When you walk into a supermarket, every product has a price tag. But when you apply for a job, the vast majority do not advertise a salary, making it almost impossible for people to understand what the market value and a fair pay level for the job would be.
The inconsistency of this situation is startling. Although equal pay laws have been around for decades, we are still seeing that companies struggle to deliver fair pay to all their employees. It has not escaped the gaze of national governments, the European Union, shareholders and ratings agencies alike, who are seeking to enforce greater transparency on pay as a measure to improve fairness in the workplace.
Regulations that require employers to put a price on a job during the recruitment process are quickly evolving. In recent years we have seen new regulation being introduced across various states in the U.S. and many companies are now required to publish a pay range with every job advertisement. We will see similar regulation come into force across Europe when the EU Pay Transparency Directive is introduced.
The EU Directive will require employers to provide greater transparency on pay both before and during employment. In the future, all job seekers will need to receive insights on the pay range for the job they are applying for, and existing employees will have the right to ask their employer how their pay compares to the average pay of male and female peers in the organisation. The laws implementing the Directive in each EU Member State are likely to come into effect over the next three years and will be a step change for the level of pay transparency in Member States.
Despite Brexit, UK companies won’t be left out; company shareholders and ratings agencies are demanding a consistent, equitable and transparent approach to pay from businesses. Plus, in a war for talent where people are in a strong position to negotiate their own terms, shirking honest conversations about pay simply won’t wash.
Paying people fairly is fundamental to retaining talent. Not having well designed pay structures and processes makes it more difficult to deliver fair pay and could make your organisation vulnerable to criticism from investors, ratings agencies and even governments.
At WTW, we currently have daily conversations with our clients about how to make sure pay is fair and equitable. We believe there are three pay equity levers that are fundamental to get right, and which enable pay equity: structures and processes, education, analytics and reporting.
Getting the right structures in place is the foundation of pay equity for your company. As an organisation, do you have a clearly designed job architecture and levelling framework that allows you to identify employees doing comparable work? Are these aligned with pay ranges? While it is acceptable to have differences based on objective factors, like location and performance, these parameters should be clearly defined as part of your rewards approach. The key issue to avoid is any unexplainable differences in pay.
Employers should design consistent and fair pay processes which they follow in all pay decisions and for all employees, both current and new and whether on recruitment, on promotion or as part of pay review.
Next to having structures and processes in place, it is of vital importance for everyone who is involved in pay decisions to fully understand how to apply a fair approach and use the structures and processes as intended. Pay equity and transparency can’t just come from the top of an organisation nor can it just be down to HR and Reward to make this happen, rather this needs to be seen as a joint responsibility. As such, education is another key lever in the process of becoming more transparent. From conversations we have with companies that are well progressed on the pay equity agenda, we understand that one of the big items on their roadmap is manager education. They are striving to make all managers fully aware of the company’s pay management approach and ensure they understand how to make pay decisions in a fair and consistent manner. They see this is a critical step towards greater pay transparency and ensuring delivery of fair pay.
Where structures, processes and education can be seen as inputs into enabling greater transparency and fairness, it will be important for organisations to conduct the necessary checks to make sure that everything is operating as intended and is delivering the desired results. In addition, we can expect to see greater gender pay gap reporting requirements both in the EU but also in other parts of the world as regulation further evolves. As such, organisations will need to make sure that they have the analytics and reporting capability. This will enable them to define if there are areas within their organisation that require extra focus but also to evidence towards external stakeholders that they deliver fair pay.
When it comes to designing analytics, it is important to have clarity on the questions that you want to answer. The key questions that companies typically look to answer are:
The focus on pay equity and transparency is rapidly increasing across the world. Now is the time for organisations to get ready and build confidence that they are delivering pay equity. The best way to do that is by building strong foundations.
Education should be a priority: companies should train their managers and make sure their structures and processes are running as intended. That way, whenever someone asks you questions about pay, you should be in a far better position to answers those questions.
Finally, put a price on your jobs. This will put your company on the front foot; the regulation is coming in a few years’ time and prospective employees will welcome this transparency.