address the problem.
What ‘Pay Gap’ Means
Back in 2014, The Washington Post’s Fact Checker called out President Obama for misleading his audience by saying that “the average full-time working woman earns just 77 cents for every dollar a man earns….” What the president failed to acknowledge, The Post said, was the mix of jobs women had relative to men, and the fact that, on average, these jobs pay less.
According to the 2018 Korn Ferry Pay database, the overall pay gap that year falls from 23.4 percent to 7.7 percent when average salaries are compared at the same job level, and to 2.6 percent when compared to the same job level in the same company.
So the problem is overstated? No, but it is a multifaceted issue and goes beyond pay. A 2.6 percent gap in average salaries is still a discrepancy, to be sure. But the larger question is why women—and minorities—continue to be grossly underrepresented in higher paying fields and positions.
“You have to take a holistic approach to solving these problems. It’s not just a compensation issue,” said Doug Lwin, Managing Partner at the compensation management firm Lwin, Ellis & Associates. “There is a lot that we can do to achieve pay equality, but I believe the biggest impact we can have to solving this inequality is to encourage and give equal opportunity to enter the higher paying professions and training opportunities to females and minorities.”
Statistics citing the highest- and lowest-paying college majors show how far there is to go. According to a 2018 report from Georgetown’s Center on Education and the Workforce, all but one of the top 10 paying majors were dominated by men. They included mechanical engineering (90 percent male) and chemical engineering (72 percent male). By contrast, nine of the 10 lowest paying majors were overwhelmingly female, including early childhood education (97 percent female) and counseling psychology (74 percent female).
How Companies Can Do Better
Within a given company, an employee’s salary depends on a number of factors, including educational level, years of experience, and, of course, performance quality. Determining which jobs across an organization are “comparable” salary-wise is also complicated, Lwin said, but these steps are key to establishing a baseline from which potential bias could be observed.
“What’s pretty much universal is that organizations most likely do not have their ‘compensable’ factors identified and don’t have them recorded in a system they can use to conduct the analysis,” Lwin said. “So, they would have to identify them then create a place to store them. For example, ‘relevant years of experience’ is probably something no organization has on hand or has easily accessible. It was used during the hiring process but most likely never made it to the ‘employee’ system.”
Smaller organizations face an even bigger task, Lwin said, since “they most likely don’t have the expertise to even know how to begin the process, let alone how to review their current practices to minimize and eliminate biases going forward.”
But don’t despair, Lwin tells companies: There are steps you can take, though you must start addressing this issue sooner rather than later. Also, new requirements, laws, and regulations are sure to come, and you will want to be prepared.
Again, Lwin urges organizations to begin by identifying what goes into their employees’ pay, then conduct analyses to see if those factors explain the differences in pay between individuals (females, minorities, etc.).
No doubt some of these factors will explain the differences. If a case is unexplained, it may be that you haven’t identified the appropriate factor. If the differences still cannot be explained, you should adjust the salaries of those individuals to be more equitable. Lastly, review current policies and practices to eliminate bias.
The bottom line: Just because the challenge may be difficult doesn’t mean that a business can ignore pay equity.
“Can we improve on this?” Lwin asked. “Absolutely.”