Today is Equal Pay Day in the U.S. It is supposed to symbolize how far into a year you have to go until a woman earns the same as a man did last year.
As an HR Professional with a focus on compensation practices, that this day to recognize pay disparities is still needed is interesting to me.
I have spent over 25 years working in compensation, developing structures, frameworks and pay policies. What is clear to me is that the bedrock of an effective pay structure is a well-thought through policy that contemplates the need for a compensation system to attract, retain, motivate, focus and align (or attempts to address as many of these elements as possible).
Unfortunately, there is a potential for a lot of disconnect in a compensation system.
We like to think of compensation as a carrot, encouraging certain types of behaviour. The reality is that for many types of roles, there is nothing that can be done with compensation to significantly change behaviour. That is because there is such a poor link between base compensation and motivation. To use psychology 101, think of compensation in Hertzberg’s Two Factor Theory as a hygiene factor. Compensation must be present for motivation to occur but compensation itself is not the motivator. Further perception of inequities decreases motivation. This is why you need a lot of human resources tools in your motivation strategy, because good compensation alone is not the solution.
For the most part, I don’t think modern decision-makers purposely set out to introduce pay inequities at their workplaces. Sometimes unaddressed historical issues eat up the wage budget and prevent a real focus on making good investments in people. Sometimes there is an over-reliance on 1950’s notions of what pay policy should be. The sad truth is that those entering a job/field at the entry level (or who enter, leave and return the workforce at various points in life) face challenges in making meaningful year-over-year gains in their wages if their intention is to stay with only a few employers in their lives. If you think about the size of the common merit adjustment today, it explains why the notion that you have to leave an employer to move up holds true too often.
And unfortunately all of the above challenges disproportionately impact women.
But there are some simple things you can do to increase the odds of an equitable compensation system. These are described below:
- End pay secrecy. Do you have a meritocracy? Prove it. I’m not saying to make actual pay available, although there are some organizations who do. But the more you make the methodology behind decisions visible, the more open the environment is to talk about compensation, the greater the perceptions of fairness and level of engagement. And it is the fairness element that makes pay equality valuable.
- Invest in developing a structure. Equality starts with being fair among similarly-valued jobs, not just with Bob in the cubicle next to you. It is difficult to make good decisions about who should earn what if you don’t know the relativity of overall value. This means that you need to develop levels. More important, incorporate good HR practice into your pay practices by tying the pay structure to organizational planning, mobility and enrichment. For greater impact, make these subjects part of the ongoing dialogue with your employees.
- Discontinue market-based compensation practices. You think you are being fair by paying someone in line with other people who are doing similar work in other companies. Sure, being uncompetitive with pay makes for a tough go when you are in talent acquisition mode. But no matter what the compensation houses tell you, compensation benchmarking is a highly inexact science. An over-reliance on external market influences is often directly related to internal inequities. It is much fairer to create pay ranges that are market relevant rather than market based.
- Create the right incentives. Too often variable or at-risk pay is limited to a few positions. Unfortunately this means that women are less eligible. If how you grow your bottom line is about how the team plays together, reward the team when they succeed, not a few individuals. Great sales is about a lot more than the sales team. And more than this, maybe the most motivating thing at work isn’t the pay itself, it is all the other things that go into creating a great culture. Think of these as the incentives and build them into your pay strategy.
- Comply with equal pay and/or pay equity legislation. Most jurisdictions have some form of equal pay and/or pay equity legislation. To get caught in violation of these statutes is costly, not only because of the fines and penalties but also they are a strong organizational de-motivator, and can harm your reputation. And most challenges with these statutes can be addressed by simply having a solid pay strategy that involves auditing practices overall.
- Be human. One of the challenges with people in the compensation field is that we like the math side of HR more than the people side. And indeed, the background work needed to build great compensation policy takes a lot of time. The best compensation design however comes from listening and interacting with others in the organization and incorporating the best of culture into your pay practices. If you think about people rather than just the math, your work product will reflect something that will harness your organization’s most valuable asset.
Perhaps the most important learning from the awareness of equal pay day is the need to stop replicating the same old practices and look at what you can do to influence real change.
Bonni Titgemeyer CEBS, SPHR, CHRL, CMS, SHRM-SCP is the Managing Director of The Employers’ Choice Inc. and founder of The EO List blog. She is a well-known entity in the total compensation and organizational effectiveness fields, and has highly-sought after experience in the global arena.
If you believe that HR and compensation practices should be more human-friendly, then please, join me at Globoforce’s WorkHuman conference, May 9-11. Use promocode WH16BT300 when you register to receive $300 off.